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ANALYTICAL
PERSPECTIVES
BUDGET OF THE U.S. GOVERNMENT
FISCAL YEAR 2017

OFFICE OF MANAGEMENT AND BUDGET
ANALYTICAL
PERSPECTIVES
BUDGET OF THE U.S. GOVERNMENT
FISCAL YEAR 2017

OFFICE OF MANAGEMENT AND BUDGET
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formation on the various appropriations and funds that ume. It also includes Historical Tables that provide data
constitute the budget and is designed primarily for the on budget receipts, outlays, surpluses or deficits, Federal
use of the Appropriations Committees. The Appendix debt, and Federal employment over an extended time pe-
contains more detailed financial information on individ- riod, generally from 1940 or earlier to 2017 or 2021.
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GENERAL NOTES
1. All years referenced for budget data are fiscal years un-
less otherwise noted. All years referenced for economic
data are calendar years unless otherwise noted.
2. Detail in this document may not add to the totals due to
rounding.
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I S B N 978-0-16-093133-8
TABLE OF CONTENTS
Page
List of Charts and Tablesiii
Introduction
1.Introduction 3
Economic Assumptions and Interactions with the Budget

2. Economic Assumptions and Interactions with the Budget9
3. Long-Term Budget Outlook21
4. Federal Borrowing and Debt33
Performance and Management

5. Social Indicators51
6. Delivering A High-Performance Government 61
7. Building the Capacity to Produce and Use Evidence69
8. Strengthening the Federal Workforce79
Budget Concepts and Budget Process

9. Budget Concepts97
10. Coverage of the Budget121
11. Budget Process127
Federal Receipts
12. Governmental Receipts153
13. Offsetting Collections and Offsetting Receipts211
14. Tax Expenditures225
Special Topics
15. Aid to State and Local Governments269
16. Strengthening Federal Statistics281
17. Information Technology287
18. Federal Investment293
19. Research and Development299
20. Credit and Insurance307
21. Budgetary Effects of the Troubled Asset Relief Program335
22. Homeland Security Funding Analysis347
i
Page
23. Federal Drug Control Funding359
24. Federal Budget Exposure to Climate Risk 361
Technical Budget Analyses

25. Current Services Estimates369
26. Trust Funds and Federal Funds381
27. Comparison of Actual to Estimated Totals395
Detailed Functional Tables *
Federal Budget by Agency and Account *
On the cover:
Denali National Park
Photo by Jacob Frank, National Park Service
Photograph has been reformatted from full color to monochrome
*Available on the Internet at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives/ and on the Budget CD-ROM
ii
LIST OF CHARTS AND TABLES
iii
LIST OF CHARTS AND TABLES
LIST OF CHARTS
Page
21. Range of Uncertainty for the Budget Deficit19
31. Publicly Held Debt Under Continuation of Current Policies22
32. Changes to Projected 2020 Deficit Under Continuation of Current Policies23
33. Comparison of Publicly Held Debt24
34. 2017 Budget Policies25
35. Alternative Productivity and Interest Assumptions26
36. Alternative Health Care Costs27
37. Alternative Discretionary Projections27
38. Alternative Revenue Projections28
39. Long-Term Uncertainties28
81. Changes Since 1975 in Employment/Population by Sector80
82. Masters Degree or Above by Year for Federal and Private Sectors83
83. High School Graduate or Less by Year for Federal and Private Sectors84
84. Average Age by Year for Federal and Private Sectors86
85. Pay Raises for Federal vs. Private Workforce, 1978201787
91. Relationship of Budget Authority to Outlays for 2017110
171. Trends in Federal IT Spending288
201. Face Value of Federal Credit Outstanding329
241. National Flood Insurance Program Paid Losses & Exposure362
242. Crop Insurance Total Cost to Government363
v
LIST OF TABLES
Page
21. Economic Assumptions 12
22. Comparison Of Economic Assumptions In The 2016 And 2017 Budgets 13
23. Comparison of Economic Assumptions 14
24. Sensitivity of the Budget to Economic Assumptions 17
25. Forecast Errors, January 1982-Present 18
26. Differences Between Estimated and Actual Surpluses or Deficits
for Five-Year Budget Estimates Since 1986 19
27. The Structural Balance 20
Long-Term Budget Outlook
31. 25-Year Fiscal Gap ()/Surplus (+) Under Alternative Budget Scenarios 24
32. 25-Year Fiscal Gap ()/Surplus (+) Under Alternative Budget Scenarios 26
33. Intermediate Actuarial Projections for OASDI And HI 30
Federal Borrowing and Debt
41. Trends in Federal Debt Held by the Public and Interest
on the Debt Held by the Public 34
42. Federal Government Financing and Debt 36
43. Debt Held by the Public Net of Financial Assets and Liabilities 39
44. Agency Debt 41
45. Debt Held by Government Accounts 43
46. Federal Funds Financing and Change in Debt Subject to Statutory Limit 46
47. Foreign Holdings of Federal Debt 47
Social Indicators
51. Social Indicators 53
52. Sources for Social Indicators 57
Strengthening the Federal Workforce
81. Occupations of Federal and Private Sector Workforces 81
82. Federal Civilian Employment in the Executive Branch 82
83. Total Federal Employment 83
84. Personnel Compensation and Benefits 85
Budget Concepts and Budget Process
Budget Concepts
Budget Calendar 99
91. Totals for the Budget and the Federal Government 104
Coverage of the Budget
101. Comparison of Total, On-Budget, and Off-Budget Transactions 122
vii
Page
Budget Process
111. Enacted Cap Adjustments, Including Mandatory Savings 130
112. Proposals for Discretionary Program Integrity Base Funding and
Cap Adjustments, Including Mandatory and Receipts Savings 131
113. Mandatory and Receipt Savings from Other Program Integrity Initiatives 133
114. Size of Proposed Discretionary Cap Adjustment for 2020 Census 139
115. Budgetary Resources and Revenue for the 21st Century Clean
Transportation Plan 141
116. 10-Year PAYGO Analysis 21st Century Clean Transportation Plan 143
117. Effect of Student Aid Proposals on Discretionary Pell Funding Needs 145
Federal Receipts
Governmental Receipts
121. Receipts by SourceSummary 153
122. Effect of Budget Proposals 201
123. Receipts by Source 208
Offsetting Collections and Offsetting Receipts
131. Offsetting Collections and Offsetting Receipts from the Public 212
132. Offsetting Receipts by Type Summary 213
133. Gross Outlays, User Charges, Other Offsetting Collections and
Offsetting Receipts from the Public, and Net Outlays 214
134. User Charge Proposals in the FY 2017 Budget 222
135. Offsetting Receipts by Type *
Tax Expenditures
141. Estimates of Total Income Tax Expenditures for Fiscal Years 20152025 228
142A. Estimates of Total Corporate Income Tax Expenditures
for Fiscal Years 20152025 233
142B. Estimates of Total Individual Income Tax Expenditures
for Fiscal Years 20152025 238
143. Income Tax Expenditures Ranked by Total Fiscal Year 2016-2025
Projected Revenue Effect 243
144. Present Value of Selected Tax Expenditures for Activity in Calendar Year 2015 247
Special Topics
Aid to State and Local Governments
151. Trends in Federal Grants to State and Local Governments 271
152. Federal Grants to State and Local GovernmentsBudget Authority and Outlays *
153. Summary of Programs by Agency, Bureau, and Program 278
154. Summary of Programs by State 279
155.1541. 2016 Budget State-by-State Tables *
Strengthening Federal Statistics
161. 2015-2017 Budget Authority for Principal Statistical Agencies 285
Information Technology
171. Federal IT Spending 287
*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM

viii
Page
Federal Investment
181. Composition of Federal Investment Outlays 294
182. Federal Investment Budget Authority and Outlays: Grant
and Direct Federal Programs 296
Research and Development
191. Federal Research and Development Spending 305
Credit and Insurance
201. Top 10 Firms Presenting Claims (1975-2014) 324
202. Estimated Future Cost of Outstanding Direct Loans and Loan Guarantees 330
203. Direct Loan Subsidy Rates, Budget Authority, and Loan Levels, 20152017 331
204. Loan Guarantee Subsidy Rates, Budget Authority, and Loan Levels, 20152017 333
205. Summary of Federal Direct Loans and Loan Guarantees 334
206. Reestimates of Credit Subsidies on Loans Disbursed Between 1992-2013 *
207. Face Value of Government-Sponsored Lending *
208. Lending and Borrowing by Government-Sponsored Enterprises (GSEs) *
209. Direct Loan Transactions of the Federal Government *
2010. Guaranteed Loan Transactions of the Federal Government *
Budgetary Effects of the Troubled Asset Relief Program
211. Change in Programmatic Costs of Troubled Asset Relief Program 336
212. Troubled Asset Relief Program Current Value 337
213. Troubled Asset Relief Program Effects on the Deficit and Debt 338
214. Troubled Asset Relief Program Effects on the Deficit and
Debt Calculated on a Cash Basis 339
215. Troubled Asset Relief Program Reestimates 340
216. Detailed Tarp Program Levels and Costs 341
217. Comparison of CBO and OMB TARP Costs 342
Homeland Security Funding Analysis
221. Homeland Security Funding by Agency 350
222. Prevent and Disrupt Terrorist Attacks 351
223. Protect the American People, Our Critical Infrastructure, and Key Resources 352
224. Respond and Recover from Incidents 353
225. Discretionary Fee-Funded Homeland Security Activities by Agency 354
226. Mandatory Homeland Security Activities by Agency 354
227. Baseline EstimatesTotal Homeland Security Funding by Agency 355
228. Total Homeland Security Funding by Function 356
229. Baseline EstimatesTotal Homeland Security Funding by Function 357
2210. Department of Defense Homeland Security Reporting Adjustments 358
AppendixHomeland Security Mission Funding by Agency and Budget Account *
Federal Drug Control Funding
231. Drug Control Funding FY 2015FY 2017 359

ix
Page
Technical Budget Analyses
Current Services Estimates
251. Category Totals for the Adjusted Baseline 369
252. Summary of Economic Assumptions 372
253. Baseline Beneficiary Projections for Major Benefit Programs 373
254. Impact of Regulations, Expiring Authorizations, and
Other Assumptions in the Baseline *
255. Receipts by Source in the Projection of Adjusted Baseline 374
256. Effect on Receipts of Changes in the Social Security Taxable Earnings Base 374
257. Change in Outlay Estimates by Category in the Adjusted Baseline 375
258. Outlays by Function in the Adjusted Baseline 376
259. Outlays by Agency in the Adjusted Baseline 377
2510. Budget Authority by Function in the Adjusted Baseline 378
2511. Budget Authority by Agency in the Adjusted Baseline 379
2512 Current Services Budget Authority and Outlays by Function, Category, and Program *
Trust Funds and Federal Funds
261. Receipts, Outlays and Surplus or Deficit by Fund Group 382
262. Comparison of Total Federal Fund and Trust Fund Receipts to
Unified Budget Receipts, Fiscal Year 2015 384
263. Income, Outgo, and Balances of Trust Funds Group 385
264. Income, Outgo, and Balance of Major Trust Funds 387
265. Income, Outgo, and Balance of Selected Special Funds 394
Comparison of Actual to Estimated Totals
271. Comparison of Actual 2015 Receipts with the Initial Current Services Estimates 395
272. Comparison of Actual 2015 Outlays with the Initial Current Services Estimates 396
273. Comparison of the Actual 2015 Deficit with the Initial Current Services Estimate 397
274. Comparison of Actual and Estimated Outlays for Mandatory and
Related Programs Under Current Law 398
275. Reconciliation of Final Amounts for 2015 399
Detailed Functional Tables
281. Budget Authority and Outlays by Function, Category and Program *
Federal Budget by Agency and Account
291. Federal Budget by Agency and Account *

x
INTRODUCTION
1
2
1.INTRODUCTION
The Analytical Perspectives volume presents analyses the section was expanded to 10 analyses, including many
that highlight specific subject areas or provide other sig- subjects still covered today, such as receipts, investment,
nificant data that place the Presidents 2017 Budget in credit programs, and aid to State and local governments.
context and assist the public, policymakers, the media, With the 1967 Budget this material became a separate
and researchers in better understanding the budgets ef- volume entitled Special Analyses, and included 13 chap-
fects on the Nation. This volume complements the main ters. The material has remained a separate volume since
Budget volume, which presents the Presidents budget then, with the exception of the Budgets for 19911994,
policies and priorities, and the Budget Appendix volume, when all of the budget material was included in one vol-
which provides appropriations language, schedules for ume. Beginning with the 1995 Budget, the volume has
budget expenditure accounts, and schedules for selected been named Analytical Perspectives.
receipt accounts. Several supplemental tables as well as several lon-
Presidential budgets have included separate analyti- ger tables that were previously published within the
cal presentations of this kind for many years. The 1947 volume are available at http://www.budget.gov/budget/
Budget and subsequent budgets included a separate sec- Analytical_Perspectives and on the Budget CD-ROM.
tion entitled Special Analyses and Tables that covered These tables are shown in the List of Tables in the front
four and sometimes more topics. For the 1952 Budget, of this volume with an asterisk instead of a page number.
OVERVIEW OF THE CHAPTERS
Economic and Budget Analyses

States and illustrates how this picture has changed over
Economic Assumptions and Interactions Between the time. Included are economic, demographic and civic, socio-
Economy and the Budget. This chapter reviews recent economic and health statistics. There are also indicators
economic developments; presents the Administrations covering security and safety, environment, and energy.
assessment of the economic situation and outlook, in- Delivering a High-Performance Government. This
cluding the effects of macroeconomic policies; compares chapter describes the Administrations approach to per-
the economic assumptions on which the 2017 Budget is formance managementthe Federal Governments use
based with the assumptions for last years Budget and of performance goals, measurement, regular data-driven
those of other forecasters; provides sensitivity estimates reviews, and information dissemination to improve out-
for the effects on the Budget of changes in specified eco- comes that matter to the American people and deliver
nomic assumptions; and reviews past errors in economic returns on the taxpayers investment. It explains why this
projections. It also provides estimates of the cyclical and approach was chosen, progress made, and future plans.
structural components of the budget deficit. It also discusses implementation of the Government
Long-Term Budget Outlook. This chapter assesses Performance and Results Modernization Act.
the long-term budget outlook under policies currently in Building the Capacity to Produce and Use Evidence.
effect and under the Budgets proposals as well as prog- This chapter discusses evidence and its role in decision-
ress towards fiscal sustainability since 2010. It focuses making, articulates important principles and practices of
on 25-year projections of Federal deficits, debt, and the agencies with strong evaluation functions, and highlights
fiscal gap, and shows how alternative long-term bud- Administration efforts to build the capacity to produce
get assumptions affect the results. It also discusses the and use evidenceparticularly through the use of ad-
long-term uncertainties of the budget projections over a ministrative data and the establishment of centralized
75-year horizon and discusses the actuarial status of the evaluation functions. The chapter also provides examples
Social Security and Medicare programs. of successes of the broader evidence agenda during this
Federal Borrowing and Debt. This chapter analyzes Administration.
Federal borrowing and debt and explains the budget es- Strengthening the Federal Workforce. Strengthening
timates. It includes sections on special topics such as the Federal workforce is essential to building a high-per-
trends in debt, debt held by the public net of financial as- forming Government. This chapter presents summary
sets and liabilities, investment by Government accounts, data on Federal employment and compensation; exam-
and the statutory debt limit. ines Federal workforce challenges; presents opportunities
for strengthening the personnel system to achieve criti-
cal agency missions; and discusses progress in improving
Social Indicators. This chapter presents a selection employee engagement, performance, and human capital
of statistics that offers a numerical picture of the United management.
3
4 ANALYTICAL PERSPECTIVES
Budget Concepts and Budget Process and service delivery and security. To achieve this, the
Administration prioritizes four core objectives across
Budget Concepts. This chapter includes a basic descrip- the Federal IT portfolio discussed in the chapter: driving
tion of the budget process, concepts, laws, and terminology, value in Federal IT investments; delivering world-class
and includes a glossary of budget terms. digital services, including opening Government data to
Coverage of the Budget. This chapter describes activi- fuel entrepreneurship and innovation; protecting Federal
ties that are included in budget receipts and outlays (and IT assets and information; and developing the next gen-
are therefore classified as budgetary) as well as those eration IT workforce.
activities that are not included in the Budget (and are Federal Investment. This chapter discusses Federally-
therefore classified as non-budgetary). The chapter also financed spending that yields long-term benefits. It
defines the terms on-budget and off-budget and in- presents information on annual spending on physical
cludes illustrative examples. capital, research and development, and education and
Budget Process. This chapter discusses proposals to training.
improve budgeting and fiscal sustainability within indi- Research and Development. This chapter presents a
vidual programs as well as across Government, describes crosscutting review of research and development funding
the system of scoring mandatory and revenue legislation in the Budget, including discussions about priorities and
for purposes of the Statutory Pay-As-You-Go Act of 2010, coordination across agencies.
and presents proposals to revise the budget baseline and Credit and Insurance. This chapter provides cross-
improve budget presentation. cutting analyses of the roles, risks, and performance of
Federal credit and insurance programs and Government-
Federal Receipts
sponsored enterprises (GSEs). The chapter covers the
Governmental Receipts. This chapter presents informa- major categories of Federal credit (housing, education,
tion on estimates of governmental receipts, which consist small business and farming, energy and infrastructure,
of taxes and other compulsory collections. It includes de- and international) and insurance programs (deposit in-
tailed descriptions of tax legislation enacted in the last surance, pension guarantees, disaster insurance, and
year and the receipts proposals in the Budget. insurance against terrorism-related risks). Five addi-
Offsetting Collections and Offsetting Receipts. This tional tables address transactions including direct loans,
chapter presents information on collections that offset guaranteed loans, and Government-sponsored enter-
outlays, including collections from transactions with the prises. These tables are available at the Internet address
public and intragovernmental transactions. In addition, cited above and on the Budget CD-ROM.
this chapter presents information on user fees, charges Budgetary Effects of the Troubled Asset Relief Program.
associated with market-oriented activities and regula- The chapter provides special analyses of the Troubled
tory fees. The user fee information includes a description Asset Relief Program (TARP) as described in Sections 202
of each of the user fee proposals in the Budget. A de- and 203 of the Emergency Economic Stabilization Act of
tailed table, Table 135, Offsetting Receipts by Type is 2008, including information on the costs of TARP activity
available at the Internet address cited above and on the and its effects on the deficit and debt.
Budget CD-ROM. Homeland Security Funding Analysis. This chapter
Tax Expenditures. This chapter describes and pres- discusses homeland security funding and provides in-
ents estimates of tax expenditures, which are defined as formation on homeland security program requirements,
revenue losses from special exemptions, credits, or other performance, and priorities. Additional detailed informa-
preferences in the tax code. tion is available at the Internet address cited above and
on the Budget CD-ROM.
Special Topics
Federal Drug Control Funding. This chapter displays
Aid to State and Local Governments. This chapter enacted and proposed drug control funding for Federal de-
presents crosscutting information on Federal grants to partments and agencies.
State and local governments, including highlights of Federal Budget Exposure to Climate Risk. This chap-
Administration proposals in the Budget. Detailed tables, ter discusses climate change-related risks for the Federal
including Table 152, Federal Grants to State and Local budget, including the potential for rising direct and
GovernmentsBudget Authority and Outlays and tables indirect costs and lost revenue. The chapter presents esti-
showing State-by-State spending for major grant pro- mates of costs incurred as a result of the types of extreme
grams, are available at the Internet address cited above weather projected to grow in frequency and intensity as
and on the Budget CD-ROM. the climate changes, and discusses additional areas of
Strengthening Federal Statistics. This chapter discuss- vulnerability across the Federal budget.
es 2017 Budget proposals for the Governments principal
statistical programs. Technical Budget Analyses
Information Technology. This chapter gives an over- Current Services Estimates. This chapter presents es-
view of Federal investments in information technology timates of what receipts, outlays, and the deficit would
(IT), and the major Administration initiatives to improve be if current policies remained in effect, using modified
the management of Federal data and IT by integrat- versions of baseline rules in the Balanced Budget and
ing modern technology solutions to enhance mission Emergency Deficit Control Act of 1985 (BBEDCA). Two
1.INTRODUCTION 5
detailed tables addressing factors that affect the baseline Detailed Functional Table
and provide details of the baseline budget authority and
outlays are available at the Internet address cited above Detailed Functional Table. Table 281, Budget
and on the Budget CD-ROM. Authority and Outlays by Function, Category, and
Trust Funds and Federal Funds. This chapter provides Program, displays budget authority and outlays for
summary information about the two fund groups in the major Federal program categories, organized by budget
budgetFederal funds and trust funds. In addition, for function (such as health care, transportation, or national
the major trust funds and certain Federal fund programs, defense), category, and program.
the chapter provides detailed information about income,
Federal Budget by Agency and Account
outgo, and balances.
Comparison of Actual to Estimated Totals. This chap- The Federal Budget by Agency and Account. Table
ter compares the actual receipts, outlays, and deficit for 291, Federal Budget by Agency and Account, displays
2015 with the estimates for that year published in the budget authority and outlays for each account, organized
Presidents 2015 Budget. by agency, bureau, fund type, and account.
The following materials are available at the Internet
address cited above and on the Budget CD-ROM:
ECONOMIC ASSUMPTIONS AND
INTERACTIONS WITH THE BUDGET
7
8
2. ECONOMIC ASSUMPTIONS AND INTERACTIONS WITH THE BUDGET
This chapter presents the Administrations economic fore- jobs in 2016 and 500,000 job-years total over 2016 and
cast and describes projections for important macroeconomic 2017, while supporting middle-class families, invest-
variables that inform the Administrations Fiscal Year 2017 ing in our long-term growth, protecting Social Security,
Budget.1 It also details the sensitivity of the Budgets esti- and safeguarding our national security. In addition, the
mates of receipts, outlays, and the deficit to the economic Bipartisan Budget Act of 2015 suspended the statutory
forecasts and gives a sense of the uncertainty associated debt limit until March 2017. Together, these two pieces
with the forecast, based on historical experience. of legislation ended yet another period of brinksmanship
When the President took office in 2009, the U.S. econ- and uncertainty and put us on a path to continue creating
omy, along with that of much of the rest of the world, jobs and promoting economic growth.
was in the midst of the deepest recession since the Great The United States right now has the strongest, most
Depression. In response, the President and the entire durable economy in the world. And while there is more
Administration took unprecedented actions to mitigate work to do as the economy continues to grow, there are
the effects of this downturn, put people back to work, and encouraging signs about the economys future. Real GDP
bring the economy back on the road to recovery. To this (gross domestic product) has grown steadily over the last
end, the President worked with the Congress to enact the few years. Driven by strong job growth in the private sec-
American Recovery and Reinvestment Act to boost spend- tor, the unemployment rate has dropped to its lowest level
ing on infrastructure, extend support to workers who had since early 2008 and it has been cut in half relative to its
lost their jobs, provide tax credits to working families, and peak following the global financial crisis.
ease burdens on State and local governments so that they The Administration projects that real GDP will grow
maintain essential services with minimal interruption. at a 2.6 percent rate in 2016, on a year-over-year basis,
The Administration also took steps to reform the financial slightly faster than in 2014, and slightly faster than what
system and help prevent future financial crises by secur- is expected for 2015. This is expected to be followed by a
ing passage of the Dodd-Frank Wall Street Reform and further 2.6 percent gain in 2017. The unemployment rate
Consumer Protection Act; and helped slow the growth is expected to continue falling to a trough of 4.5 percent in
of health care costs while providing quality, affordable late 2016 and early 2017, after which it is expected to rise
insurance coverage to millions of Americans by fighting to 4.9 percent, the level that the Administration considers
for passage of the Affordable Care Act (ACA). These, and to be consistent with stable inflation and full employment.
other efforts, brought the economy back from the brink. The rest of this chapter proceeds as follows:
The avoidable and destructive effects of sequestration The first section reviews the performance of the U.S.
and repeated crises related to the threat of default and economy over the last year, across a wide range of
government shutdowns have at times, however, hampered indicators.
economic recovery. Such episodes have occurred periodi-
cally over the last several years and have contributed to The second section reports the Administrations pro-
a slower rate of aggregate demand growth than might jections for a number of macroeconomic variables
otherwise have been the case. Following the Government over the next eleven years.
shutdown in October 2013, policymakers started to move The third section compares the Administrations
away from manufactured crises and austerity budgeting, forecasts with those of other prominent public and
helping to lay the groundwork for job market gains and private sector forecasts.
stronger growth. The President worked with Congress
to secure a two-year budget agreement (the Bipartisan The fourth section illustrates the sensitivity of pro-
Budget Act of 2013) that replaced a portion of the harm- jections for Federal receipts and outlays (and implic-
ful sequestration cuts and allowed for higher investment itly the Federal budget balance) to deviations from
levels in 2014 and 2015. In 2015, the President worked the macroeconomic forecasts.
with congressional leaders from both parties to secure
agreements on aggregate targets for discretionary spend-
The fifth section analyzes past forecasting errors
on the part of the Administration, comparing them
ing for fiscal years 2016 and 2017 with the passage of with the errors in forecasting made by the Congres-
the Bipartisan Budget Act of 2015 and the Consolidated sional Budget Office and the Blue Chip Consensus of
Appropriations Act of 2016. Based on analysis of the ef- private professional forecasters.
fects of full sequester relief by the Congressional Budget
Office, it is estimated that these actions will add 340,000 The sixth section combines the forecast errors and the
sensitivity of budget projections to the economic as-
1 Economic performance is discussed in terms of calendar years. Bud- sumptions to construct a probabilistic range for the val-
get figures are discussed in terms of fiscal years. Economic growth fig- ues of the budget deficit over the next few years.
ures are in real (inflation-adjusted) terms unless otherwise noted.
9
The last section presents the cyclical budget bal- External FactorsIn 2015, many large emerging
ance, that part of the Federal budget deficit or sur- economies experienced slower growth rates relative to
plus that can be ascribed to transitory factors as- what they had become accustomed to in recent years.
sociated with the economic cycle, and the structural Commonly, in the evaluation of emerging markets, ana-
budget balance, that part that would prevail even if lysts focus on the BRICS countries (Brazil, Russia, India,
the economy were operating at full employment. China, and South Africa) as a benchmark due to their size
and diversity. The International Monetary Fund (IMF)
estimates that the year-over-year growth rate of real GDP
Recent Economic Performance
in China slowed by about half a percentage point in 2015,
In the past year, economic conditions in the United and it projects another drop in growth in 2016. Two oth-
States have continued to improve, extending the recovery er large emerging markets, Russia and Brazil, saw their
that began after the deep recession that began in 2007 GDP shrink in 2015, and the IMF expects continued de-
and lasted into 2009. In the four quarters through the clines for these countries in 2016 also. At the same time,
end of September 2015, real GDP growth was 2.1 percent. South Africa saw positive but relatively slow growth.
This was spurred by robust growth in consumer spend- Weaker demand overseas has dampened foreign demand
ing, which grew at a 3.1 percent rate during that time. for American goods and services. It has also encouraged
Overall real GDP growth was held down, however, by investors worldwide to shift to U.S. assets, continuing a
weakness among our trading partners. The unemploy- trend that has developed over the last two to three years.
ment rate had decreased to 5.0 percent in the fall of 2015, Although this has helped to keep interest rates in the
the lowest rate since early 2008. Still, there is evidence United States relatively low, it also has been a factor in
that labor markets have room to improve further. The strengthening the dollar (which has appreciated by about
passage of the Bipartisan Budget Act of 2015 and the om- 11.8 percent in December 2015 relative to December 2014
nibus budget appropriations and tax bill, as well as the on a nominal trade-weighted basis2), and this could make
lifting of the Federal debt limit through March 2017, set it more difficult for American firms to export to interna-
the economy on a continued pace of recovery and resolved tional markets going forward.
many of the uncertainties which might otherwise have Oil PricesOil prices fell sharply over the second half
impeded economic growth. of 2014 and have continued to decline through early 2016.
Labor MarketsThe unemployment rate dropped to The average price of a barrel of West Texas Intermediate
5.0 percent in the fall of 2015. Creation of private nonfarm crude (the U.S. benchmark) was a little under $50 in 2015,
jobs remained strong, with an average monthly addition compared with an average over $90 in 2014. The lower
of over 200,000 jobs in 2015. This brought the string of price for oil is the result of a number of factors, includ-
consecutive months with positive private job creation to ing weaker demand abroad, the lack of production cuts in
70. These figures, however, do not fully reveal the scope of OPEC countries3 in the face of low prices, and increased
the recovery in the labor market. The proportion of the production in the United States. U.S. oil production
labor force that has been unemployed for more than 27 grew by 10.1 percent in the first nine months through
weeks declined to an average of 1.5 percent in 2015, down September 2015, the last month for which data was
from an average of 2.9 percent over the years from 2008 to available, compared with the same period in 2014. This
2014. Still, the pre-crisis average was less than 1 percent, recent growth follows 16.8 percent growth in calendar
suggesting that there is yet further room for the labor year 2014 and 14.7 percent growth in calendar year 2013.
market to improve. Similarly, the proportion that would For the second straight year, domestic oil production ex-
like to be working full-time, but is working part-time for ceeded oil imports. Low oil prices have passed through to
economic reasons, also declined to an average of 4.1 per- substantially lower gasoline prices for American consum-
cent from an average of 5.1 percent from 2008 to 2014. ers and, in turn, help to support consumer spending on
The pre-crisis average was 3.6 percent, again signaling other goods and services and also provide a competitive
the potential for continued labor market improvements. advantage to American firms, especially those that are
Firmer labor markets contributed to inflation-adjusted energy-intensive.
median usual weekly earnings growth for full-time work- House PricesHousing prices (as measured by the
ers of 3.0 percent through the four quarters ending in Federal Housing Finance Agency (FHFA) purchase-
December 2015, much faster than in comparable periods only index) continued to recover from the sharp drop
of recent years. The unemployment rate remained slightly experienced leading into and following the most recent
above the Administrations estimate of 4.9 percent for the recession. In November 2015, the FHFA index was 5.9
NAIRU (the so-called non-accelerating inflation rate of percent higher than in the same month a year earlier. Up
unemployment). This, combined with the still high num- to a point, higher valuations of houses help the economy
ber of people who were working part-time for economic
2 Specifically, this figure measures the appreciation of the dollars val-
reasons, the labor force participation rate having fallen
faster than demographic fundamentals, and core infla- ue against a trade-weighted basket of major currencies, which include
the euro, the Canadian dollar, the Japanese yen, the British pound, the
tion in the index for personal consumption expenditures Swiss franc, the Australian dollar, and the Swedish krona.
(PCE) well below the Federal Reserves target range, sug- 3 OPEC stands for the Organization of Petroleum Exporting Coun-
gests scope for further above-trend growth of real GDP. tries and is an organization comprising many of the largest producers of
crude oil in the world. In the past, OPEC has often responded to lower
prices for oil by imposing tighter quotas on production by its members.
2. ECONOMIC ASSUMPTIONS AND INTERACTIONS WITH THE BUDGET 11
by enhancing household wealth, which, in turn, helps on a two-year budget deal (the Bipartisan Budget Act of
to support a higher level of consumption. Higher house 2015) that would help to offset some of the damaging fis-
prices can also encourage more home building, as appears cal cuts enacted in recent years and protect the economy
to have happened in 2015 with an increase in the aver- from the dangers of an unnecessary default on the gov-
age monthly pace of housing starts. The average annual ernments obligations in the near future due to failure
rate of housing starts rose to just over 1.1 million in the to raise the statutory debt limit. These agreements help
twelve months of 2015, up over ten percent from just over provide a degree of certainty that is essential to both con-
1 million (at an average annual rate) in the same period sumers and firms when they are making decisions on how
a year earlier. Starts have trended steadily higher in the much to save or invest. Fiscal conditions at the State and
six years since bottoming out at an average annual rate local level have also improved after a four year period
of 554 thousand recorded at the depths of the recession of spending cuts that finally ended in 2014. In the year
in 2009. Despite this recent strength, housing starts are ending in the third quarter of 2015, State and local gov-
still well below the level commonly believed necessary to ernment consumption and gross investment grew at a 1.9
provide enough housing for a growing population with an percent clip, its fastest rate of increase since 2009.
expanding number of households, which is about 1.6 mil- Monetary PolicyAt the beginning of the year, mar-
lion per year. This suggests there is scope for continued ket expectations were that the Federal Reserve would
growth in housing starts and increases in house prices in finally begin returning to a more conventional policy
the near future. stance, starting with raising the federal funds rate target
ConsumptionConsumption by private households from its zero lower bound. This process formally began
is a major part of the countrys economy, accounting for when the Federal Open Market Committee raised its
about 68.3 percent of annual output in 2014. Because of target for the federal funds rate, the rate that banks pay
its large share of GDP, consumer spending growth is es- on their overnight loans, from a range of 0.00 percent to
sential to economic growth in the United States. Since 0.25 percent to a range of 0.25 percent to 0.50 percent in
2013, consumption growth has been faster than the rate mid-December 2015. Strength in the labor market and
of growth in the economy as a whole. Although growth reasonable confidence that inflation would rise over the
in consumption in the first quarter of 2015 was fairly next few years were the rationale for this course of action
weak by the standards of the last few years, it picked up by the Fed. This shift in policy, featuring the first increase
in the middle of the year. Consumer spending has been in policy interest rates in nine years, is a signal of how far
supported by rising wealth in the form of higher house the economy has come since the depths of the financial
prices and generally strong equity markets during the crisis, when the Fed lowered interest rates to zero.
past several years. Growth in the consumption of servic-
es, such as health care and education, has been solid (2.8 Economic Projections
percent growth in the year through the third quarter of
2015), as has been growth in spending on durable goods. In this section, the Administrations projections for
Consumption of automobiles grew 3.3 percent in the four a number of important macroeconomic variables are
quarters ending in the third quarter of 2015, while that of discussed. These projections are based on informa-
furniture and other home equipment grew 6.1 percent in tion available as of early November 2015 and they
the same period. assume that all of the Administrations Budget propos-
Nonresidential Fixed InvestmentPrivate non- als will be enacted. The current section discusses only
residential fixed investment tends to be one of the more the Administrations forecast, while the next section
volatile components of GDP. Year-over-year growth was compares the Administration forecast with other major
quite rapid in 2011, 2012, and 2014, exceeding 6 percent, forecasts. The projections are shown in Table 2-1.
while it was more subdued in 2010, 2013, and 2015, when Real GDPThe Administration expects that real
it was 3 percent or less. Despite being volatile, there is GDP growth will average about 2.5 percent annual-
reason to believe that future growth in investment will ly over the three years from 2016 to 2018. After that,
be healthy. Strong growth in consumer spending ought growth is projected to slow to 2.3 percent annually, the
to encourage firms to invest in new productive capacity Administrations estimate of the economys long-run rate
to keep up with rising demand, and strong cash flows for of growth. Faster growth in the near term is possible, be-
nonfinancial firms ought to ensure adequate funding for cause a fair amount of slack in the economy is likely still
investment. left over from the very sharp downturn experienced from
The Government SectorFederal consumption and 2007 to 2009 and the steady recovery thereafter. This
gross investment has stabilized after several years of is partially reflected in the fact that the unemployment
relatively sharp declines. Over the four quarters ending rate, which was 5.0 percent in November, is still above
in the third quarter of 2015, Federal Government spend- the assumed level of the NAIRU (4.9 percent), while the
ing fell by 1.1 percent, but this compares with a decline number of workers in part-time employment for economic
of 4.0 percent in the year ending in the third quarter of reasons remains elevated.
2011, a 1.4 percent drop in the year ending in the third On the other hand, despite residual economic slack,
quarter of 2012, and a 6.6 percent drop in the year ending forecasted real GDP growth over the next three years is
in the third quarter of 2013. At the end of October, the only slightly above what is believed to be its long-run rate.
Administration and the Congress came to an agreement This can be explained by a number of factors. First, as in
Table 21. ECONOMIC ASSUMPTIONS1

(Calendar Years, Dollar Amounts in Billions)
Actual Projections
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Gross Domestic Product (GDP)

Levels, Dollar Amounts in Billions:
Current Dollars 17348 17948 18669 19510 20345 21237 22155 23121 24128 25179 26272 27413 28603
Real, Chained (2009) Dollars 15962 16351 16777 17209 17629 18041 18456 18880 19314 19759 20213 20678 21153
Chained Price Index (2009=100), Annual
Average 108.7 109.8 111.3 113.4 115.4 117.7 120.0 122.5 124.9 127.4 130.0 132.6 135.2
Percent Change, Fourth Quarter over Fourth
Quarter:
Current Dollars 3.9 3.3 4.3 4.4 4.3 4.3 4.3 4.4 4.4 4.3 4.3 4.3 4.3
Real, Chained (2009) Dollars 2.5 2.2 2.7 2.5 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Chained Price Index (2009=100) 1.3 1.1 1.6 1.8 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Percent Change, Year over Year:
Current Dollars 4.1 3.5 4.0 4.5 4.3 4.4 4.3 4.4 4.4 4.4 4.3 4.3 4.3
Real, Chained (2009) Dollars 2.4 2.4 2.6 2.6 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Chained Price Index (2009=100) 1.6 1.0 1.4 1.9 1.8 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Incomes, Billions of Current Dollars
Domestic Corporate Profits 1655 1638 1636 1746 1858 1935 1988 2048 2105 2168 2227 2305 2404
Employee Compensation 9249 9606 9987 10369 10794 11261 11775 12322 12897 13496 14135 14780 15477
Wages and Salaries 7478 7777 8078 8400 8753 9132 9549 9983 10444 10926 11438 11963 12531
Other Taxable Income2 4075 4216 4282 4459 4638 4925 5209 5498 5767 6035 6286 6524 6759
Consumer Price Index (All Urban):3
Level (1982-1984 = 100), Annual Average 236.7 237.0 240.7 245.9 250.9 256.6 262.3 268.3 274.4 280.6 287.0 293.4 300.1
Percent Change, Fourth Quarter over Fourth
Quarter 1.2 0.5 1.9 2.1 2.2 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Percent Change, Year over Year 1.6 0.1 1.5 2.1 2.1 2.3 2.2 2.3 2.3 2.3 2.3 2.3 2.3
Unemployment Rate, Civilian, Percent
Fourth Quarter Level 5.7 5.0 4.5 4.6 4.6 4.6 4.7 4.8 4.8 4.9 4.9 4.9 4.9
Annual Average 6.2 5.3 4.7 4.5 4.6 4.6 4.7 4.7 4.8 4.9 4.9 4.9 4.9
Federal Pay Raises, January, Percent
Military4 1.0 1.0 1.3 1.6 NA NA NA NA NA NA NA NA NA
Civilian5 1.0 1.0 1.3 1.6 NA NA NA NA NA NA NA NA NA
Interest Rates, Percent
91-Day Treasury Bills6 * * 0.7 1.8 2.6 3.1 3.3 3.4 3.4 3.3 3.3 3.2 3.2
10-Year Treasury Notes 2.5 2.1 2.9 3.5 3.9 4.1 4.2 4.2 4.2 4.2 4.2 4.2 4.2
1 Based on information available as of mid-November 2015
2 Rent, interest, dividend, 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 2017 have not yet been determined.
5 Overall average increase, including locality pay adjustments. Percentages to be proposed for years after 2017 have not yet been determined.
6 Average rate, secondary market (bank discount basis)
* 0.05 percent or less
the case of the previous two expansions (1991 and 2001), Long Run GrowthWhile it is difficult to project
the current expansion has generally featured steady, but cyclical developments beyond the next few years, the
fairly modest growth to this point. This is due in part Administration projects that after the economy returns
to the special nature of the most recent recession, which to its trend rate of growth in the forecast, it will remain
was distinguished by a severe credit crunch that left a there for the duration of the forecast window. Real GDP
significant debt overhang for many households and firms. growth is projected to be 2.3 percent at an average an-
Also, weakness abroad, in Europe and in large emerging nual rate in the long run, below the average growth rate
markets, is also likely to affect growth in the next couple in the postwar period of 3.2 percent. The projected slower
of years. All of these factors are likely to restrain the rate growth results from a decline in the growth rate of the
of growth, especially when compared with what one might working-age population and a decrease in the labor force
expect given that there is still scope for the economy to participation rate caused by the retirement of the baby
return to its pre-recession trend. boom generation. The first cohort of the baby boom, born in
Table 22. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 2016 AND 2017 BUDGETS
(Calendar Years, Dollar Amounts in Billions)
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Nominal GDP:
2016 Budget Assumptions1 18123 18971 19862 20773 21692 22636 23620 24648 25720 26838 28005
2017 Budget Assumptions 17948 18669 19510 20345 21237 22155 23121 24128 25179 26272 27413
Real GDP (2009 Dollars):
2016 Budget Assumptions1 16453 16947 17423 17872 18296 18717 19147 19588 20038 20499 20971
2017 Budget Assumptions 16351 16777 17209 17629 18041 18456 18880 19314 19759 20213 20678
Real GDP (Percent Change):2
2016 Budget Assumptions1 3.1 3.0 2.8 2.6 2.4 2.3 2.3 2.3 2.3 2.3 2.3
2017 Budget Assumptions 2.4 2.6 2.6 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3
GDP Price Index (Percent Change):2
2016 Budget Assumptions1 1.3 1.6 1.8 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Consumer Price Index (All-Urban; Percent Change):2
Civilian Unemployment Rate (Percent):3
91-Day Treasury Bill Rate (Percent):3
2017 Budget Assumptions * 0.7 1.8 2.6 3.1 3.3 3.4 3.4 3.3 3.3 3.2
10-Year Treasury Note Rate (Percent):3
1Adjusted for July 2015 NIPA Revisions
2Calendar Year over Calendar Year
3Calendar Year Average
1946, reached the early-retirement age for Social Security have remained near historic lows. Although it is expected
benefits (62 years old) in 2008. Since then, the number that the Federal Reserve will gradually raise short-term
of individuals in cohorts entering their retirement years interest rates over the coming years as economic activity
has increased, and retirements are projected to continue picks up and inflation moves closer to the Feds target of
increasing for the next eight years. This phenomenon re- 2 percent, the Administration expects that interest rates
sults in a lower projected long run growth rate. will remain substantially lower than the level of inter-
UnemploymentFor the 2016 Mid-Session Review, est rates seen after past recoveries. The Administration
the Administration revised its estimate of the NAIRU projects the 91-day Treasury bill rate will reach a level
down to 4.9 percent from 5.2 percent. The NAIRU is de- of 3.3 percent by 2020 and settle at 3.2 percent by 2026.
fined as the rate of unemployment consistent with a level Similarly, the Administration expects the yield on the
of economic activity that is not placing either upward or ten-year Treasury bond to rise gradually over the fore-
downward pressure on the inflation rate. The unemploy- cast window, eventually reaching 4.2 percent by 2020.
ment rate stood at 5.0 percent in the fall of 2015. The Relatively subdued inflation is an important reason for
Administration expects that the unemployment rate will the lower interest rate environment. It is also the case
actually dip below the NAIRU in coming years, with a low that the yield on ten-year government bonds (in both
point of 4.5 percent in 2017. After that, unemployment nominal and real terms) has been trending downward for
is expected to rise gradually back to the NAIRU, reach- several decades.4
ing 4.9 percent in 2023. An unemployment rate below InflationConsumer price inflation (as measured
the NAIRU is made possible by the fact that inflation has by the consumer price index for all urban consumers, or
generally run below the Federal Reserves target in recent CPI-U) has been low in recent years. In fact, prices have
years, so that an unemployment rate below 4.9 percent is risen at a pace of 2 percent or less annually since 2012,
likely merely to push inflation back to a more normal lev- and they have been almost unchanged in 2015. The re-
el, rather than generate worryingly fast price increases.
Interest RatesSince the onset of the most recent 4See the recent analysis by the Council of Economic Advisers (https://
recession, both short-term and long-term interest rates www.whitehouse.gov/sites/default/files/docs/interest_rate_report_final_

v2.pdf).
Table 23. COMPARISON OF ECONOMIC ASSUMPTIONS

(Calendar Years)
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Nominal GDP:
2017 Budget 17948 18669 19510 20345 21237 22155 23121 24128 25179 26272 27413 28603
CBO 17957 18689 19505 20326 21102 21923 22823 23766 24746 25764 26831 27942
Blue Chip 17955 18701 19553 20426 21313 22240 23207 24216 25268 26367 27512 28708
Real GDP (Year-over-Year):
2017 Budget 2.4 2.6 2.6 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
CBO 2.4 2.5 2.6 2.3 1.8 1.9 2.1 2.1 2.1 2.0 2.0 2.0
Blue Chip 2.5 2.5 2.5 2.4 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2
Real GDP (Fourth Quarter-over-Fourth Quarter):
2017 Budget 2.2 2.7 2.5 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
CBO 2.0 2.7 2.5 2.1 1.8 1.9 2.1 2.1 2.0 2.0 2.0 2.0
Blue Chip 2.1 2.6 2.4 2.4 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2
Federal Reserve Central Tendency3 2.1 2.3 - 2.5 2.0 - 2.3 1.8 to 2.2 longer run
GDP Price Index:1
2017 Budget 1.0 1.4 1.9 1.8 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
CBO 1.1 1.6 1.8 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.1 2.1
Blue Chip 1.0 1.7 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Consumer Price Index (CPI-U):1
2017 Budget 0.1 1.5 2.1 2.1 2.3 2.2 2.3 2.3 2.3 2.3 2.3 2.3
CBO 0.1 1.3 2.3 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
Blue Chip 0.1 1.6 2.3 2.4 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Unemployment Rate:2
2017 Budget 5.3 4.7 4.5 4.6 4.6 4.7 4.7 4.8 4.9 4.9 4.9 4.9
CBO 5.3 4.7 4.4 4.6 4.8 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Blue Chip 5.3 4.8 4.6 4.7 4.7 4.8 4.9 5.0 5.0 5.0 5.0 5.0
Federal Reserve Central Tendency3 5.0 4.6 - 4.8 4.6 - 4.8 4.6 to 5.0 longer run
Interest Rates:2
91-Day Treasury Bills (discount basis):
2017 Budget * 0.7 1.8 2.6 3.1 3.3 3.4 3.4 3.3 3.3 3.2 3.2
CBO 0.1 0.7 1.6 2.5 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
Blue Chip 0.1 0.7 1.7 2.8 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1
10-Year Treasury Notes
2017 Budget 2.1 2.9 3.5 3.9 4.1 4.2 4.2 4.2 4.2 4.2 4.2 4.2
CBO 2.2 2.8 3.5 3.9 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
Blue Chip 2.1 2.6 3.2 3.8 4.0 4.0 4.0 4.1 4.1 4.1 4.1 4.1
Sources: Administration; CBO, The Budget and Economic Outlook: 2016 to 2026, January 2016; October 2015 and January 2016 Blue Chip Economic Indicators, Aspen Publishers,
Inc.; Federal Reserve Open Market Committee, December 16, 2015
1Year-over-Year Percent Change
2Annual Averages, Percent
3Average of Fourth Quarter Values

NA = Not Available
cent low level of inflation partly reflects the sharp drop coming years, rising at an average pace of 2.0 percent over
in oil prices and nonpetroleum import prices in the last 2016-2018 and 2.3 percent after that. The Administration
eighteen months. Stripping out the effects of energy and estimates that rates of increase in the CPI of 2.3 per-
food prices, which tend to be volatile, the so-called core cent are consistent with the Federal Reserves target of
Consumer Price Index has also been relatively low over 2.0 percent for the price index for personal consumption
the last three years. Core prices were 2.0 percent higher expenditures.
in the fourth quarter of 2015 than in the fourth quarter Changes in Economic Assumptions from Last
of 2014. This followed fourth quarter-over-fourth quar- Years BudgetThere are a number of changes to the
ter core inflation of 1.7 percent in 2013 and 2014. The Administrations forecast relative to that published in the
Administration expects that the overall consumer price Budget last year, as reported in Table 2-2. For the years
index will inch back to more normal rates of increase in the 2016 to 2018, the projection last year was for average an-
nual growth of 2.7 percent, but this years forecast calls though it is unlikely that they are assuming full imple-
for a 2.5 percent average growth rate. Still, the long-run mentation of the proposals.
trend growth rate of GDP is the same as forecast last year. Real GDPFor real GDP growth, the Administration
The projected path of the unemployment rate has been forecast differs from the rest of the forecasts in several
revised down substantially compared with last years ways. In the near term, the CBO and the Administration
forecast. It is now expected to reach a trough of 4.5 per- expect a faster rate of growth, calling for growth of 2.7
cent in 2016 and 2017, whereas last year, unemployment percent in 2016 and 2.5 percent in 2017, while the Blue
was not forecast to fall below 4.8 percent. In addition, as Chip survey (2.6 percent in 2016 and 2.4 percent in 2017)
mentioned above, the Administration has revised down and the FOMC (2.3 percent-2.5 percent and 2.0 per-
its assumption for the NAIRU to 4.9 percent from 5.2 percent-2.3 percent respectively) project slower growth rates.
cent and, consequently, the long run unemployment rate Also, in the later years of the forecast, the Administration
has also been revised downward. Expectations for the in- currently expects a faster trend growth rate than any of
terest rate path, both at short- and long-run maturities, the other forecasters at 2.3 percent, compared with 2.0
have also been lowered. The new forecasts for the 91-day percent for CBO, 2.2 percent for the Blue Chip panel,
Treasury bill rate and the yield on the ten-year Treasury and 2.0 percent for the FOMC median forecaster. There
note are lower in every year of the forecast window rela- is also variation in when each forecast expects real GDP
tive to last year. The expected level in the last year of the growth to return to its long-run pace. The FOMC projects
forecast is 30 basis points lower for the short rate and 30 that this will happen as soon as 2018, while the CBO does
basis points lower for the long rate. not see it happening until 2023. The Administration and
the Blue Chip both expect growth to settle back down to
Comparison with Other Forecasts its long run trend in 2019. While these differences are
fairly small and likely within the margin of error for each,
This section compares the Administrations forecast the Administrations forecast forms the upper bound of
with those of the Congressional Budget Office (CBO), the range, probably due to the fact that it assumes that
the Federal Reserve Open Market Committee (FOMC), all of the Administrations Budget proposals, including
and the Blue Chip Consensus, which aggregates the trade expansion and the improvements in total factor
forecasts of about 50 private sector economists. The productivity attributable to immigration reform, will be
Administrations forecast is based on information avail- implemented.
able through mid-November 2015. The relevant CBO UnemploymentThe Administrations long-run un-
forecast was published in January of 2016. The Blue employment rate forecast is 4.9 percent, which is at the
Chip figures presented here are from the October 2015 low end of the range projected by other forecasters. The
and January 2016 releases, and the FOMC projections FOMC expects the long-run rate of unemployment to be
are from December 2015. The FOMC projects a some- within the range of 4.6 percent to 5.0 percent, which en-
what different set of variables than the others do. Table compasses the Administrations forecast. The Blue Chip
2-3 presents all of these forecasts. Consensus and CBO expect a slightly higher unemploy-
These forecasts have several features in common. For ment rate of 5.0 percent in the long run. In the short to
example, in all cases, real GDP growth is expected to pick medium term, the Administrations forecast projects that
up over the next two to three years before settling down the unemployment rate will decline to a lower level than
again to its long run level. Analogously, the unemploy- what is expected by most of the other forecasts (reaching
ment rate is forecast to dip over the next few years and a low of 4.5 percent while only CBOs forecast gets below
then return to what each entity believes to be the equiva- 4.6 percent). Moreover, the Administrations projection
lent of the NAIRU. All of the projections show interest takes longer than the other projections to get back to the
rates slowly climbing throughout the forecast window, NAIRU. For example, in the Administrations forecast,
and all show inflation getting back to a steady rate of be- the unemployment rate returns to 4.9 percent, its long-
tween 2.0 percent and 2.3 percent within the next couple run level, in 2023, but the FOMC projects it will return to
of years. These forecasts differ, however, in several impor- its long-run level in 2018, the CBO in 2020, and the Blue
tant ways. Chip panel in 2022.
Importantly, not all of the forecasts make the same as- Interest RatesThe Administrations forecast for short-
sumptions about the extent to which the Administrations term interest rates is initially on the high end of the forecast
Budget proposals will be implemented. These include range that includes only the CBO and the Blue Chip. It ex-
policies related to trade agreements, immigration re- pects short-term rates to be at 1.8 percent in 2017, above the
form (specifically its effect on total factor productivity), 1.7 percent forecast by Blue Chip and 1.6 percent forecast by
business tax reform, infrastructure investment, commu- CBO. The Administration projects a steady rise in interest
nity college subsidies, and policies intended to boost labor rates after 2018, to 3.4 percent in 2021 and 2022 after which
supply. The Administrations forecast assumes that all it forecasts a gradual decline to 3.2 percent by 2026. Blue
of these policies will be fully implemented. CBO, on the Chip, on the other hand, expects no increase in the short-term
other hand, constructs its forecast under current law, and rate after it reaches 3.1 percent in 2019, and CBO expects no
it is unclear to what extent the FOMC or the Blue Chip change after reaching 3.2 percent in 2019. With regard to
take into account the Administrations policy proposals, yields on ten-year government bonds, the Administrations
projected path lies above those of the other two forecasters
for nearly the entire forecast window. In the long run, the For real growth and employment:
Administrations expected 4.2 percent interest rate is higher The first panel in the table illustrates the effect on
than the 4.1 percent forecast by both Blue Chip and CBO. the deficit resulting from a 1 percentage point reduc-
InflationIn the near term, the Administrations tion in GDP growth, relative to the Administrations
forecast for consumer price inflation is below that of both forecast, in 2016 that is followed by a subsequent
the Blue Chip panel and the CBO. Even by 2020, the recovery in 2017 and 2018. The unemployment rate
Administration expects an inflation rate of 2.2 percent, is assumed be 0.5 percentage point higher in 2016
compared with the Blue Chips expectation of 2.3 percent before returning to the baseline level in 2017 and
and CBOs expectation of 2.4 percent. By the end of the 2018. The table shows that receipts would tempo-
forecast window, both the Administration and Blue Chip rarily be somewhat lower and outlays would tempo-
project an annual inflation rate of 2.3 percent, but CBO rarily be higher, but that the long run effect on the
projects a slightly higher 2.4 percent rate of inflation. budget deficit would be fairly minor (an increase of
just $110 billion over the eleven-year forecast hori-
Sensitivity of the Budget to Economic Assumptions zon), due mostly to higher interest payments result-
ing from higher short-run deficits.
Federal spending and tax collections are heavily influ-
enced by developments in the economy. Receipts are a The next panel in the table reports the effect of a
function of growth in incomes for households and firms. reduction of 1 percentage point in GDP growth in
Spending on social assistance programs may rise when 2016 that is not subsequently made up by faster
the economy enters a downturn, while increases in spend- growth in 2017 and 2018. In addition, the natural
ing on Social Security and other programs are dependent rate of unemployment is assumed to rise by half a
on consumer price inflation. A robust set of projections percentage point relative to that assumed in the
for macroeconomic variables assists in budget planning, Administrations forecasts. Here, the effect on the
but unexpected developments in the economy have ripple Budget deficit is more substantial, as receipts are
effects for Federal spending and revenues. This section lowered in every year of the forecast, while outlays
seeks to provide an understanding of the magnitude of rise gradually over the forecast window. This is be-
the effects that unforeseen changes in the economy can cause unemployment will be higher, leading to lower
have on the budget. tax revenues and higher outlays on unemployment
To make these assessments, the Administration relies insurance, as well as higher interest payments that
on a set of rules of thumb that can predict how certain follow from increased short-run deficits.
spending and revenue categories will react to a change The third panel in the table shows the impact of a
in a given macroeconomic variable, holding everything GDP growth rate that is permanently reduced by
else constant. These rules of thumb provide a sense of 1 percentage point, while the unemployment rate
the broad changes one would expect after a given devel- is not affected. This is the sort of situation that
opment, but they cannot anticipate how policy makers would arise if, for example, the economy were hit by
would react and potentially change course in such an a permanent decline in productivity growth. In this
event. For example, if the economy were to suffer an un- case, the effect on the Budget deficit is quite large,
expected recession, the rules of thumb suggest that tax with receipts being reduced substantially through-
revenues would decline and that spending on programs out the forecast window and outlays rising due to
such as unemployment insurance would go up. In such higher interest payments. The accumulated effect
a situation, however, policy makers might cut taxes to over the eleven-year horizon is an additional $3 tril-
stimulate the economy, and such behavior would not be lion of deficits, reinforcing the need for productivity-
accounted for by the historical relationships captured by enhancing investments.
the rules of thumb.
Another caveat is that it is often unrealistic to sup- For inflation and interest rates:
pose that one macroeconomic variable might change but The fourth panel in Table 2-4 shows the effect on
that others would remain constant. Most macroeconomic the Budget in the case of a 1 percentage point high-
variables interact with each other in complex and sub- er rate of inflation and a 1 percentage point higher
tle ways. For example, economists tend to believe that nominal interest rate in 2016. Both inflation and
when the unemployment rate gets to very low levels, this interest rates return to their assumed levels in 2017.
will place upward pressure on wages, which will, in turn, This would result in a permanently higher price
push up the overall price level in the economy and lead to level and level of nominal GDP over the course of
higher inflation. This relationship is known in the eco- the forecast horizon. The effect on the Budget defi-
nomics profession as the Phillips Curve. Thus, although cit would be fairly modest, although receipts would
in the exercises to follow, for example, results will be re- increase slightly more than outlays over the eleven
ported for an increase in the unemployment rate holding years. This is because revenues would respond more
everything else constant, in practice, an increase in the quickly to price increases than outlays, which are
unemployment rate might be likely to also entail a fall in set in advance. Over the years from 2016-2026, the
inflation. These are important considerations to bear in Budget deficit would be smaller by about $54 billion.
mind when examining Table 2-4. It is worth noting that higher inflation will not nec-
Table 24. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS

(Fiscal Years; In Billions of Dollars)
Total of Budget
Budget Effect Effects: 2016-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2026
Real Growth and Employment:

Budgetary effects of 1 percent lower real GDP growth:
(1) For calendar year 2016 only, with real GDP recovery
in 20172018:1
Receipts 18.3 26.2 13.6 1.4 1.0 0.9 0.9 0.9 0.8 0.8 0.7 53.5
Outlays 6.7 16.7 8.9 3.0 2.9 3.1 3.1 3.1 3.1 3.2 3.3 57.1
Increase in deficit (+) 25.0 42.9 22.5 4.4 1.9 2.1 2.2 2.2 2.3 2.4 2.6 110.5
(2) For calendar year 2016 only, with no subsequent
recovery:1
Receipts 18.3 34.6 40.9 41.7 43.2 45.3 47.4 49.6 53.4 53.6 56.0 483.7
Outlays 6.7 20.3 23.3 26.5 29.6 32.7 35.8 39.0 42.4 46.3 50.4 353.0
(3) Sustained during 20162026, with no change in
unemployment:
Receipts 18.3 51.4 95.2 139.5 188.5 242.5 300.0 361.5 439.9 493.3 567.6 2,897.7
Outlays 0.1 0.3 1.9 5.8 11.2 17.6 24.9 33.1 42.6 54.1 67.7 259.2
Increase in deficit (+) 18.2 51.7 97.1 145.3 199.7 260.1 325.0 394.6 482.5 547.3 635.3 3,156.9
Inflation and Interest Rates:
Budgetary effects of 1 percentage point higher rate of:
(4) Inflation and interest rates during calendar year
2016 only:
Receipts 30.5 45.6 41.4 41.0 42.5 43.9 45.3 46.9 49.6 49.5 51.3 487.6
Outlays 28.9 46.8 38.3 39.5 39.2 39.6 39.4 39.6 38.7 40.9 41.8 432.7
Decrease in deficit () 1.6 1.2 3.0 1.5 3.3 4.4 6.0 7.3 10.9 8.6 9.5 54.9
(5) Inflation and interest rates, sustained during
20162026:
Receipts 30.5 76.9 123.0 169.3 221.7 279.3 338.6 400.5 482.4 537.7 616.4 3,276.5
Outlays 26.7 80.9 127.7 176.5 226.6 278.9 336.8 392.1 446.6 515.7 584.1 3,192.5
Decrease in deficit () 3.8 4.0 4.6 7.2 4.9 0.5 1.8 8.4 35.8 22.0 32.3 84.0
(6) Interest rates only, sustained during 20162026:
Receipts 12.3 26.4 31.5 36.5 42.7 49.0 52.0 54.1 56.6 59.0 61.4 481.5
Outlays 15.6 48.1 71.4 91.8 111.7 130.9 148.3 165.5 180.5 196.3 212.0 1,372.1
(7) Inflation only, sustained during 20162026:
Receipts 18.2 50.1 90.8 132.2 178.0 228.8 283.8 343.7 422.3 474.5 550.0 2,772.3
Outlays 3.7 21.7 45.7 74.9 105.9 140.3 182.2 222.2 263.8 319.9 375.1 1,755.5
Decrease in deficit () 14.5 28.4 45.1 57.3 72.1 88.4 101.5 121.5 158.5 154.6 174.9 1,016.8
Interest Cost of Higher Federal Borrowing:
(8) Outlay effect of $100 billion increase in borrowing in
2016 0.3 1.5 2.5 3.3 3.8 4.1 4.2 4.3 4.4 4.5 4.6 37.5
1 The unemployment rate is assumed to be 0.5 percentage point higher per 1 percent shortfall in the level of real GDP.
essarily help keep Budget deficits down, because it flation implies that the real value of Federal spend-
is likely that monetary policy makers will act to re- ing would be eroded.
strain excessive inflation.
The next panel reports the effect on the deficit re-
The fifth panel in the table illustrates the effects on sulting from an increase in interest rates in every
the Budget deficit of an inflation rate and an inter- year of the forecast, with no accompanying increase
est rate 1 percentage point higher than projected in in inflation. The result is a much higher accumulat-
every year of the forecast. As in the previous case, ed deficit, as the Federal Government would have
the overall effect on the deficit over the forecast is to make much higher interest payments on its debt.
modest (only $84 billion accumulated), and receipts Receipts would be slightly higher as the Federal Re-
rise faster than outlays because more spending deci- serve would earn more on its holdings of securities
sions are determined in advance of price increases. and households would pay higher taxes on interest
It is still important to note, however, that faster in- income, but these increases would not offset the ef-
fect on outlays.
Table 25. FORECAST ERRORS, JANUARY 1982-PRESENT

REAL GDP ERRORS
2-Year Average Annual Real GDP Growth Administration CBO Blue Chip
Mean Error 0.1 0.2 0.2
Mean Absolute Error 1.2 1.0 1.1
Root Mean Square Error 1.6 1.4 1.4
6-Year Average Annual Real GDP Growth
INFLATION ERRORS
2-Year Average Annual Change in the GDP Price Index Administration CBO Blue Chip
6-Year Average Annual Change in the GDP Index
INTEREST RATE ERRORS
2-Year Average 91-Day Treasury Bill Rate Administration CBO Blue Chip
6-Year Average 91-Day Treasury Bill Rate
The seventh panel in the table reports the effect Forecast Errors for Growth,
on the Budget deficit of an inflation rate 1 per- Inflation, and Interest Rates
centage point higher than projected in every year
of the forecast window, while the interest rate re-
Any economic forecast will invariably be subject to a great
mains as forecast. In this case, the result is a
deal of uncertainty, because of unforeseeable developments
much smaller deficit over the eleven years of the
of either an economic or political nature. The forecast pre-
forecast relative to the baseline. Permanently
pared by the Administration is no different. Furthermore,
faster inflation results in much higher revenues
as noted in the above section, projections for the path of the
over the next eleven years, which helps to reduce
budget balance are highly sensitive to assumptions about
interest payments on debt. Outlays rise due to
the economy. Therefore, it is essential to take stock of past er-
higher cost-of-living increases on items such as
rors in the forecast for real GDP growth and other variables
Social Security, though not so much as to offset
to provide a better understanding about possible budget bal-
the revenue increases.
ance outcomes. In this section, the Administrations forecast
Finally, the table shows the effect on the budget errors since the early 1980s are compared to those of the
deficit if the Federal government were to borrow CBO and the Blue Chip panel. In particular, forecast errors
an additional $100 billion in 2016, while all of are defined as the difference between actual average real
the other projections remain constant. Outlays GDP growth, actual average GDP price inflation, and the ac-
rise over the forecast window by an accumulated tual average three-month Treasury bill rate over two- and
$37.5 billion, due to higher interest payments. six-year horizons and the average level over the same hori-
zons of the same variables forecasted by the Administration,
It is important to note that the rules of thumb that the CBO, and the Blue Chip panel. Three metrics are used.
inform this sensitivity analysis are symmetric. This These are the mean forecast error, the mean absolute value
means that the effect of, for example, a 1 percentage of the forecast error, and the square root of the mean squared
point higher rate of growth over the forecast horizon value of the forecast error. These latter two metrics tend to
would be of the same magnitude as a 1 percentage punish forecasts that miss by wide margins. This compari-
point reduction in growth, though with the opposite son is reported in Table 2-5.
sign. In the top panel of the table, the reader can see that
for real GDP growth, the three forecasts are fairly compa-
Table 26. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES

OR DEFICITS FOR FIVE-YEAR BUDGET ESTIMATES SINCE 1986
(As a Percent of GDP)
Estimate for Budget Year Plus:
Current Year Budget Year One Year Two Years Three Years Four Years
Estimate Estimate (BY + 1) (BY + 2) (BY + 3) (BY + 4)
Average Difference1 0.8 0.2 1.1 1.8 2.3 2.6
Average Absolute Difference2 1.1 1.4 2.2 2.9 3.5 3.8
Standard Deviation 1.0 2.0 2.9 3.3 3.5 3.5
Root Mean Squared Error 1.3 2.0 3.0 3.7 4.1 4.3
1A positive number represents an overestimate of the surplus or an underestimate of the deficit. A negative number represents an
overestimate of the deficit or an underestimate of the surplus.

2Average absolute difference is the difference without regard to sign
rable, although the Administrations forecast has tended nitude of absolute forecast errors at two years, the three
to be a little more optimistic than the other two in the forecasts have historically been comparable. In the medi-
past and, at the two-year horizon, has missed by a slightly um term, the Administrations forecasts for interest rates
larger margin on average. At the six-year horizon, how- have generally outperformed those of CBO and the Blue
ever, the errors are attenuated somewhat. This is likely Chip panel, producing smaller errors by every metric.
due to the fact that growth in real GDP tends to be mean-
reverting over a longer span of time, thus making growth Uncertainty and the Deficit Projections
rates somewhat simpler to forecast in the medium term.
The middle panel of the table summarizes forecast er- The previous two sections demonstrate the sensitivity of
rors in inflation, as measured by the GDP price index. All the budget balance path to the actual realizations of macro-
three forecasts have tended to project higher inflation economic variables and describe the uncertainty associated
than has actually transpired in this period, although on with the Administrations (and other) forecasts. It is helpful
average, they have tended to miss by the same amount, at then to report the overall range of uncertainty surrounding
least at the two-year horizon. At the six-year horizon, the the Administrations projections of the budget balance over
Administrations forecasts have tended to come closest to the next few years. Table 2-6 summarizes past errors (since
the actual inflation measure, while the Blue Chip panel, the 1986 budget year) in projecting the budget balance.
on average, has generally produced forecasts with much The first column reports that past projections of the budget
faster inflation than has actually occurred. The CBOs balance have tended to predict higher deficits (or lower sur-
forecasts have generally fallen between the other two. pluses) in the year the budget was published than actually
The bottom panel of the table provides a summary of occurred. That is, in the past, current year budget deficits
forecast errors for the three-month Treasury bill interest have tended to be 0.8 percent of GDP lower than expected.
rate. The average error of the Administrations forecast This pattern reverses in subsequent years. Five years after
is smaller than that for CBO and the Blue Chip panel at the budget has been published, actual deficits have on aver-
both the two- and six-year horizons. In terms of the mag- age been 3 percentage points of GDP higher than expected
Chart 2-1. Range of Uncertainty for the

Budget Deficit
Percent of GDP
10
Percentiles:
5 95th
90th
75th
0
Forecast
-5 25th
10th
5th
-10
-15
2016 2017 2018 2019 2020 2021
at the time of publication. By taking the root mean squared tax receipts fall as households and businesses earn less
errors of past budget forecasts at each horizon from the cur- and spending on social insurance rises to provide income
rent year to five years later and assuming that these forecast smoothing, with the result being a larger fiscal deficit or
errors are drawn from a normal distribution, it is possible smaller fiscal surplus than would have obtained had the
to construct a probabilistic range of current year and future economy been operating at full employment. Conversely,
budget balances. Chart 2-1 contains this range. The middle when the economy is very strong and growing faster than
line in the figure contains the Administrations projected its potential, the deficit will look smaller or the surplus
budget balance. The other lines can be read in the following larger than it otherwise would. This part of the budget
way. Consider the top line, which reports the 95th percentile balance that fluctuates with the state of the economy is
outcome of the budget balance over the years 2016 to 2021. referred to as the cyclical component, while the part that
There is a 95 percent probability (based on past forecast er- does not is called the structural budget balance. It is
rors) that the budget balance will be below this line in every this structural balance that provides greater information
year of the forecast window. That suggests that in 2016, there about the governments fiscal stance (i.e., whether it is op-
is a 95 percent chance of a deficit of magnitude greater than erating an expansionary or contractionary fiscal policy).
1.2 percent of GDP. In 2021, there is a 95 percent chance that Table 2-7 provides estimates of the structural and cyclical
the budget surplus will be no greater than 4.7 percent. On budget balances over the forecast window. These statis-
the other hand, there is less than a 5 percent chance that the tics are estimated by analyzing the historical relationships
deficit will be greater than 9.5 percent percent in 2021. between indicators of the economys health, such as the un-
employment rate or the deviation of Gross Domestic Product
Structural and Cyclical Deficits from its potential level, and certain spending and revenue
categories. Of course, the variables mentioned above are not
The Federal Governments budget can act as a buffer for the only influences on the cyclical response of the Federal
the U.S. economy in the face of both positive and negative Budget, and economists are still working to better identify
deviations of growth from its trend. For example, when the cyclical component of the budget balance. This incom-
the economy is facing headwinds that impede economic pleteness suggests that the cyclical portion of the budget
activity, collections of tax receipts fall and spending on balance might actually make up a larger share of the overall
certain social insurance programs may rise. Specifically, balance than reported in this table.
if an especially large number of workers were to lose their Notably, over the course of the forecast window, the cy-
jobs, overall spending on unemployment insurance ben- clical component of the budget balance is projected to be
efits would increase, providing those unfortunate workers fairly modest. This is because the unemployment rate is
with the means to maintain a basic level of spending. On expected to be close to or below its natural rate over the
the other hand, during boom periods, government receipts next eleven years, indicating that the economy is likely
will rise as firms and households earn more income and to be operating near full employment and that the role of
pay higher taxes. These budget functions are referred automatic stabilizers will be subdued. There is expected
to in the economics profession as automatic stabiliz- to be a cyclical deficit of about 0.1 percent of GDP in fiscal
ers, because they do not require special action on the year 2016, followed by small cyclical surpluses from 2017
part of policymakers to be implemented, being part of the to 2021, as the unemployment rate dips below its natu-
natural reactions of the governments receipts and expen- ral rate. The Administration projects a gently fluctuating
ditures to macroeconomic changes. That is, they perform structural deficit until it reaches about 2.8 percent of GDP
a smoothing role, ensuring that recessions do not become in 2026. For comparison, this is just slightly greater than
depressions and that expansions do not cause the econo- the average fiscal deficit since World War II of about 2.1%
my to overheat and prices to rise excessively. of GDP and substantially lower than the deficit-to-GDP
A side effect of these automatic stabilizers is that the ratios averaging 9% seen in the aftermath of the global
headline budget surplus or deficit may not necessarily financial crisis. This suggests that the Administrations
provide the best information on the overall fiscal stance Budget will return the nations fiscal balance to a broadly
of the Government. When the economy is in recession, neutral and sustainable stance.
Table 27. THE STRUCTURAL BALANCE

(Fiscal Years; in Billions of Dollars)
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Unadjusted Surplus () or Deficit (+) 483 438 616 504 454 549 534 552 660 677 650 741 793
Cyclical Component 164 53 12 31 17 23 14 12 4 1 0 0 0
Structural Surplus () or Deficit (+) 319 385 604 535 471 572 548 564 664 678 650 741 793
(Fiscal Years; Percent of Gross Domestic Product)
Unadjusted Surplus () or Deficit (+) 2.8 2.5 3.3 2.6 2.3 2.6 2.4 2.4 2.8 2.7 2.5 2.7 2.8
Cyclical Component 0.9 0.3 0.1 0.2 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0
Structural Surplus () or Deficit (+) 1.9 2.2 3.3 2.8 2.3 2.7 2.5 2.5 2.8 2.7 2.5 2.7 2.8
CHANGE IN STRUCTURAL DEFICIT (FISCAL DRAG) 0.3 1.1 0.5 0.4 0.4 0.2 0.0 0.3 0.1 0.2 0.2 0.1
NOTE: The NAIRU is asssumed to be 4.9%. Sums may not add due to rounding.
3. LONG-TERM BUDGET OUTLOOK
When the current Administration took office, budget results. This is even more relevant for projections over
deficits and debt were rising sharply, primarily as a re- longer horizons. For this reason, the chapter focuses pri-
sult of the Great Recession. Revenues as a share of Gross marily on 25-year projections, although it also provides
Domestic Product (GDP) were at their lowest level since budget estimates for a 75-year period, as well as results
1950, and spending on countercyclical programs had also under different economic assumptions and for different
risen sharply. policy scenarios.
As a result of both economic recovery and policy chang- The chapter also discusses the status of the Social
es, deficits have since fallen rapidly. Last years deficit Security and Medicare Hospital Insurance (HI) trust
(2.5 percent of GDP) was about three-quarters lower funds, which are financed from dedicated revenue sources.
than the deficit the President inherited, reflecting the The proposals contained in the 2017 Budget would extend
fastest sustained deficit reduction since just after World the life of both the Social Security and HI trust funds.
War II. However, with economic recovery well underway, While immigration reform is primarily responsible for the
and with the enactment of legislation extending a large improvements to Social Security trust fund solvency, the
number of expiring tax provisions at the end of the last HI trust fund benefits from a robust package of health sav-
congressional session, both the Administration and the ings proposals, reforms to the net investment income tax
Congressional Budget Office (CBO) project that, absent (NIIT), and the dedication of NIIT tax revenueswhich
any changes in policy, the deficit will begin to rise this are currently deposited into the General Fundto the HI
year and continue to rise over the following ten years. The trust fund. Still, additional measures would be needed to
ratio of debt to GDP will increase by about 10 percentage achieve 75-year trust fund solvency.
points over that period under current policy.
While the detailed estimates of receipts and outlays in The Basis for the Long-Run Projections
the Presidents Budget extend only 10 years, this chap-
ter reviews the longer-term budget outlook, both under For the 10-year budget window, the Administration pro-
a continuation of current policies and under the policies duces both baseline projections, which show how deficits
proposed in the Budget. The analysis finds: and debt would evolve under current policies, and projec-
Legislation and other developments since 2010 have tions showing the impact of proposed policy changes. Like
not only improved near-term projections, they have the budget baseline more generally, long-term projections
also substantially improved the medium- and long- should provide policymakers with information about
term budget outlook. the Nations expected fiscal trajectory in the absence of
spending and tax changes. For this reason, the baseline
The most significant sources of progress are lower long-term projections in this chapter assume that current
projected health spending (revised in light of slow- policy continues for Social Security, Medicare, Medicaid,
er health care cost growth rates of the last several other mandatory programs, and revenues.1 (See the ap-
years), discretionary policy changes, and revenue in- pendix for details.)
creases enacted in the American Taxpayer Relief Act In the case of discretionary spending, it is less clear
of 2012 (ATRA). how to project a continuation of current policy. After
the period covered by the statutory caps, both the
Enacted policy changes, while significant, are insuf- Administrations and CBOs 10-year baselines assume
ficient to stabilize debt over the next 10 or 25 years.
Additional changes of about 1.7 percent of GDP are that discretionary funding levels generally grow slightly
needed to achieve fiscal sustainability over the 25- above the rate of inflation (about 2.4 percent per year).
year horizon. Long-run projections sometimes assume that discretion-
ary funding remains constant as a share of the economy,
The deficit reduction proposed in the Presidents implying long-run growth of a little over 4 percent per
Budget puts the Nation on course towards fiscal year. Meanwhile, over the past five years, discretionary
sustainability, essentially closing the 25-year fiscal funding has failed to even keep pace with inflation, falling
gap. With the Budgets proposals for health, tax, and by 13 percent in real terms.
immigration reforms and other policy changes, debt The projections here adopt an intermediate approach,
as a share of GDP declines modestly over the next assuming that real per-person discretionary funding
decade and stabilizes after that.
1The long-run baseline projections are consistent with the Budgets
adjusted baseline concept. The Budgets adjusted baseline concept is ex-

The projections discussed in this chapter are highly un- plained in more detail in Chapter 25, Current Services Estimates, in
certain. As highlighted below, small changes in economic this volume. The projections assume full payment of scheduled Social
or other assumptions can make a large difference to the Security and Medicare benefits without regard to the projected deple-
tion of the trust funds for these programs.
21
Chart 3-1. Publicly Held Debt Under

Percent of GDP
Continuation of Current Policies
140
120
100
80
60
40
20
0
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040
remains constant over the long run, which implies an Medicaid (including long-term care), budgetary pres-
annual growth rate of about 3 percent. For the many dis- sures will increase. Social Security program costs will
cretionary programs that provide services to individuals, grow from 5.0 percent of GDP today to 5.9 percent of GDP
it is reasonable to define current policy as maintain- by 2041, with most of that growth occurring within the
ing the same level of services for the same share of the 10-year budget window. Likewise, even if per-beneficia-
population, which can be approximated by holding real ry health care costs grew at the same rate as GDP per
per-person discretionary funding constant. In contrast, capita, Medicare and Medicaid costs would still increase
holding discretionary spending constant as a share of substantially as a share of GDP, due solely to the aging
GDP effectively assumes large increases in per-person population.
service levels over time, as well as large increases in real Health costs. Health care costs per capita have ris-
funding levels for national defense, research, infrastruc- en much faster than per-capita GDP growth for decades,
ture, and other public goods. leading both public and private spending on health care
to increase as a share of the economy. However, the last
Long-Run Projections Under few years have seen a sharp departure from long-term
Continuation of Current Policies trends, with spending per enrollee growing in line with or
more slowly than per-capita GDP in both the public and
Chart 3-1 shows the path of debt as a share of GDP private sectors, and recent data indicate that slow growth
under continuation of current policies, without the poli- in per-enrollee spending has continued through 2015.
cy changes proposed in the Presidents Budget. Over the (Coverage expansions under the Affordable Care Act have
next 10 years, debt rises from 74 percent of GDP last year temporarily increased growth in aggregate health care
to 88 percent of GDP in 2026. Beyond the 10-year horizon, spending, but trends in per-enrollee costs, together with
debt increases more sharply, reaching 117 percent of GDP the demographic trends discussed above, are what matter
by 2041, the end of the 25-year projection window. for long-term fiscal projections.)
The key drivers of that increase are an aging popula- While some of the slowdown reflects the Great Recession
tion, health care cost growth, and insufficient revenues to and its aftermath, there is strong evidence that a portion
keep pace with these trends. of it is the result of structural changes. For example, since
Aging population. Over the next 10 years, an aging Medicare beneficiaries are typically retired or disabled,
population will put significant pressure on the budget. In Medicare costs tend to be less sensitive to economic con-
2008, when the oldest members of the baby boom generation ditions than overall health spending. But Medicare cost
became eligible for early retirement under Social Security, growth has slowed in line with the overall slowdown in
the ratio of workers to Social Security beneficiaries was 3.2. health care costs, suggesting that the recession was not
By the end of the 10-year budget window, that ratio will fall the primary driver of the recent slowdown, particularly
to 2.4, and it will reach about 2.1 in the early 2030s, at which in public programs. The fact that growth in per-enrollee
point most of the baby boomers will have retired. health care spending remains low more than five years
With fewer active workers paying taxes and more re- into the economic recovery also implies that factors other
tired workers eligible for Social Security, Medicare, and than the recession are playing an important role.
3. LONG-TERM BUDGET OUTLOOK 23
Chart 3-2. Changes to Projected 2020 Deficit

Under Continuation of Current Policies
Dollars in billions
1,600
1,400
Pre-Sequester
1,200 Spending Cuts
Sequestration
1,000 Savings from
Winding Down Wars
2011
800
Budget
Projection 2017
600 Budget
Projection
400
200
0
Plus Economic & Plus Health Plus Discretionary Plus High-Income
Non-Health Technical Revisions Policy Changes Revenue Increases
Revisions*
* Also includes modest policy changes (e.g. $25 billion in reduced outlays due to
mandatory sequestration and $25 billion in lower revenues due to legislation enacted
in December 2015).
Based on projections of Medicare enrollment and expen- Fiscal Progress to Date

ditures included in the 2015 Medicare Trustees Report, the
projections here assume that Medicare per-beneficiary spend- The deficit as a share of the economy began declining
ing growth will accelerate over the next few years, with the in 2010. Since then, deficits have fallen rapidly, sharply
growth rate averaging about 0.7 percentage points above the improving the near-term budget outlook. Taking 2010 as
growth rate of per-capita GDP over the next 25 years.2 (This the point of departure, Charts 3-2 and 3-3 show that this
average growth rate is still below the historical average for progress extends to reducing medium- and long-term defi-
the last 25 years.) Under these assumptions, Medicare and cits and debt.
Medicaid costs increase by a total of 2.4 percentage points as As Chart 3-2 shows, in the 2011 Mid-Session Review,
a share of GDP by 2041. published in July 2010, the Administration projected a 2020
Revenues. Without any further changes in tax laws, deficit of $1,230 billion, or 5.1 percent of GDP, under continu-
revenues will grow slightly faster than GDP over the long ation of current policies.3 The 2017 Budget projects a baseline
run, but not fast enough to keep pace with the increase in deficit of $814 billion, or 3.7 percent of GDP in 2020, a reduc-
social insurance costs that results from an aging population of 1.4 percentage points or $416 billion (34 percent). As
tion. The increase in revenues as a share of GDP occurs shown in the chart, one major contributor to the improvement
primarily because individuals real, inflation-adjusted in- is lower than expected Federal health spending. Revisions to
comes grow over time, and so a portion of their income health spending forecasts based on the slower growth of the
falls into higher tax brackets. (Bracket thresholds are in- past several years (and based on the assumption that only a
dexed for inflation but do not grow in real terms.) portion of the slowdown will continue) will save the Federal
Other programs. Other mandatory programs are government $231 billion in 2020, accounting for about half of
generally projected to decline relative to the size of the econ- the net improvement in the deficit.4 Another important fac-
omy and to consume a smaller share of revenues over time. tor is the high-income revenue increases enacted in ATRA
For example, spending on non-health safety net programs (about a fifth of the net improvement). Discretionary spend-
will decline as incomes grow. Likewise, pension benefits for ing restraint has also played a large role, although the impact
Federal workers will shrink as a share of the economy as a of sequestration (less than a quarter of the total discretion-
result of reductions initiated in the 1980s. Overall, spend- ary contribution to deficit reduction) is much smaller than
ing on mandatory programs outside of health care and Social the impact of the pre-sequestration Budget Control Act cuts
Security equals 16.3 percent of revenues today, but is pro- and less than the savings from winding down wars.5
jected to equal 14.3 percent of revenues by 2041. Likewise, 3 For comparability, this projection includes continuation of the 2001
discretionary spending will consume a smaller share of rev- and 2003 tax cuts and Alternative Minimum Tax Relief and assumes
enues over time under current projections. that the Medicare SGR reductions do not take effect.
4 Aggregate projected Federal health care spending for 2020 has de-
2 The projections in this years Trustees report reflect the enactment
of the Medicare Access and CHIP Reauthorization Act (MACRA) of creased by $185 billion when compared with the 2011 Mid-Session Re-
2015. This law repealed the sustainable growth rate formula that set view, excluding debt service and including premium tax credit revenues.
physician fee schedule payments, which were usually modified. 5 To simplify the comparisons of projected health spending, these
Chart 3-3. Comparison of Publicly Held Debt

Percent of GDP
160
2011 Continuation of
140 Current Policies
120
100
2017 Continuation of
80 Current Policies
60
40
20
2000 2005 2010 2015 2020 2025 2030 2035 2040
There has been a similar improvement in projected are the same: lower projected health care costs, revenue
long-term deficits and debt. Chart 3-3 shows the projected increases from ATRA, and lower discretionary spending.
path of debt as a share of GDP under the 2011 Budget
(February 2010) current policy projection and as of the The Fiscal Gap
2017 current policy projection.6 A few years ago, debt in
2040 was projected to reach 149 percent of GDP. Today, it One way to quantify the size of the Nations long-term
is projected to reach 115 percent of GDP. While it is dif- fiscal challenges is the fiscal gap. The fiscal gap is defined
ficult to precisely decompose the contributing factors over as the present value of the combined increase in taxes or
long periods, the major drivers behind the improvement reduction in non-interest spending needed to keep the debt-
to-GDP ratio stable over a given period (more precisely, the
comparisons start from the 2011 Mid-Session Review, following the en- present value adjustment required for the debt-to-GDP
actment of the Affordable Care Act. However, the ACA itself also reduced ratio at the end of the period to equal its level at the begin-
projected deficits. CBO estimated that the ACA would reduce the deficit ning of the period). If publicly held debt at the end of the
by $25 billion in 2020 and by over $1 trillion in the decade starting in period is projected to be lower than current debt, there is a
2023. These direct, scored effects of the ACA are separate from any con-
tributions to the broader health care cost growth slowdown, discussed
fiscal surplus rather than a fiscal gap.
below. Table 3-1 shows the 25-year fiscal gap under the base-
6 The 2010 projections are based on 2010 data and Trustees as- line projections, under the Presidents policies, and as of
sumptions butfor comparabilityuse the Administrations current 2010. Under the base case current policy projections, the
methodology for long-term projections, in particular assuming that dis- 25-year fiscal gap is 1.7 percent of GDP. This means that
cretionary funding grows with inflation plus population growth. While policy adjustments of about 1.7 percent of GDP would be
the Administration did not produce a comparable long-term projection
for the 2011 Mid-Session Review, the long-term projections from the
needed each year to put the Nation on a sustainable fiscal
2011 Budget projection of current policy can be used to illustrate the course for the next two-and-a-half decades. In contrast,
fiscal improvements achieved since 2010; the comparison relative to the as of 2010, adjustments of 2.4 percent of GDP would have
2011 Mid-Session Review would be qualitatively similar. been needed to achieve the goal of stabilizing debt over 25
Table 31. 25-YEAR FISCAL GAP ()/SURPLUS (+) years. While the two values are not strictly comparable
UNDER ALTERNATIVE BUDGET SCENARIOS (due to the different 25-year time periods), the difference
(Percent of GDP) underscores the significant improvement in the fiscal out-
look over the last few years.
2011 Budget Continuation of Current Policies 2.4
2017 Budget Continuation of Current Policies 1.7
2017 Budget policy 0.1 The Impact of 2017 Budget Policies on
Breakdown of changes in 2017 Budget Policy: the Long-Term Fiscal Outlook
Health reform +0.3 The Presidents 2017 Budget proposes non-interest spend-
High-income tax proposals +0.4 ing reductions and revenue increases equal to about 1.8
Immigration reform +0.2 percent of GDP when fully in effect, nearly closing the 25-year
Other policies +0.8 fiscal gap and putting the Nation on a fiscally sustainable
Chart 3-4. 2017 Budget Policies

Surplus(+)/Deficit(-) as a percent of GDP
4
0
Full 2017 Budget Policy Immigration High-Income
Reform Tax Proposals
-2
-4
-6 Health Policy
Continuation of
Current Policies
-8
-10
-12
2000 2005 2010 2015 2020 2025 2030 2035 2040
course over the next 75 years. As shown in Chart 3-4, over the High-income tax proposals.The Budget includes
10-year budget window, the Budget stabilizes deficits around proposals to implement the Buffet Rule by imposing a
2.8 percent of GDP and modestly reduces the debt-to-GDP new Fair Share Tax, rationalize net investment income
ratio. Over the next decade and a half, the debt-to-GDP ratio and Self-Employed Contributions Act taxes, and reduce
reaches 78 percent of GDP and subsequently decreases. The the value of certain tax expenditures that increase rev-
Budget policies result in a small 25-year fiscal gap of 0.1 per- enues by about $955 billion over the first 10 years. These
cent of GDP. proposals to curb inefficient tax benefits for high-income
In addition to paying for all new investments, the 2017 households and close loopholes reduce the fiscal gap by an
Budget reduces deficits and debt through health, tax, and im- additional 0.4 percent of GDP.
migration reform. Commonsense comprehensive immigration
Additional health reforms building on the ACA. As reform. The 2017 Budget continues to propose com-
discussed above, the last few years have seen slower growth in monsense, comprehensive immigration reform that
health care spending in both Medicare and the private mar- would strengthen border security, modernize the le-
ket. While the slowdown reflects a variety of factors, there is gal immigration system, and provide a path to earned
evidence that the reforms enacted in the Affordable Care Act citizenship. By adding younger workers to the labor
are already contributing to this slowdown, as discussed below. force, immigration reform would help balance an aging
The 2017 Budget builds on the ACA with a robust population as the baby boom generation retires. CBO
package of health savings proposals, estimated to reduce estimates that the 2013 Senate-passed immigration
Medicare and Medicaid spending by about $380 billion, bill would have reduced deficits by almost $1 trillion
that will strengthen the Medicare trust fund, create in- over 20 years. It would also boost economic growth and
centives for both providers and beneficiaries to choose strengthen Social Security.
more cost-effective methods of care, and improve health The Budgets 10-year projections include an allow-
care quality. The Budget also backstops these savings ance for deficit reduction from immigration reform
with a proposal to strengthen the Independent Payment based on the CBO estimate. The long-run projections
Advisory Board (IPAB) by lowering its target growth rate are based on CBOs second-decade estimate extend-
to 0.5 percentage points above per-capita GDP growth.7 ed as a constant share of GDP from 2035 to 2041. As
As shown in Chart 3-4 and Table 3-1, these reforms shown in Chart 3-4 and Table 3-1, higher immigration
have a large effect on the long-run budget outlook, reduc- has a positive effect on the budget, reducing the fiscal
ing the fiscal gap by 0.3 percent of GDP. gap by an additional 0.2 percentage points.
Other 2017 Budget policies. The remaining poli-
7 The ACA established an Independent Payment Advisory Board cies in the 2017 Budget reduce the fiscal gap by 0.8
(IPAB) that is required to propose changes in Medicare should Medicare percentage points. The Budget obtains these additional
per beneficiary cost growth exceed target growth rates specified in law; savings from additional spending reductions and tax
such IPAB-proposed changes would take effect automatically, unless
overridden by the Congress. The Budget includes a proposal that would changes beyond those needed to pay for its investments
strengthen the IPAB mechanism by lowering the target growth rate ap- in education, infrastructure, research, and other areas.
plicable for 2020 onward from GDP +1.0 percentage points to GDP +0.5
percentage points.
Chart 3-5. Alternative Productivity and

Interest Assumptions
4
0
-2
Higher Productivity Growth
-4
-6
-8 Lower Productivity Growth
-10
-12
2000 2005 2010 2015 2020 2025 2030 2035 2040
Uncertainty and Alternative Assumptions age. The base case long-run projections assume that real
GDP per hour worked will grow at an average annual rate
Future budget outcomes depend on a host of unknowns: of 1.7 percent per year, slower than the historical average,
changing economic conditions, unforeseen international and assume interest rates on 10-year Treasury securities
developments, unexpected demographic shifts, and un- of 4.2 percent. The alternative scenarios illustrate the
predictable technological advances. These uncertainties effect of raising and lowering the projected productivity
make even short-run budget forecasting quite difficult. growth rate by 0.25 percentage point and changing inter-
For example, the budgets projection of the deficit in five est rates commensurately. The 25-year fiscal gap ranges
years is 2.4 percent of GDP, but a distribution of probable from a fiscal gap of 0.9 percent of GDP in the high pro-
outcomes ranges from a deficit of 7.9 percent of GDP to a ductivity scenario to a gap of 1.7 percent of GDP in the
surplus of 3.1 percent of GDP, at the 10th and 90th per- base case and 2.5 percent of GDP in the low productiv-
centiles, respectively. ity scenario. This variation highlights the importance of
The longer budget projections are extended, the more investments, like those in research and development, edu-
the uncertainties increase. Table 3-2 gives a sense of the cation, and training, and smarter tax policy, which can
degree of uncertainty in the 25-year projections under contribute to higher productivity.
continuation of current policies. Under plausible alter-
native assumptions, the 25-year fiscal gap ranges from a Table 32. 25-YEAR FISCAL GAP ()/SURPLUS (+)
gap of 2.5 percent of GDP to a gap of 0.9 percent of GDP. UNDER ALTERNATIVE BUDGET SCENARIOS
Alternative assumptions considered include: (Percent of GDP)
Productivity and interest rates.The rate of future 2017 Budget Continuation of Current Policies 1.7
productivity growth has a major effect on the long-run
Health:
budget outlook (see Chart 35). Higher productivity
Excess cost growth averages 1.5% 2.3
growth improves the budget outlook, because it adds di-
Zero Excess cost growth 0.9
rectly to the growth of the major tax bases while having
a smaller effect on outlay growth. Meanwhile, produc- Discretionary Outlays:
tivity and interest rates tend to move together, but have Grow with inflation 1.5
opposite effects on the budget. Economic growth theory Grow with GDP 1.9
suggests that a 0.1 percentage point increase in produc- Revenues:
tivity should be associated with a roughly equal increase Income tax brackets are regularly increased 1.8
in interest rates. Fixed as a percent of GDP 2.1
Productivity growth is also highly uncertain. For much Productivity and Interest:1
of the last century, output per hour in nonfarm business Productivity grows by 0.25 percentage point per year faster than the base
grew at an average rate of around 2.2 percent per year, case 0.9
but there were long periods of sustained output growth at Productivity grows by 0.25 percentage point per year slower than the base
case 2.5
notably higher and lower rates than the long-term aver- 1 Interest rates adjust commensurately with increases or decreases in productivity.
Chart 3-6. Alternative Health Care Costs

4
0
-2 Lower Average
Cost Growth
-4
-6
-8
Higher Average Cost Growth
-10
-12
2000 2005 2010 2015 2020 2025 2030 2035 2040
Health spending.Health care cost growth repre- is structural (rather than related to the recession),
sents another large source of uncertainty in the long-term and that the ACA is playing a contributing role, for
budget projections (see Chart 3-6). As noted above, the example through Medicare provider payment reforms
baseline projections follow the Medicare Trustees in and incentives for hospitals to reduce readmissions.
assuming that Medicare per-beneficiary costs grow an av- The ACA also enacted an array of more fundamen-
erage of about 0.7 percentage points faster than per-capita tal delivery system reforms that encourage efficient,
GDP growth over the next 25 years. But historically, es- high-quality care, including incentives for the creation
pecially prior to 1990, health care costs grew even more of accountable care organizations and the launch of a
rapidly. Conversely, over the last few years, per-enrollee wide variety of payment reform demonstrations. These
health care costs have grown roughly in line with or reforms have generated promising early results and
more slowly than GDP per-capita, with particularly slow could have major effects on health care quality and
growth in Medicare and Medicaid. cost going forward.
As noted above, there is evidence that a significant Table 3-2 shows the large impact that either slower or
portion of the recent decline in health care cost growth faster health care cost growth would have on the budget.
Chart 3-7. Alternative Discretionary Projections

4
0
Continuation of
-2 Current Policies
Discretionary Spending
Grows with Inflation
-4
-6
Discretionary Grows
-8 with GDP
-10
-12
2000 2005 2010 2015 2020 2025 2030 2035 2040
Chart 3-8. Alternative Revenue Projections

4
0
Continuation of
-2 Current Policies
Tax Brackets
-4 Regularly Increased
-6
-8 Revenues Fixed as a
Percent of GDP
-10
-12
2000 2005 2010 2015 2020 2025 2030 2035 2040
If health care cost growth averaged 1.5 percentage points, ternative assumptions are to grow discretionary spending
instead of roughly 0.7 percentage points, faster than per- with GDP or inflation. As shown in Table 32, the 25-
capita GDP growth, the current policy 25-year fiscal gap year fiscal gap increases from 1.7 percent of GDP in the
would increase from 1.7 to 2.3 percent of GDP. If health base case to 1.9 percent of GDP if discretionary spending
care costs grew with GDP per capita, the 25-year fiscal grows with GDP, and falls to 1.5 percent of GDP if discre-
gap would be 0.9 percent of GDP. tionary spending grows with inflation.
Policy assumptions. As evident from the discussion In the base case projection, tax receipts rise gradual-
of the 2017 Budget, policy choices will also have a large ly relative to GDP as real incomes rise, consistent with
impact on long-term budget deficits and debt. The current what would occur under current law. Chart 38 shows
base projection for discretionary spending assumes that two alternative receipts assumptions. Cutting taxes to
after 2026, discretionary spending grows with inflation avoid the revenue increases associated with rising in-
and population (see Chart 37). As discussed above, al- comes would bring about higher deficits and debt. The
Chart 3-9. Long-Term Uncertainties

Percent of GDP
600
500 Pessimistic
400
300
200 Continuation of
Current Policies
100
0
Optimistic
-100
-200
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
25-year fiscal gap rises from 1.7 percent of GDP in the the 2015 report, HI costs rise from 3.4 percent of Medicare
base case to 1.8 percent of GDP in the alternative case taxable payroll in 2014 to 5.1 percent in 2080 and the im-
where tax brackets are regularly increased after 2026. balance in the HI trust fund in 2080 is -0.9 percent. The
Further cutting taxes to keep revenues constant as a HI trust fund is projected to become insolvent in 2030, the
share of GDP at current levels results in a 25-year fis- same year projected in the 2014 report, versus 2017 in the
cal gap of 2.1 percent. last report before passage of the ACA.
Finally, Chart 3-9 shows how uncertainties magnify Under the Medicare Modernization Act (MMA) of
over a 75-year forecast horizon. As the chart shows, un- 2003, the Medicare Trustees must issue a warning
der the baseline projections, without policy changes, debt when two consecutive Trustees reports project that
exceeds 100 percent of GDP by 2033 before starting a the share of Medicare funded by general revenues will
slow decline in the very long run. Alternatively, assuming exceed 45 percent in the current year or any of the sub-
a combination of slower productivity growth and higher sequent six years. For the first time since 2007, the 2014
health care cost growth results in a debt explosion, with Trustees Report did not include such a warning. The
debt-to-GDP reaching over 500 percent by the end of the 2015 Trustees Report also did not include this warning.
window. Meanwhile, assuming a combination of higher The MMA requires that, if there is a Medicare funding
productivity growth and slower health care cost growth warning, the President submit proposed legislation re-
results in the debt being completely paid off by 2069. sponding to that warning, within 15 days of submitting
Despite the striking uncertainties, long-term pro- the Budget. In accordance with the Recommendations
jections are helpful in highlighting some of the known Clause of the Constitution and as the Executive Branch
budget challenges on the horizon, especially the impact has noted in prior years, the Executive Branch consid-
of an aging population. In addition, the projections ers a requirement to propose specific legislation to be
highlight the need for policy awareness and potential advisory.
action to address drivers of future budgetary costs. As a result of reforms legislated in 1983, Social
Security had been running a cash surplus with tax-
Actuarial Projections for Social es exceeding costs up until 2009. This surplus in the
Security and Medicare Social Security trust fund helped to hold down the uni-
fied budget deficit. The cash surplus ended in 2009,
While the Administrations long-run projections fo- when the trust fund began using a portion of its in-
cus on the unified budget outlook, Social Security and terest earnings to cover benefit payments. The 2015
Medicare Hospital Insurance benefits are paid out of Social Security Trustees report projects that the trust
trust funds financed by dedicated payroll tax revenue. fund will not return to cash surplus, but the program
Projected trust fund revenues fall short of the levels nec- will continue to experience an overall surplus for sev-
essary to finance projected benefits over the next 75 years. eral more years because of the interest earnings. After
The Social Security and Medicare Trustees reports fea- that, however, Social Security will begin to draw on
ture the actuarial balance of the trust funds as a summary its trust fund balances to cover current expenditures.
measure of their financial status. For each trust fund, the Over time, as the ratio of workers to retirees falls,
balance is calculated as the change in receipts or program costs are projected to rise further from 14.0 percent of
benefits (expressed as a percentage of taxable payroll) that Social Security covered payroll in 2014 to 14.2 percent
would be needed to preserve a small positive balance in the of payroll in 2020, 16.1 percent of payroll in 2030 and
trust fund at the end of a specified time period. The esti- 17.7 percent of payroll in 2080. Revenues excluding
mates cover periods ranging in length from 25 to 75 years. interest are projected to rise only slightly from 12.8
Table 33 shows the projected income rate, cost rate, percent of payroll today to 13.3 percent in 2080. Thus
and annual balance for the Medicare HI and combined the annual balance is projected to decline from -1.2
OASDI trust funds at selected dates under the Trustees percent of payroll in 2014 to -1.3 percent of payroll in
intermediate assumptions. Data from the 2013 and the 2020, -2.9 percent of payroll in 2030, and -4.4 percent
2014 reports are shown along with the latest data from of payroll in 2080. On a 75-year basis, the actuarial
the 2015 reports. Following the passage of the ACA in deficit is projected to be -2.7 percent of payroll. In the
2010, there have been major improvements in trust fund process, the Social Security trust fund, which was built
solvency, although there is a continued imbalance in the up since 1983, would be drawn down and eventually
long-run projections of the HI program due to demograph- be exhausted in 2034. These projections assume that
ic trends and continued high per-person costs. In the benefits would continue to be paid in full despite the
2013 Trustees report, Medicare HI trust fund costs as a projected exhaustion of the trust fund to show the long-
percentage of Medicare covered payroll were projected run implications of current benefit formulas. Under
to rise from 3.5 percent to 5.9 percent between 2014 and current law, not all scheduled benefits would be paid
2080 and the HI trust fund imbalance was projected to be after the trust funds are exhausted. However, benefits
-1.6 percent in 2080. In the 2014 report, costs rose from could still be partially funded from current revenues.
3.4 percent of Medicare taxable payroll in 2014 to 5.6 per- According to the 2015 Trustees report, beginning in
cent in 2080 and the imbalance in the HI trust fund in 2034, 79 percent of projected Social Security scheduled
2080 was -1.4 percent. On average, the HI cost rate de- benefits would be funded. This percentage would even-
clined slightly in the 2015 report compared with 2014. In tually decline to 73 percent by 2089.
Table 33. INTERMEDIATE ACTUARIAL PROJECTIONS FOR OASDI AND HI

(Percent of Payroll)
2014 2020 2030 2040 2080
Medicare Hospital Insurance (HI)

Income Rate
2013 Trustees Report 3.3 3.4 3.6 3.7 4.2
2014 Trustees Report 3.3 3.4 3.6 3.7 4.2
2015 Trustees Report 3.3 3.4 3.6 3.7 4.2
Cost Rate
2013 Trustees Report 3.5 3.5 4.4 5.2 5.9
2014 Trustees Report 3.4 3.3 4.2 4.8 5.6
2015 Trustees Report 3.4 3.3 4.2 4.7 5.1
Annual Balance
2013 Trustees Report 0.2 0.1 0.8 1.4 1.6
2014 Trustees Report 0.1 * 0.6 1.1 1.4
2015 Trustees Report 0.2 0.1 0.6 1.0 0.9
Projection Interval: 25 years 50 years 75 years
Actuarial Balance: 2013 Trustees Report 0.6 1.0 1.1
Old Age Survivors and Disability Insurance (OASDI)
Income Rate
2013 Trustees Report 12.8 13.0 13.1 13.2 13.2
2014 Trustees Report 12.7 13.0 13.2 13.2 13.3
2015 Trustees Report 12.8 13.0 13.2 13.2 13.3
Cost Rate
2013 Trustees Report 14.0 14.3 16.5 17.0 17.8
2014 Trustees Report 14.0 14.3 16.6 17.1 17.9
2015 Trustees Report 14.0 14.2 16.1 16.7 17.7
Annual Balance
2013 Trustees Report 1.2 1.3 3.4 3.8 4.5
2014 Trustees Report 1.3 1.4 3.5 3.9 4.6
2015 Trustees Report 1.2 1.3 2.9 3.5 4.4
Projection Interval: 25 years 50 years 75 years
* 0.05 percent or less.
Note: Values from the 2014 Trustees Report are not fully comparable to values for earlier years reports, as 2014 Trustees
Report numbers are based on a projected baseline rather than a current law baseline.
The 2017 Budget would improve the condition of both years. Meanwhile, the Social Security Actuary estimated
trust funds. The health savings proposed in the Budget and the Senate-passed immigration bill would reduce the Social
tax proposals directly affecting HI tax receipts, including Security shortfall by 8 percent, extending the life of the trust
transfers of revenue from the net investment income tax, fund by two years. Nonetheless, additional reforms will be
would extend the life of the HI trust fund by more than 15 needed to restore 75-year solvency in both programs.
TECHNICAL NOTE: SOURCES OF DATA AND METHODS OF ESTIMATING

The long-run budget projections are based on demo- ed beyond this interval by holding inflation, interest
graphic and economic assumptions. A simplified model of rates, and the unemployment rate constant at the lev-
the Federal budget, developed at OMB, is used to compute els assumed in the final year of the budget forecast.
the budgetary implications of these assumptions. Population growth and labor force growth are ex-
Demographic and economic assumptions.For tended using the intermediate assumptions from the
the years 2016-2026, the assumptions are drawn from 2015 Social Security Trustees report. The projected
the Administrations economic projections used for the rate of growth for real GDP is built up from the labor
2017 Budget. The economic assumptions are extend- force assumptions and an assumed rate of productiv-
ity growth. Productivity growth, measured as real makes it easier to interpret the comparisons of alterna-
GDP per hour, is assumed to equal its average rate tive policies and is a reasonable simplification given the
of growth in the Budgets economic assumptions1.7 large uncertainties surrounding the long-run outlook.
percent per year. Budget projections.For the period through 2026,
CPI inflation holds stable at 2.3 percent per year, the receipts and outlays in the baseline and policy projections fol-
unemployment rate is constant at 4.9 percent, the yield low the 2017 Budgets adjusted baseline and policy estimates
on 10-year Treasury notes is steady at 4.2 percent, and respectively. After 2026, total tax receipts rise gradually
the 91-day Treasury bill rate is 3.3 percent. Consistent relative to GDP as real incomes also rise. Discretionary
with the demographic assumptions in the Trustees spending grows at the rate of growth in inflation plus popu-
reports, U.S. population growth slows from around 1 per- lation afterwards. Long-run Social Security spending is
cent per year to about two-thirds that rate by 2030, and projected by the Social Security actuaries using this chap-
slower rates of growth beyond that point. By the end of ters long-run economic and demographic assumptions.
the 75-year projection period total population growth is Medicare benefits are projected based on a projection of ben-
slightly above 0.4 percent per year. Real GDP growth is eficiary growth and excess health care cost growth from the
projected to be less than its historical average of around 2015 Medicare Trustees report current law baseline; for the
3.4 percent per year because the slowdown in popula- policy projections, these assumptions are then also adjusted
tion growth and the increase in the population over age to account for the Budgets IPAB proposal. Medicaid out-
65 reduce labor supply growth. In these projections, lays are based on the economic and demographic projections
real GDP growth averages between 2.1 percent and 2.3 in the model, which assume average excess cost growth of
percent per year for the period following the end of the approximately 1.2 percentage points above growth in GDP
10-year budget window. per capita after 2026. Other entitlement programs are pro-
The economic and demographic projections described jected based on rules of thumb linking program spending to
above are set by assumption and do not automatically elements of the economic and demographic projections such
change in response to changes in the budget outlook. This as the poverty rate.
4. FEDERAL BORROWING AND DEBT
Debt is the largest legally and contractually binding interest rates, interest outlays became a smaller share of
obligation of the Federal Government. At the end of 2015, the budget and were roughly stable as a percentage of
the Government owed $13,117 billion of principal to the GDP.
individuals and institutions who had loaned it the money Federal debt relative to GDP is a function of the
to fund past deficits. During that year, the Government Nations fiscal policy as well as overall economic condi-
paid the public approximately $261 billion of interest on tions. During the 1970s, large budget deficits emerged
this debt. At the same time, the Government also held fi- as spending grew faster than receipts and as the econ-
nancial assets, net of financial liabilities other than debt, omy was disrupted by oil shocks and rising inflation.
of $1,234 billion. Therefore, debt net of financial assets The nominal amount of Federal debt more than doubled,
was $11,882 billion. and Federal debt relative to GDP and credit market debt
The $13,117 billion debt held by the public at the end stopped declining after the middle of the decade. The
of 2015 represents an increase of $337 billion over the growth of Federal debt accelerated at the beginning of the
level at the end of 2014. This increase is the result of the 1980s, due in large part to a deep recession, and the ratio
$438 billion deficit in 2015 and other financing transac- of Federal debt to GDP grew sharply. It continued to grow
tions that reduced the need to borrow by $102 billion. throughout the 1980s as large tax cuts, enacted in 1981,
Debt held by the public decreased from 74.4 percent of and substantial increases in defense spending were only
Gross Domestic Product (GDP) at the end of 2014 to 73.7 partially offset by reductions in domestic spending. The
percent of GDP at the end of 2015. Meanwhile, financial resulting deficits increased the debt to almost 48 percent
assets net of liabilities fell by $90 billion in 2015, so that of GDP by 1993. The ratio of Federal debt to credit market
debt held by the public net of financial assets increased by debt also rose, though to a lesser extent. Interest outlays
$427 billion during 2015. Debt net of financial assets was on debt held by the public, calculated as a percentage of
66.7 percent of GDP at the end of 2014 and at the end of either total Federal outlays or GDP, increased as well.
2015. The deficit is estimated to increase to $616 billion, The growth of Federal debt held by the public was slow-
or 3.3 percent of GDP, in 2016, and to fall below 3 percent ing by the mid-1990s. In addition to a growing economy,
of GDP starting in 2017. Debt held by the public is pro- three major budget agreements were enacted in the 1990s,
jected to reach 76.5 percent of GDP at the end of 2016 and implementing spending cuts and revenue increases and
then to generally decline gradually in subsequent years. significantly reducing deficits. The debt declined mark-
Debt net of financial assets is expected to increase to 67.7 edly relative to both GDP and total credit market debt,
percent of GDP at the end of 2016, then slowly decline in from 1997 to 2001, as budget surpluses emerged. Debt fell
the following years, falling to 65.7 percent of GDP at the from 47.8 percent of GDP in 1993 to 31.4 percent of GDP
end of 2026. in 2001. Over that same period, debt fell from 26.3 per-
cent of total credit market debt to 17.3 percent. Interest
Trends in Debt Since World War II
as a share of outlays peaked at 16.5 percent in 1989 and
Table 41 depicts trends in Federal debt held by the then fell to 8.9 percent by 2002; interest as a percentage
public from World War II to the present and estimates of GDP fell by a similar proportion.
from the present through 2021. (It is supplemented for The impressive progress in reducing the debt burden
earlier years by Tables 7.17.3 in the Budgets histori- stopped and then reversed course beginning in 2002. A
cal tables, available as supplemental budget material.1) decline in the stock market, a recession, and the initially
Federal debt peaked at 106.1 percent of GDP in 1946, just slow recovery from that recession all reduced tax receipts.
after the end of the war. From that point until the 1970s, The tax cuts of 2001 and 2003 had a similarly large and
Federal debt as a percentage of GDP decreased almost ev- longer-lasting effect, as did the costs of the wars in Iraq
ery year because of relatively small deficits, an expanding and Afghanistan. Deficits ensued and the debt began to
economy, and unanticipated inflation. With households rise, both in nominal terms and as a percentage of GDP.
borrowing large amounts to buy homes and consumer There was a small temporary improvement in 2006 and
durables, and with businesses borrowing large amounts 2007 as economic growth led to a short-lived revival of
to buy plant and equipment, Federal debt also decreased receipt growth.
almost every year as a percentage of total credit market As a result of the most recent recession, which began
debt outstanding. The cumulative effect was impressive. in December 2007, and the massive financial and eco-
From 1950 to 1975, debt held by the public declined from nomic challenges it imposed on the Nation, the deficit
78.5 percent of GDP to 24.5 percent, and from 53.3 per- began increasing rapidly in 2008. The deficit increased
cent of credit market debt to 17.9 percent. Despite rising substantially in 2009 as the Government continued to
take aggressive steps to restore the health of the Nations
1 The historical tables are available at https://www.whitehouse.gov/ economy and financial markets. The deficit fell somewhat
omb/budget/Historicals and on the Budget CD-ROM.
33
Table 41. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC AND INTEREST ON THE DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)
Debt held by the public as a Interest on the debt held by Interest on the debt held by
Debt held by the public: percent of: the public:3 the public as a percent of:3
Fiscal Year
FY 2015 Credit market FY 2015
Current dollars dollars1 GDP debt2 Current dollars dollars1 Total outlays GDP
1946 241.9 2,416.9 106.1 N/A 4.2 41.8 7.6 1.8
1950 219.0 1,770.6 78.5 53.3 4.8 39.1 11.4 1.7

1955 226.6 1,610.1 55.7 42.1 5.2 36.9 7.6 1.3
1960 236.8 1,490.9 44.3 33.1 7.8 49.2 8.5 1.5

1965 260.8 1,537.5 36.7 26.4 9.6 56.5 8.1 1.3
1970 283.2 1,391.2 27.0 20.3 15.4 75.5 7.9 1.5

1975 394.7 1,429.0 24.5 17.9 25.0 90.5 7.5 1.6
1980 711.9 1,793.8 25.5 18.5 62.8 158.1 10.6 2.2

1985 1,507.3 2,898.7 35.3 22.2 152.9 294.1 16.2 3.6
1990 2,411.6 3,987.5 40.8 22.5 202.4 334.6 16.2 3.4

1995 3,604.4 5,259.4 47.5 26.3 239.2 349.0 15.8 3.2
2000 3,409.8 4,586.5 33.6 18.8 232.8 313.2 13.0 2.3
2005 4,592.2 5,510.9 35.6 17.1 191.4 229.6 7.7 1.5

2006 4,829.0 5,612.7 35.3 16.6 236.6 275.0 8.9 1.7
2007 5,035.1 5,697.3 35.2 15.9 252.0 285.1 9.2 1.8
2008 5,803.1 6,433.2 39.3 17.2 259.6 287.8 8.7 1.8
2009 7,544.7 8,267.4 52.3 21.8 201.5 220.8 5.7 1.4
2010 9,018.9 9,796.9 60.9 25.3 228.2 247.8 6.6 1.5

2011 10,128.2 10,783.0 65.9 27.7 266.0 283.2 7.4 1.7
2012 11,281.1 11,794.1 70.4 29.6 232.1 242.6 6.6 1.4
2013 11,982.7 12,316.1 72.6 30.3 259.0 266.2 7.5 1.6
2014 12,779.9 12,914.9 74.4 31.0 271.4 274.3 7.7 1.6
2015 13,116.7 13,116.7 73.7 30.6 260.6 260.6 7.1 1.5

2016 estimate 14,128.7 13,954.8 76.5 N/A 295.8 292.2 7.5 1.6
2017 estimate 14,763.2 14,320.2 76.5 N/A 364.3 353.4 8.8 1.9
2018 estimate 15,323.5 14,604.1 76.1 N/A 435.0 414.6 10.0 2.2
2019 estimate 15,982.2 14,936.5 76.1 N/A 514.1 480.5 11.1 2.4
2020 estimate 16,614.9 15,226.5 75.8 N/A 582.7 534.0 11.9 2.7
2021 estimate 17,263.5 15,509.9 75.5 N/A 639.8 574.8 12.5 2.8
N/A = Not available.
1 Amounts in current dollars deflated by the GDP chain-type price index with fiscal year 2015 equal to 100.
2 Total credit market debt owed by domestic nonfinancial sectors. 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 include 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).
in 2010, increased only slightly in 2011, and has decreased Debt Held by the Public and Gross Federal Debt
each year since 2012. Under the proposals in the Budget,
the deficit is projected to increase in 2016 and then to fall The Federal Government issues debt securities for
below 3 percent of GDP starting in 2017. Debt held by two main purposes. First, it borrows from the public
the public as a percent of GDP is estimated to be 76.5 to finance the Federal deficit.2 Second, it issues debt to
percent at the end of 2016, after which it declines gradu- Federal Government accounts, primarily trust funds,
ally in subsequent years. Debt net of financial assets as a that accumulate surpluses. By law, trust fund surpluses
percent of GDP is estimated to increase to 67.7 percent at 2 For the purposes of the Budget, debt held by the public is de-
the end of 2016 and then fall to 67.4 percent at the end of fined as debt held by investors outside of the Federal Government, both
2017 and decline slowly in subsequent years. domestic and foreign, including U.S. State and local governments and
foreign governments. It also includes debt held by the Federal Reserve.
4. FEDERAL BORROWING AND DEBT 35
must generally be invested in Federal securities. The However, issuing debt to Government accounts does not
gross Federal debt is defined to consist of both the debt have any of the credit market effects of borrowing from the
held by the public and the debt held by Government ac- public. It is an internal transaction of the Government,
counts. Nearly all the Federal debt has been issued by made between two accounts that are both within the
the Treasury and is sometimes called public debt, but a Government itself. Issuing debt to a Government account
small portion has been issued by other Government agen- is not a current transaction of the Government with the
cies and is called agency debt.3 public; it is not financed by private saving and does not
Borrowing from the public, whether by the Treasury compete with the private sector for available funds in the
or by some other Federal agency, is important because credit market. While such issuance provides the account
it represents the Federal demand on credit markets. with assetsa binding claim against the Treasury
Regardless of whether the proceeds are used for tan- those assets are fully offset by the increased liability of
gible or intangible investments or to finance current the Treasury to pay the claims, which will ultimately be
consumption, the Federal demand on credit markets covered by the collection of revenues or by borrowing.
has to be financed out of the saving of households and Similarly, the current interest earned by the Government
businesses, the State and local sector, or the rest of account on its Treasury securities does not need to be fi-
the world. Federal borrowing thereby competes with nanced by other resources.
the borrowing of other sectors of the domestic or inter- Furthermore, the debt held by Government accounts
national economy for financial resources in the credit does not represent the estimated amount of the accounts
market. Borrowing from the public thus affects the size obligations or responsibilities to make future payments to
and composition of assets held by the private sector the public. For example, if the account records the trans-
and the amount of saving imported from abroad. It also actions of a social insurance program, the debt that it
increases the amount of future resources required to holds does not necessarily represent the actuarial pres-
pay interest to the public on Federal debt. Borrowing ent value of estimated future benefits (or future benefits
from the public is therefore an important concern of less taxes) for the current participants in the program;
Federal fiscal policy. Borrowing from the public, how- nor does it necessarily represent the actuarial present
ever, is an incomplete measure of the Federal impact value of estimated future benefits (or future benefits less
on credit markets. Different types of Federal activities taxes) for the current participants plus the estimated
can affect the credit markets in different ways. For ex- future participants over some stated time period. The
ample, under its direct loan programs, the Government future transactions of Federal social insurance and em-
uses borrowed funds to acquire financial assets that ployee retirement programs, which own 92 percent of the
might otherwise require financing in the credit mar- debt held by Government accounts, are important in their
kets directly. (For more information on other ways in own right and need to be analyzed separately. This can be
which Federal activities impact the credit market, see done through information published in the actuarial and
the discussion at the end of this chapter.) financial reports for these programs.4
Issuing debt securities to Government accounts This Budget uses a variety of information sources to
performs an essential function in accounting for the op- analyze the condition of Social Security and Medicare, the
eration of these funds. The balances of debt represent the Governments two largest social insurance programs. The
cumulative surpluses of these funds due to the excess excess of future Social Security and Medicare benefits
of their tax receipts, interest receipts, and other collec- relative to their dedicated income is very different in con-
tions over their spending. The interest on the debt that cept and much larger in size than the amount of Treasury
is credited to these funds accounts for the fact that some securities that these programs hold.
earmarked taxes and user charges will be spent at a later For all these reasons, debt held by the public and debt
time than when the funds receive the monies. The debt net of financial assets are both better gauges of the effect
securities are assets of those funds but are a liability of of the budget on the credit markets than gross Federal
the general fund to the funds that hold the securities, and debt.
are a mechanism for crediting interest to those funds on Government Deficits or Surpluses
their recorded balances. These balances generally provide and the Change in Debt
the fund with authority to draw upon the U.S. Treasury
in later years to make future payments on its behalf to Table 42 summarizes Federal borrowing and debt
the public. Public policy may result in the Governments from 2015 through 2026.5 In 2015 the Government bor-
running surpluses and accumulating debt in trust funds rowed $337 billion, increasing the debt held by the public
and other Government accounts in anticipation of future from $12,780 billion at the end of 2014 to $13,117 billion
spending.
4 Extensive actuarial analyses of the Social Security and Medicare
3
The term agency debt is defined more narrowly in the budget programs are published in the annual reports of the boards of trustees
than customarily in the securities market, where it includes not only the of these funds. The actuarial estimates for Social Security, Medicare, and
debt of the Federal agencies listed in Table 44, but also certain Govern- the major Federal employee retirement programs are summarized in
ment-guaranteed securities and the debt of the Government-sponsored the Financial Report of the United States Government, prepared annu-
enterprises listed in Table 207 in the supplemental materials to the ally by the Department of the Treasury in coordination with the Office
Credit and Insurance chapter. (Table 20-7 is available on the Inter- of Management and Budget.
net at: https://www.whitehouse.gov/omb/budget/Analytical_Perspectives 5 For projections of the debt beyond 2026, see Chapter 3, Long-Term
and on the Budget CD-ROM.) Budget Outlook.

Table 42. FEDERAL GOVERNMENT FINANCING AND DEBT

(In billions of dollars)
Estimate
Actual
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Financing:
Unified budget deficit 438.4 615.8 503.5 453.6 549.3 534.1 552.3 659.6 676.9 650.1 740.7 793.1
Other transactions affecting borrowing from the
public:
Changes in financial assets and liabilities:1
Change in Treasury operating cash balance 40.4 76.3 ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Net disbursements of credit financing
accounts:
Direct loan accounts 78.9 103.5 128.9 109.3 112.3 103.3 103.4 101.6 104.3 107.9 110.1 110.1
Guaranteed loan accounts 9.4 13.2 3.3 -1.4 -1.6 -3.6 -5.8 -7.0 -3.3 -2.5 -2.3 3.8
Troubled Asset Relief Program
equity purchase accounts -0.6 * * -0.1 -0.1 -0.1 * * * * * *
Subtotal, net disbursements 87.7 116.7 132.2 107.9 110.5 99.6 97.5 94.6 101.0 105.4 107.8 113.9
Net purchases of non-Federal securities
by the National Railroad Retirement
Investment Trust -1.4 0.3 -0.9 -0.8 -0.7 -0.7 -0.8 -0.8 -0.5 -0.5 -0.5 -0.3
Net change in other financial assets and
liabilities2 -227.8 203.2 ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Subtotal, changes in financial assets and
liabilities -101.1 396.6 131.3 107.1 109.9 98.9 96.8 93.8 100.5 104.9 107.3 113.5
Seigniorage on coins -0.6 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.5
Total, other transactions affecting
borrowing from the public -101.6 396.2 131.0 106.7 109.5 98.5 96.4 93.4 100.1 104.5 106.9 113.1
Total, requirement to borrow
from the public (equals
change in debt held by the
public) 336.8 1,012.0 634.5 560.3 658.7 632.6 648.6 753.0 777.0 754.6 847.5 906.2
Changes in Debt Subject to Statutory Limitation:
Change in debt held by the public 336.8 1,012.0 634.5 560.3 658.7 632.6 648.6 753.0 777.0 754.6 847.5 906.2
Change in debt held by Government accounts -11.2 301.2 81.6 174.5 152.5 118.6 103.2 47.7 56.2 83.8 12.8 -11.5
Less: change in debt not subject to limit and other
adjustments 6.2 -0.7 1.6 1.6 2.9 2.5 2.1 2.0 2.1 2.0 1.4 1.9
Total, change in debt subject to statutory
limitation 331.9 1,312.5 717.7 736.5 814.1 753.8 753.9 802.6 835.2 840.5 861.7 896.6
Debt Subject to Statutory Limitation, End of Year:
Debt issued by Treasury 18,093.8 19,406.5 20,122.6 20,858.0 21,670.5 22,422.8 23,175.5 23,976.9 24,810.9 25,650.5 26,512.2 27,408.5
Less: Treasury debt not subject to limitation ()3 -13.3 -13.5 -11.9 -10.8 -9.3 -7.8 -6.5 -5.3 -4.1 -3.2 -3.2 -2.8
Agency debt subject to limitation * * * * * * * * * * * *
Adjustment for discount and premium4 32.5 32.5 32.5 32.5 32.5 32.5 32.5 32.5 32.5 32.5 32.5 32.5
Total, debt subject to statutory limitation5 18,113.0 19,425.5 20,143.2 20,879.7 21,693.7 22,447.6 23,201.5 24,004.1 24,839.3 25,679.8 26,541.5 27,438.2
Debt Outstanding, End of Year:
Gross Federal debt:6
Debt issued by Treasury 18,093.8 19,406.5 20,122.6 20,858.0 21,670.5 22,422.8 23,175.5 23,976.9 24,810.9 25,650.5 26,512.2 27,408.5
Debt issued by other agencies 26.3 26.8 26.8 26.3 24.9 23.9 23.0 22.3 21.4 20.3 19.0 17.4
Total, gross Federal debt 18,120.1 19,433.3 20,149.4 20,884.3 21,695.5 22,446.8 23,198.5 23,999.2 24,832.4 25,670.8 26,531.2 27,425.9
Held by:
Debt held by Government accounts 5,003.4 5,304.6 5,386.2 5,560.8 5,713.2 5,831.9 5,935.0 5,982.7 6,038.9 6,122.7 6,135.5 6,124.0
Debt held by the public7 13,116.7 14,128.7 14,763.2 15,323.5 15,982.2 16,614.9 17,263.5 18,016.5 18,793.5 19,548.1 20,395.7 21,301.9
As a percent of GDP 73.7% 76.5% 76.5% 76.1% 76.1% 75.8% 75.5% 75.5% 75.4% 75.2% 75.2% 75.3%
*$50 million or less.
1 A decrease in the Treasury operating cash balance (which is an asset) is a means of financing a deficit and therefore has a negative sign. An increase in checks outstanding (which is
a liability) is also a means of financing a deficit and therefore also has a negative sign.
2 Includes checks outstanding, accrued interest payable on Treasury debt, uninvested deposit fund balances, allocations of special drawing rights, and other liability accounts; 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 debt issued by the Federal Financing Bank and Treasury securities held by the Federal Financing Bank.
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 Legislation enacted November 2, 2015 (P.L. 114-74), temporarily suspends the debt limit through March 15, 2017.
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 unrealized
discount (if any).
7 At the end of 2015, the Federal Reserve Banks held $2,461.9 billion of Federal securities and the rest of the public held $10,654.8 billion. Debt held by the Federal Reserve Banks is
not estimated for future years.

at the end of 2015. The debt held by Government accounts Change in Treasury operating cash balance.The
fell by $11 billion, and gross Federal debt increased by cash balance increased by $70 billion, to $158 billion,
$326 billion to $18,120 billion. in 2014 and increased by $40 billion, to $199 billion, in
Debt held by the public.The Federal Government 2015. The operating cash balance is projected to increase
primarily finances deficits by borrowing from the public, by $76 billion, to $275 billion at the end of 2016. The in-
and it primarily uses surpluses to repay debt held by the crease in the cash balance reflects a number of factors.
public.6 Table 42 shows the relationship between the First, in 2015, Treasury announced that, for risk manage-
Federal deficit or surplus and the change in debt held by ment purposes, it would seek to maintain a cash balance
the public. The borrowing or debt repayment depends on roughly equal to one week of Government outflows, with
the Governments expenditure programs and tax laws, on a minimum balance of about $150 billion. In addition, for
the economic conditions that influence tax receipts and debt management purposes, in November 2015 Treasury
outlays, and on debt management policy. The sensitiv- announced intentions to increase bill financing; because
ity of the budget to economic conditions is analyzed in bills mature more frequently than other longer-dated
Chapter 2, Economic Assumptions and Interactions with debt, this financing decision effectively increases govern-
the Budget, in this volume. ment outflows during any given week. Finally the timing
The total or unified budget deficit consists of two parts: of end-of-month auction settlements can often increase
the on-budget deficit; and the surplus of the off-budget end-of-month cash balances dramatically. Changes in the
Federal entities, which have been excluded from the bud- operating cash balance, while occasionally large, are in-
get by law. Under present law, the off-budget Federal herently limited over time. Decreases in casha means of
entities are the two Social Security trust funds (Old-Age financing the Governmentare limited by the amount of
and Survivors Insurance and Disability Insurance) and past accumulations, which themselves required financing
the Postal Service Fund.7 The on-budget and off-budget when they were built up. Increases are limited because it
surpluses or deficits are added together to determine the is generally more efficient to repay debt.
Governments financing needs. Net financing disbursements of the direct loan and
Over the long run, it is a good approximation to say guaranteed loan financing accounts.Under the Federal
that the deficit is financed by borrowing from the public Credit Reform Act of 1990 (FCRA), the budgetary
or the surplus is used to repay debt held by the public. program account for each credit program records the esti-
However, the Governments need to borrow in any given mated subsidy coststhe present value of estimated net
year has always depended on several other factors be- lossesat the time when the direct or guaranteed loans
sides the unified budget surplus or deficit, such as the are disbursed. The individual cash flows to and from the
change in the Treasury operating cash balance. These public associated with the loans or guarantees, such as
other factorsother transactions affecting borrowing the disbursement and repayment of loans, the default
from the publiccan either increase or decrease the payments on loan guarantees, the collection of interest
Governments need to borrow and can vary considerably and fees, and so forth, are recorded in the credit pro-
in size from year to year. The other transactions affect- grams non-budgetary financing account. Although the
ing borrowing from the public are presented in Table 42 non-budgetary financing accounts cash flows to and from
(where an increase in the need to borrow is represented the public are not included in the deficit (except for their
by a positive sign, like the deficit). impact on subsidy costs), they affect Treasurys net bor-
In 2015 the deficit was $438 billion while these other rowing requirements.8
factors reduced the need to borrow by $102 billion, or 30 In addition to the transactions with the public, the
percent of total borrowing from the public. As a result, the financing accounts include several types of intragov-
Government borrowed $337 billion from the public. The ernmental transactions. They receive payment from the
other factors are estimated to increase borrowing by $396 credit program accounts for the subsidy costs of new
billion (39 percent of total borrowing from the public) in direct loans and loan guarantees and for any upward
2016, and $131 billion (21 percent) in 2017. In 20182026, reestimate of the costs of outstanding direct and guaran-
these other factors are expected to increase borrowing by teed loans. They also receive interest from Treasury on
annual amounts ranging from $93 billion to $113 billion. balances of uninvested funds. The financing accounts pay
Three specific factors presented in Table 42 have his- any negative subsidy collections or downward reestimate
torically been especially important. of costs to budgetary receipt accounts and pay interest on
borrowings from Treasury. The total net collections and
6 Treasury debt held by the public is measured as the sales price
gross disbursements of the financing accounts, consisting
plus the amortized discount (or less the amortized premium). At the
of transactions with both the public and the budgetary
time of sale, the book value equals the sales price. Subsequently, it accounts, are called net financing disbursements. They
equals the sales price plus the amount of the discount that has been am- occur in the same way as the outlays of a budgetary ac-
ortized up to that time. In equivalent terms, the book value of the debt count, even though they do not represent budgetary costs,
equals the principal amount due at maturity (par or face value) less the and therefore affect the requirement for borrowing from
unamortized discount. (For a security sold at a premium, the definition
is symmetrical.) For inflation-indexed notes and bonds, the book value the public in the same way as the deficit.
includes a periodic adjustment for inflation. Agency debt is generally 8 The FCRA (sec. 505(b)) requires that the financing accounts be
recorded at par. non-budgetary. They are non-budgetary in concept because they do not
7 For further explanation of the off-budget Federal entities, see measure cost. For additional discussion of credit programs, see Chapter
Chapter 10, Coverage of the Budget. 20, Credit and Insurance, and Chapter 9, Budget Concepts.
The intragovernmental transactions of the credit amounts in this category are relatively small. For example,
program, financing, and downward reestimate receipt ac- this category decreased the need to borrow by $1 billion
counts do not affect Federal borrowing from the public. in 2012 and increased the need to borrow by $5 billion in
Although the deficit changes because of the budgetary ac- 2011. However, in 2015, this other category reduced the
counts outlay to, or receipt from, a financing account, the need to borrow by a net $228 billion. Of the net $228 bil-
net financing disbursement changes in an equal amount lion, $203 billion was due to the temporary suspension of
with the opposite sign, so the effects are cancelled out. the daily reinvestment of the Thrift Savings Plan (TSP)
On the other hand, financing account disbursements to Government Securities Investment Fund (G-Fund).10 The
the public increase the requirement for borrowing from Department of the Treasury is authorized to suspend the
the public in the same way as an increase in budget out- issuance of obligations to the TSP G-Fund as an extraor-
lays that are disbursed to the public in cash. Likewise, dinary measure if issuances could not be made without
receipts from the public collected by the financing account causing the public debt of the United States to exceed the
can be used to finance the payment of the Governments debt limit. The suspension of the daily reinvestment of
obligations, and therefore they reduce the requirement the TSP G-Fund resulted in the amounts being moved
for Federal borrowing from the public in the same way as from debt held by the public to deposit fund balances, an
an increase in budgetary receipts. other financial liability. Once Treasury is able to do so
Borrowing due to credit financing accounts was $88 without exceeding the debt limit, Treasury is required to
billion in 2015. In 2016 credit financing accounts are pro- fully reinvest the TSP G-Fund and restore any foregone
jected to increase borrowing by $117 billion. After 2016, interest. Accordingly, the TSP G-Fund was fully reinvest-
the credit financing accounts are expected to increase ed in November 2015. Table 42 reflects the $203 billion
borrowing by amounts ranging from $95 billion to $132 reinvestment in 2016, which returned the amount from
billion over the next 10 years. deposit fund balances to debt held by the public. The debt
In some years, large net upward or downward reesti- ceiling and the use of the TSP G-Fund are discussed in
mates in the cost of outstanding direct and guaranteed further detail below.
loans may cause large swings in the net financing dis- Debt held by Government accounts.The amount
bursements. In 2015, there was a net upward reestimate of Federal debt issued to Government accounts depends
of $8.7 billion, due largely to direct student loans. In largely on the surpluses of the trust funds, both on-bud-
2016, there is a net downward reestimate of $5.6 billion, get and off-budget, which owned 90 percent of the total
due to a large downward reestimate for Federal Housing Federal debt held by Government accounts at the end of
Administration (FHA) Mutual Mortgage Insurance guar- 2015. Net investment may differ from the surplus due to
antees, partly offset by an upward reestimate for direct changes in the amount of cash assets not currently in-
student loans. vested. In 2015, the total trust fund surplus was $112
Net purchases of non-Federal securities by the National billion, while trust fund investment in Federal securi-
Railroad Retirement Investment Trust (NRRIT). ties decreased by $54 billion. This $165 billion difference
This trust fund, which was established by the Railroad was primarily due to the Civil Service Retirement and
Retirement and Survivors Improvement Act of 2001, in- Disability Fund (CSRDF), which had a surplus of $15 bil-
vests its assets primarily in private stocks and bonds. The lion but net disinvestment of $126 billion, as a result of the
Act required special treatment of the purchase or sale extraordinary measures that the Treasury Department is
of non-Federal assets by the NRRIT trust fund, treating authorized to take with the fund when the Government
such purchases as a means of financing rather than as is at the debt ceiling. For further details on such mea-
outlays. Therefore, the increased need to borrow from the sures, see the discussion below. The remainder of debt
public to finance NRRITs purchases of non-Federal as- issued to Government accounts is owned by a number of
sets is part of the other transactions affecting borrowing special funds and revolving funds. The debt held in major
from the public rather than included as an increase in accounts and the annual investments are shown in Table
the deficit. While net purchases and redemptions affect 45.
borrowing from the public, unrealized gains and losses on Debt Held by the Public Net of
NRRITs portfolio are included in both the other transac- Financial Assets and Liabilities
tions and, with the opposite sign, in NRRITs net outlays
in the deficit, for no net impact on borrowing from the While debt held by the public is a key measure for ex-
public. In 2015, net decreases, including redemptions and amining the role and impact of the Federal Government
losses, were $1.4 billion. A $0.3 billion net increase is pro- in the U.S. and international credit markets and for oth-
jected for 2016 and net annual decreases ranging from er purposes, it provides incomplete information on the
$0.3 billion to $0.9 billion are projected for 2017 and sub- Governments financial condition. The U.S. Government
sequent years.9 holds significant financial assets, which must be off-
Net change in other financial assets and liabilities. set against debt held by the public and other financial
In addition to the three factors discussed above, in 2015 liabilities to achieve a more complete understanding of
and 2016, the net change in other financial assets and the Governments financial condition. The acquisition of
liabilities is also particularly significant. Generally, the those financial assets represents a transaction with the
9 The budget treatment of this fund is further discussed in Chapter 10 The TSP is a defined contribution pension plan for Federal em-
9, Budget Concepts. ployees. The G-Fund is one of several components of the TSP.
Table 43. DEBT HELD BY THE PUBLIC NET OF FINANCIAL ASSETS AND LIABILITIES
Actual Estimate
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Debt Held by the Public:

Debt held by the public 13,116.7 14,128.7 14,763.2 15,323.5 15,982.2 16,614.9 17,263.5 18,016.5 18,793.5 19,548.1 20,395.7 21,301.9
Financial Assets Net of Liabilities:
Treasury operating cash balance 198.7 275.0 275.0 275.0 275.0 275.0 275.0 275.0 275.0 275.0 275.0 275.0
Credit financing account balances:
Direct loan accounts 1,144.1 1,247.6 1,376.6 1,485.9 1,598.1 1,701.4 1,804.8 1,906.4 2,010.7 2,118.6 2,228.7 2,338.7
Guaranteed loan accounts 11.4 24.6 27.9 26.6 25.0 21.4 15.5 8.5 5.2 2.7 0.4 4.3
Troubled Asset Relief Program equity purchase
accounts 0.4 0.4 0.4 0.3 0.2 0.1 0.1 0.1 0.1 * * *
Subtotal, credit financing account balances 1,155.9 1,272.7 1,404.9 1,512.7 1,623.3 1,722.9 1,820.4 1,914.9 2,015.9 2,121.3 2,229.2 2,343.0
Government-sponsored enterprise preferred stock 106.3 106.3 106.3 106.3 106.3 106.3 106.3 106.3 106.3 106.3 106.3 106.3
Non-Federal securities held by NRRIT 23.7 24.0 23.1 22.4 21.7 21.0 20.3 19.5 19.1 18.5 18.0 17.7
Other assets net of liabilities 250.3 47.1 47.1 47.1 47.1 47.1 47.1 47.1 47.1 47.1 47.1 47.1
Total, financial assets net of liabilities 1,234.3 1,630.9 1,762.2 1,869.3 1,979.2 2,078.1 2,174.9 2,268.7 2,369.2 2,474.1 2,581.4 2,694.9
Debt Held by the Public Net of Financial Assets and
Liabilities:
Debt held by the public net of financial assets 11,882.4 12,497.9 13,001.0 13,454.2 14,003.1 14,536.8 15,088.6 15,747.8 16,424.3 17,074.0 17,814.2 18,606.9
credit markets, broadening those markets in a way that Table 43 presents debt held by the public net of the
is analogous to the demand on credit markets that bor- Governments financial assets and liabilities, or net debt.
rowing entails. For this reason, debt held by the public is Treasury debt is presented in the Budget at book value,
also an incomplete measure of the impact of the Federal with no adjustments for the change in economic value
Government in the United States and international credit that results from fluctuations in interest rates. The bal-
markets. ances of credit financing accounts are based on projections
One transaction that can increase both borrowing of future cash flows. For direct loan financing accounts,
and assets is an increase to the Treasury operating cash the balance generally represents the net present value of
balance. When the Government borrows to increase anticipated future inflows such as principal and interest
the Treasury operating cash balance, that cash balance payments from borrowers. For guaranteed loan financing
also represents an asset that is available to the Federal accounts, the balance generally represents the net present
Government. Looking at both sides of this transaction value of anticipated future outflows, such as default claim
the borrowing to obtain the cash and the asset of the cash payments net of recoveries, and other collections, such as
holdingsprovides much more complete information program fees. NRRITs holdings of non-Federal securities
about the Governments financial condition than looking are marked to market on a monthly basis. Government-
at only the borrowing from the public. Another example sponsored enterprise (GSE) preferred stock is measured
of a transaction that simultaneously increases borrowing at market value.
from the public and Federal assets is Government bor- Net financial assets decreased by $90 billion, to $1,234
rowing to issue direct loans to the public. When the direct billion, in 2015. This $1,234 billion in net financial assets
loan is made, the Government is also acquiring an asset included a cash balance of $199 billion, net credit financ-
in the form of future payments of principal and inter- ing account balances of $1,156 billion, and other assets
est, net of the Governments expected losses on the loan. and liabilities that aggregated to a net liability of $120
Similarly, when NRRIT increases its holdings of non-Fed- billion. At the end of 2015, debt held by the public was
eral securities, the borrowing to purchase those securities $13,117 billion, or 73.7 percent of GDP. Therefore, debt
is offset by the value of the asset holdings. net of financial assets was $11,882 billion, or 66.7 per-
The acquisition or disposition of Federal financial as- cent of GDP. As shown in Table 43, the value of the
sets very largely explains the difference between the Governments net financial assets is projected to increase
deficit for a particular year and that years increase in to $1,631 billion in 2016. While debt held by the public is
debt held by the public. Debt net of financial assets is a expected to increase from 73.7 percent to 76.5 percent of
measure that is conceptually closer to the measurement GDP during 2016, net debt is expected to increase from
of Federal deficits or surpluses; cumulative deficits and 66.7 percent to 67.7 percent of GDP.
surpluses over time more closely equal the debt net of fi- Debt securities and other financial assets and liabili-
nancial assets than they do the debt held by the public. ties do not encompass all the assets and liabilities of the
Federal Government. For example, accounts payable oc- will be redeemed at the greater of their inflation-adjusted
cur in the normal course of buying goods and services; principal or par amount at original issue.
Social Security benefits are due and payable as of the end Historically, the average maturity of outstanding debt
of the month but, according to statute, are paid during the issued by Treasury has been about five years. The aver-
next month; and Federal employee salaries are paid after age maturity of outstanding debt was 70 months at the
they have been earned. Like debt securities sold in the end of 2015. Over the last several years there have been
credit market, these liabilities have their own distinctive many changes in financial markets that have ultimately
effects on the economy. The Federal Government also has resulted in significant structural demand for high-quali-
significant holdings of non-financial assets, such as land, ty, shorter-dated securities such as Treasury bills. At the
mineral deposits, buildings, and equipment. A unique and same time, Treasury bills as a percent of outstanding is-
important asset is the Governments sovereign power to suance has fallen to historically low levels of around 10
tax. The different types of assets and liabilities are re- percent. In recognition of these structural changes, in
ported annually in the financial statements of Federal November 2015, the Treasury announced that it would
agencies and in the Financial Report of the United States increase issuance of shorter-dated Treasury securities.
Government, prepared by the Treasury Department in Traditionally, Treasury has issued securities with a
coordination with the Office of Management and Budget fixed interest rate. In 2014, Treasury began to issue float-
(OMB). ing rate securities, to complement its existing suite of
securities and to support its broader debt management
Treasury Debt
objectives. Floating rate securities have a fixed par value
Nearly all Federal debt is issued by the Department but bear interest rates that fluctuate based on movements
of the Treasury. Treasury meets most of the Federal in a specified benchmark market interest rate. Treasurys
Governments financing needs by issuing marketable se- floating rate notes are benchmarked to the Treasury 13-
curities to the public. These financing needs include both week bill. Currently, Treasury is issuing floating rate
the change in debt held by the public and the refinanc- securities with a maturity of two years.
ingor rolloverof any outstanding debt that matures In addition to quarterly announcements about the
during the year. Treasury marketable debt is sold at pub- overall auction calendar, Treasury publicly announces
lic auctions on a regular schedule and, because it is very in advance the auction of each security. Individuals can
liquid, can be bought and sold on the secondary market at participate directly in Treasury auctions or can purchase
narrow bid-offer spreads. Treasury also sells to the pub- securities through brokers, dealers, and other financial
lic a relatively small amount of nonmarketable securities, institutions. Treasury accepts two types of auction bids:
such as savings bonds and State and Local Government competitive and noncompetitive. In a competitive bid, the
Series securities (SLGS).11 Treasury nonmarketable debt bidder specifies the yield. A significant portion of com-
cannot be bought or sold on the secondary market. petitive bids are submitted by primary dealers, which
Treasury issues marketable securities in a wide range are banks and securities brokerages that have been des-
of maturities, and issues both nominal (non-inflation- ignated to trade in Treasury securities with the Federal
indexed) and inflation-indexed securities. Treasurys Reserve System. In a noncompetitive bid, the bidder
marketable securities include: agrees to accept the yield determined by the auction.12
Treasury BillsTreasury bills have maturities of one At the close of the auction, Treasury accepts all eligible
year or less from their issue date. In addition to the reg- noncompetitive bids and then accepts competitive bids in
ular auction calendar of bill issuance, Treasury issues ascending order beginning with the lowest yield bid until
cash management bills on an as-needed basis for vari- the offering amount is reached. All winning bidders re-
ous reasons such as to offset the seasonal patterns of the ceive the highest accepted yield bid.
Governments receipts and outlays. Treasury marketable securities are highly liquid and
Treasury NotesTreasury notes have maturities of actively traded on the secondary market, which enhances
more than one year and up to 10 years. the demand for Treasuries at initial auction. The demand
Treasury BondsTreasury bonds have maturities of for Treasury securities is reflected in the ratio of bids re-
more than 10 years. The longest-maturity securities is- ceived to bids accepted in Treasury auctions; the demand
sued by Treasury are 30-year bonds. for the securities is substantially greater than the level
Treasury Inflation-Protected Securities (TIPS) of issuance. Because they are backed by the full faith and
Treasury inflation-protectedor inflation-indexedse- credit of the United States Government, Treasury mar-
curities are coupon issues for which the par value of the ketable securities are considered to be credit risk-free.
security rises with inflation. The principal value is adjust- Therefore, the Treasury yield curve is commonly used as a
ed daily to reflect inflation as measured by changes in the benchmark for a wide variety of purposes in the financial
Consumer Price Index (CPI-U-NSA, with a two-month markets.
lag). Although the principal value may be adjusted down- Whereas Treasury issuance of marketable debt is
ward if inflation is negative, at maturity, the securities based on the Governments financing needs, Treasurys
issuance of nonmarketable debt is based on the publics
demand for the specific types of investments. Increases
11 Under the SLGS program, the Treasury offers special low-yield in outstanding balances of nonmarketable debt reduce
securities to State and local governments and other entities for tempo-
rary investment of proceeds of tax-exempt bonds. 12 Noncompetitive bids cannot exceed $5 million per bidder.
Table 44. AGENCY DEBT

(In millions of dollars)
2015 Actual 2016 Estimate 2017 Estimate

Borrowing/ Borrowing/ Borrowing/
Repayment() Debt, End-of-Year Repayment() Debt, End-of-Year Repayment() Debt, End-of-Year
Borrowing from the public:

Housing and Urban Development:
Federal Housing Administration ......... 19 * 19 ......... 19
Architect of the Capitol 8 107 9 98 9 89
National Archives 20 97 21 75 23 52
Tennessee Valley Authority:
Bonds and notes 256 23,872 688 24,561 248 24,809
Lease financing obligations 109 1,932 114 1,818 120 1,698
Prepayment obligations 100 310 100 210 100 110
Total, borrowing from the public 20 26,336 445 26,781 3 26,777
Borrowing from other funds:
Tennessee Valley Authority1 2 6 ......... 6 ......... 6
Total, borrowing from other funds 2 6 ......... 6 ......... 6
Total, agency borrowing 22 26,342 445 26,786 3 26,783
Memorandum:
Tennessee Valley Authority bonds and notes, total 258 23,878 688 24,567 248 24,815
* $500,000 or less.
1 Represents open market purchases by the National Railroad Retirement Investment Trust.
the need for marketable borrowing. In 2015, there was cure the repayment of third party capital used to finance
net disinvestment in nonmarketables, necessitating ad- construction of the facility. TVA retains substantially all
ditional marketable borrowing to finance the redemption of the economic benefits and risks related to ownership
of nonmarketable debt.13 of the assets.14 Under the prepayment obligations meth-
od, TVAs power distributors may prepay a portion of the
Agency Debt
price of the power they plan to purchase in the future. In
A few Federal agencies other than Treasury, shown in return, they obtain a discount on a specific quantity of
Table 44, sell or have sold debt securities to the public the future power they buy from TVA. The quantity varies,
and, at times, to other Government accounts. Currently, depending on TVAs estimated cost of borrowing.
new debt is issued only by the Tennessee Valley Authority OMB determined that each of these alternative fi-
(TVA) and the Federal Housing Administration; the re- nancing methods is a means of financing the acquisition
maining agencies are repaying past borrowing. Agency of assets owned and used by the Government, or of refi-
debt was $26.3 billion at the end of 2014 and at the end of nancing debt previously incurred to finance such assets.
2015. Agency debt is less than one-quarter of one percent They are equivalent in concept to other forms of borrow-
of Federal debt held by the public. Primarily as a result ing from the public, although under different terms and
of TVA activity, agency debt is estimated to grow to $26.8 conditions. The budget therefore records the upfront cash
billion at the end of 2016 and to remain at that level in proceeds from these methods as borrowing from the pub-
2017. lic, not offsetting collections.15 The budget presentation
The predominant agency borrower is TVA, which had is consistent with the reporting of these obligations as li-
borrowings of $26.1 billion from the public as of the end of
2015, or 99 percent of the total debt of all agencies other 14 This arrangement is at least as governmental as a lease-pur-
than Treasury. TVA issues debt primarily to finance capi- chase without substantial private risk. For further detail on the current
tal projects. budgetary treatment of lease-purchase without substantial private risk,
TVA has traditionally financed its capital construction see OMB Circular No. A11, Appendix B.
15 This budgetary treatment differs from the treatment in the
by selling bonds and notes to the public. Since 2000, it has
Monthly Treasury Statement of Receipts and Outlays of the United
also employed two types of alternative financing methods, States Government (Monthly Treasury Statement) Table 6 Schedule C,
lease financing obligations and prepayment obligations. and the Combined Statement of Receipts, Outlays, and Balances of the
Under the lease financing obligations method, TVA signs United States Government Schedule 3, both published by the Depart-
long-term contracts to lease some facilities and equipment. ment of the Treasury. These two schedules, which present debt issued
The lease payments under these contracts ultimately se- by agencies other than Treasury, exclude the TVA alternative financing
arrangements. This difference in treatment is one factor causing minor
differences between debt figures reported in the Budget and debt figures
13 Detail on the marketable and nonmarketable securities issued reported by Treasury. The other factors are adjustments for the timing
by Treasury is found in the Monthly Statement of the Public Debt, pub- of the reporting of Federal debt held by NRRIT and treatment of the
lished on a monthly basis by the Department of the Treasury. Federal debt held by the Securities Investor Protection Corporation.
abilities on TVAs balance sheet under generally accepted and the Civil Service Retirement and Disability Fund,
accounting principles. Table 44 presents these alterna- and two special funds, the uniformed services Medicare-
tive financing methods separately from TVA bonds and Eligible Retiree Health Care Fund (MERHCF) and the
notes to distinguish between the types of borrowing. At Postal Service Retiree Health Benefits Fund (PSRHBF).
the end of 2015, lease financing obligations were $1.9 bil- At the end of 2017, these Social Security, Medicare, and
lion and obligations for prepayments were $0.3 billion. Federal employee retirement funds are estimated to own
Although the FHA generally makes direct disburse- 90 percent of the total debt held by Government accounts.
ments to the public for default claims on FHA-insured During 20152017, the Military Retirement Fund has a
mortgages, it may also pay claims by issuing deben- large surplus and is estimated to invest a total of $173
tures. Issuing debentures to pay the Governments bills billion, 47 percent of total net investment by Government
is equivalent to selling securities to the public and then accounts. CSRDF is projected to invest $47 billion, 13
paying the bills by disbursing the cash borrowed, so the percent of the net total. Some Government accounts are
transaction is recorded as being simultaneously an outlay projected to have net disinvestment in Federal securities
and borrowing. The debentures are therefore classified as during 20152017.
agency debt. Technical note on measurement.The Treasury securi-
A number of years ago, the Federal Government ties held by Government accounts consist almost entirely
guaranteed the debt used to finance the construction of of the Government account series. Most were issued at
buildings for the National Archives and the Architect of par value (face value), and the securities issued at a dis-
the Capitol, and subsequently exercised full control over count or premium are traditionally recorded at par in the
the design, construction, and operation of the buildings. OMB and Treasury reports on Federal debt. However,
These arrangements are equivalent to direct Federal con- there are two kinds of exceptions.
struction financed by Federal borrowing. The construction First, Treasury issues zero-coupon bonds to a very few
expenditures and interest were therefore classified as Government accounts. Because the purchase price is a
Federal outlays, and the borrowing was classified as small fraction of par value and the amounts are large, the
Federal agency borrowing from the public. holdings are recorded in Table 45 at par value less unam-
A number of Federal agencies borrow from the Bureau ortized discount. The only two Government accounts that
of the Fiscal Service (Fiscal Service) or the Federal held zero-coupon bonds during the period of this table are
Financing Bank (FFB), both within the Department of the the Nuclear Waste Disposal Fund in the Department of
Treasury. Agency borrowing from the FFB or the Fiscal Energy and the Pension Benefit Guaranty Corporation
Service is not included in gross Federal debt. It would be (PBGC). The total unamortized discount on zero-coupon
double counting to add together (a) the agency borrowing bonds was $18.1 billion at the end of 2015.
from the Fiscal Service or FFB and (b) the Treasury bor- Second, Treasury subtracts the unrealized discount
rowing from the public that is needed to provide the Fiscal on other Government account series securities in cal-
Service or FFB with the funds to lend to the agencies. culating net Federal securities held as investments of
Debt Held by Government Accounts Government accounts. Unlike the discount recorded for
zero-coupon bonds and debt held by the public, the unre-
Trust funds, and some special funds and public en- alized discount is the discount at the time of issue and is
terprise revolving funds, accumulate cash in excess of not amortized over the term of the security. In Table 45
current needs in order to meet future obligations. These it is shown as a separate item at the end of the table and
cash surpluses are generally invested in Treasury debt. not distributed by account. The amount was $7.5 billion
The total investment holdings of trust funds and other at the end of 2015.
Government accounts decreased by $11 billion in 2015.
Debt Held by the Federal Reserve
Net investment by Government accounts is estimated
to be $301 billion in 2016 and $82 billion in 2017, as The Federal Reserve acquires marketable Treasury
shown in Table 45. The holdings of Federal securities by securities as part of its exercise of monetary policy. For
Government accounts are estimated to increase to $5,386 purposes of the Budget and reporting by the Department
billion by the end of 2017, or 27 percent of the gross of the Treasury, the transactions of the Federal Reserve
Federal debt. The percentage is estimated to decrease are considered to be non-budgetary, and accordingly the
gradually over the next 10 years. Federal Reserves holdings of Treasury securities are
The Government account holdings of Federal securities included as part of debt held by the public.16 Federal
are concentrated among a few funds: the Social Security Reserve holdings were $2,462 billion (19 percent of debt
Old-Age and Survivors Insurance (OASI) and Disability held by the public) at the end of 2015. Over the last 10
Insurance (DI) trust funds; the Medicare Hospital years, the Federal Reserve holdings have averaged 15
Insurance (HI) and Supplementary Medical Insurance percent of debt held by the public. The historical holdings
(SMI) trust funds; and four Federal employee retire- of the Federal Reserve are presented in Table 7.1 in the
ment funds. These Federal employee retirement funds Budgets historical tables. The Budget does not project
include two trust funds, the Military Retirement Fund Federal Reserve holdings for future years.
16 For further detail on the monetary policy activities of the Federal
Reserve and the treatment of the Federal Reserve in the Budget, see
Chapter 10, Coverage of the Budget.
Table 45. DEBT HELD BY GOVERNMENT ACCOUNTS1

Investment or Disinvestment (-)
Holdings,
Description 2015 2016 2017 End of 2017
Actual Estimate Estimate Estimate
Investment in Treasury debt:

Energy:
Nuclear waste disposal fund1 1,428 296 41 34,236
Uranium enrichment decontamination fund 161 612 692 3,263
Health and Human Services:
Federal hospital insurance trust fund 6,750 5,734 2,028 187,696
Federal supplementary medical insurance trust fund 2,263 12,216 9,347 68,997
Vaccine injury compensation fund 93 162 195 3,810
Child enrollment contingency fund 48 1,846 2,743 1,156
Homeland Security:
Aquatic resources trust fund 55 51 58 1,949
Oil spill liability trust fund 541 702 715 5,660
Federal Housing Administration mutual mortgage fund 8,353 20,009 10,116 44,858
Guarantees of mortgage-backed securities 12,772 2,577 1,236 16,736
Interior:
Abandoned mine reclamation fund 4 6 27 2,785
Federal aid in wildlife restoration fund 766 74 36 1,990
Environmental improvement and restoration fund 42 2 18 1,417
Justice: Assets forfeiture fund 862 1,001 1,499 3,706
Labor:
Unemployment trust fund 8,449 10,066 12,494 66,928
Pension Benefit Guaranty Corporation1 1,070 4,526 4,328 27,189
State: Foreign service retirement and disability trust fund 352 324 321 18,789
Transportation:
Airport and airway trust fund 43 1,272 1,145 10,299
Transportation trust fund 3,029 57,581 15,125 50,123
Aviation insurance revolving fund 11 14 52 2,192
Treasury:
Exchange stabilization fund 1,876 1,881 30 22,684
Treasury forfeiture fund 4,132 3,791 ......... 2,400
Comptroller of the Currency assessment fund 610 70 72 1,677
Veterans Affairs:
National service life insurance trust fund 726 606 682 3,615
Veterans special life insurance fund 78 107 118 1,560
Corps of Engineers: Harbor maintenance trust fund 292 711 1,044 10,348
Other Defense-Civil:
Military retirement trust fund 47,849 58,673 66,867 656,500
Medicare-eligible retiree health care fund 5,421 7,482 7,814 221,089
Education benefits fund 192 142 185 1,049
Environmental Protection Agency: Hazardous substance trust fund 1,760 20 219 5,445
International Assistance Programs: Overseas Private Investment Corporation 92 74 99 5,792
Office of Personnel Management:
Civil service retirement and disability trust fund 125,902 157,257 15,784 904,308
Postal Service retiree health benefits fund 3,231 5,843 3,892 54,972
Employees life insurance fund 745 1,169 623 43,412
Employees and retired employees health benefits fund 538 1,634 503 25,158
Social Security Administration:
Federal old-age and survivors insurance trust fund2 53,844 33,990 77,687 2,654,972
Federal disability insurance trust fund2 28,475 1,593 56,173 96,218
District of Columbia: Federal pension fund 22 191 57 3,857
Farm Credit System Insurance Corporation: Farm Credit System Insurance fund 284 315 292 4,334
Table 45. DEBT HELD BY GOVERNMENT ACCOUNTS1Continued

Investment or Disinvestment (-)
Holdings,
Description 2015 2016 2017 End of 2017
Actual Estimate Estimate Estimate
Federal Communications Commission: Universal service fund 466 819 999 6,304
Federal Deposit Insurance Corporation: Deposit insurance fund 11,346 7,455 10,912 78,463
National Credit Union Administration: Share insurance fund 559 400 513 12,497
Postal Service fund2 1,713 28 1,861 5,330
Railroad Retirement Board trust funds 58 134 56 2,466
Securities Investor Protection Corporation3 300 183 70 2,613
United States Enrichment Corporation fund 2 2 470 1,146
Other Federal funds 64 742 169 5,753
Other trust funds 126 311 178 6,006
Unrealized discount1 94 ......... ......... 7,533
Total, investment in Treasury debt1 11,172 301,167 81,639 5,386,214
Investment in agency debt:
Railroad Retirement Board:
National Railroad Retirement Investment Trust 2 ......... ......... 6
Total, investment in agency debt1 2 ......... ......... 6
Total, investment in Federal debt1 11,169 301,167 81,639 5,386,220
Memorandum:
Investment by Federal funds (on-budget) 40,799 46,212 34,515 561,432
Investment by Federal funds (off-budget) 1,713 28 1,861 5,330
Investment by trust funds (on-budget) 78,956 290,510 70,499 2,075,801
Investment by trust funds (off-budget) 25,369 35,583 21,514 2,751,190
Unrealized discount1 94 ......... ......... 7,533
Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by the Nuclear 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 2015 the debt figures would be $17.9 billion higher for the Nuclear Waste Disposal Fund and $0.2 billion
higher for PBGC than recorded in this table.
2 Off-budget Federal entity.
3 Amounts on calendar-year basis.
Limitations on Federal Debt

the Treasury securities for which they were exchanged.
Definition of debt subject to limit.Statutory limi- The FFB issued $14 billion of securities to the CSRDF
tations have usually been placed on Federal debt. Until on November 15, 2004, with maturity dates ranging from
World War I, the Congress ordinarily authorized a specific June 30, 2009, through June 30, 2019, and issued $9 bil-
amount of debt for each separate issue. Beginning with lion to the CSRDF on October 1, 2013, with maturity
the Second Liberty Bond Act of 1917, however, the nature dates from June 30, 2015, through June 30, 2024. At the
of the limitation was modified in several steps until it de- end of 2015, a total of $12 billion of this FFB borrowing
veloped into a ceiling on the total amount of most Federal remained outstanding. On October 15, 2015, FFB issued
debt outstanding. This last type of limitation has been in $3 billion of securities to the CSRDF, with maturity dates
effect since 1941. The limit currently applies to most debt from June 30, 2026, through June 30, 2029, bringing this
issued by the Treasury since September 1917, whether category of debt to its statutory limit. The outstanding
held by the public or by Government accounts; and other balance of FFB debt held by CSRDF is projected to be
debt issued by Federal agencies that, according to explicit $13 billion at the end of 2016 and $11 billion at the end
statute, is guaranteed as to principal and interest by the of 2017.
U.S. Government. The Housing and Economic Recovery Act of 2008 created
The third part of Table 42 compares total Treasury another type of debt not subject to limit. This debt, termed
debt with the amount of Federal debt that is subject to the Hope Bonds, has been issued by Treasury to the FFB for
limit. Nearly all Treasury debt is subject to the debt limit. the HOPE for Homeowners program. The outstanding bal-
A large portion of the Treasury debt not subject to ance of Hope Bonds was $494 million at the end of 2015 and
the general statutory limit was issued by the Federal is projected to fall to $7 million by the end of 2016 and then
Financing Bank. The FFB is authorized to have outstand- to increase gradually in subsequent years.
ing up to $15 billion of publicly issued debt. The FFB has The other Treasury debt not subject to the general limit
on occasion issued this debt to CSRDF in exchange for consists almost entirely of silver certificates and other cur-
equal amounts of regular Treasury securities. The FFB rencies no longer being issued. It was $483 million at the end
securities have the same interest rates and maturities as of 2015 and is projected to gradually decline over time.
The sole agency debt currently subject to the general Thrift Savings Plan G-Fund. The Treasury Secretary has
limit, $209 thousand at the end of 2015, is certain deben- statutory authority to suspend investment of the G-Fund
tures issued by the Federal Housing Administration.17 in Treasury securities as needed to prevent the debt from
Some of the other agency debt, however, is subject to exceeding the debt limit. Treasury determines each day
its own statutory limit. For example, the Tennessee Valley the amount of investments that would allow the fund to
Authority is limited to $30 billion of bonds and notes be invested as fully as possible without exceeding the
outstanding. debt limit. At the end of December 2015, the TSP G-Fund
The comparison between Treasury debt and debt sub- had an outstanding balance of $207 billion. The Secretary
ject to limit also includes an adjustment for measurement is also authorized to suspend investments in the CSRDF
differences in the treatment of discounts and premiums. and to declare a debt issuance suspension period, which
As explained earlier in this chapter, debt securities may allows him or her to redeem a limited amount of securi-
be sold at a discount or premium, and the measurement of ties held by the CSRDF. The Postal Accountability and
debt may take this into account rather than recording the Enhancement Act of 2006 provides that investments in
face value of the securities. However, the measurement the Postal Service Retiree Health Benefits Fund shall
differs between gross Federal debt (and its components) be made in the same manner as investments in the
and the statutory definition of debt subject to limit. An CSRDF.19 Therefore, Treasury is able to take similar ad-
adjustment is needed to derive debt subject to limit (as ministrative actions with the PSRHBF. The law requires
defined by law) from Treasury debt. The amount of the that when any such actions are taken with the G-Fund,
adjustment was $32.5 billion at the end of 2015 compared the CSRDF, or the PSRHBF, the Secretary is required to
with the total unamortized discount (less premium) of make the fund whole after the debt limit has been raised
$56.9 billion on all Treasury securities. by restoring the forgone interest and investing the fund
Changes in the debt limit.The statutory debt limit fully. Another measure for staying below the debt limit is
has been changed many times. Since 1960, the Congress disinvestment of the Exchange Stabilization Fund. The
has passed 82 separate acts to raise the limit, revise the outstanding balance in the Exchange Stabilization Fund
definition, extend the duration of a temporary increase, or was $23 billion at the end of December 2015.
temporarily suspend the limit.18 As the debt has neared the limit, including in 2013,
The four most recent laws addressing the debt limit 2014, and 2015, Treasury has also suspended the issu-
have each provided for a temporary suspension followed ance of SLGS to reduce unanticipated fluctuations in the
by an increase in an amount equivalent to the debt that level of the debt.
was issued during that suspension period in order to fund In October 2015, as Treasury neared the exhaustion
commitments requiring payment through the specified of its extraordinary measures, Treasury also postponed
end date. The No Budget, No Pay Act of 2013 suspended the 2-year note auction originally scheduled for Tuesday,
the debt limit from February 4, 2013, through May 18, October 27. After the November 2nd enactment of the
2013, and then raised the debt limit on May 19, 2013, Bipartisan Budget Act of 2015, Treasury rescheduled the
by $305 billion, from $16,394 billion to $16,699 billion. auction for Wednesday, November 4.
The Continuing Appropriations Act, 2014, suspended In addition to these steps, Treasury has previously
the $16,699 billion debt ceiling from October 17, 2013, exchanged Treasury securities held by the CSRDF with
through February 7, 2014, and then raised the debt limit borrowing by the FFB, which, as explained above, is not
on February 8, 2014, by $512 billion to $17,212 billion. subject to the debt limit. This measure was most recently
The Temporary Debt Limit Extension Act suspended taken in November 2004, October 2013, and October 2015.
the $17,212 billion debt ceiling from February 15, 2014, The debt limit has always been increased prior to the
through March 15, 2015, and then raised the debt limit exhaustion of Treasurys limited available administra-
on March 16, 2015, by $901 billion to $18,113 billion. The tive actions to continue to finance Government operations
Bipartisan Budget Act of 2015 suspended the $18,113 bil- when the statutory ceiling has been reached. Failure
lion debt ceiling from November 2, 2015, through March to enact a debt limit increase before these actions were
15, 2017. exhausted would have significant and long-term nega-
At many times in the past several decades, including tive consequences. Without an increase, Treasury would
2013, 2014, and 2015, the Government has reached the be unable to make timely interest payments or redeem
statutory debt limit before an increase has been enacted. maturing securities. Investors would cease to view U.S.
When this has occurred, it has been necessary for the Treasury securities as free of credit risk and Treasurys
Department of the Treasury to take extraordinary mea- interest costs would increase. Because interest rates
sures to meet the Governments obligation to pay its bills throughout the economy are benchmarked to the Treasury
and invest its trust funds while remaining below the stat- rates, interest rates for State and local governments, busi-
utory limit. As mentioned above, one such measure is the nesses, and individuals would also rise. Foreign investors
partial or full suspension of the daily reinvestment of the would likely shift out of dollar-denominated assets, driv-
ing down the value of the dollar and further increasing
17 At the end of 2015, there were also $18 million of FHA debentures interest rates on non-Federal, as well as Treasury, debt.
not subject to limit. In addition, the Federal Government would be forced to
18 The Acts and the statutory limits since 1940 are listed in Table 7.3
of the Budgets historical tables, available at https://www.whitehouse. 19 Both the CSRDF and the PSRHBF are administered by the Office
gov/omb/budget/Historicals. of Personnel Management.

Table 46. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
Estimate
Description Actual
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Change in Gross Federal Debt:

Federal funds deficit (+) 550.0 802.6 613.9 588.6 659.4 609.5 615.4 666.8 691.9 689.1 703.1 742.2
Other transactions affecting borrowing from the public
Federal funds1 100.2 395.9 131.8 107.5 110.1 99.2 97.1 94.1 100.6 105.0 107.4 113.4
Increase (+) or decrease () in Federal debt held by
Federal funds 42.5 46.2 32.7 39.5 42.3 43.3 40.0 40.4 41.2 44.9 50.4 39.4
Adjustments for trust fund surplus/deficit not invested/
disinvested in Federal securities2 166.6 68.5 62.3 0.8 0.7 0.7 0.8 0.8 0.5 0.5 0.5 0.3
Change in unrealized discount on Federal debt held by
Government accounts 0.1 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Total financing requirements 325.6 1,313.2 716.1 734.9 811.2 751.3 751.8 800.7 833.2 838.5 860.3 894.8
Change in Debt Subject to Limit:
Change in gross Federal debt 325.6 1,313.2 716.1 734.9 811.2 751.3 751.8 800.7 833.2 838.5 860.3 894.8
Less: increase (+) or decrease () in Federal debt not
subject to limit 1.3 0.7 1.6 1.6 2.9 2.5 2.1 2.0 2.1 2.0 1.4 1.9
Less: change in adjustment for discount and premium 3 5.0 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Total, change in debt subject to limit 331.9 1,312.5 717.7 736.5 814.1 753.8 753.9 802.6 835.2 840.5 861.7 896.6
Memorandum:
Debt subject to statutory limit 4 18,113.0 19,425.5 20,143.2 20,879.7 21,693.7 22,447.6 23,201.5 24,004.1 24,839.3 25,679.8 26,541.5 27,438.2
1 Includes Federal fund transactions that correspond to those presented in Table 4-2, 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 Legislation enacted November 2, 2015 (P.L. 114-74), temporarily suspends the debt limit through March 15, 2017.
delay or discontinue payments on its broad range of ob- derived from tax receipts and borrowing and are used for
ligations, including Social Security and other payments the general purposes of the Government. The trust funds,
to individuals, Medicaid and other grant payments to on the other hand, are financed by taxes or other receipts
States, individual and corporate tax refunds, Federal em- dedicated by law for specified purposes, such as for paying
ployee salaries, payments to vendors and contractors, and Social Security benefits or making grants to State govern-
other obligations. ments for highway construction.20
The debt subject to limit is estimated to increase to A Federal funds deficit must generally be financed by
$19,426 billion by the end of 2016 and to $20,143 bil- borrowing, which can be done either by selling securities
lion by the end of 2017. The Budget anticipates prompt to the public or by issuing securities to Government ac-
Congressional action to increase the statutory limit as counts that are not within the Federal funds group. Federal
necessary after the suspension period ends on March 16, funds borrowing consists almost entirely of Treasury se-
2017, so that Treasury is able to finance the Governments curities that are subject to the statutory debt limit. Very
payments without the need to employ extraordinary little debt subject to statutory limit has been issued for
measures. reasons except to finance the Federal funds deficit. The
Federal funds financing and the change in debt change in debt subject to limit is therefore determined
subject to limit.The change in debt held by the pub- primarily by the Federal funds deficit, which is equal to
lic, as shown in Table 42, and the change in debt net the difference between the total Government deficit or
of financial assets are determined primarily by the to- surplus and the trust fund surplus. Trust fund surpluses
tal Government deficit or surplus. The debt subject to are almost entirely invested in securities subject to the
limit, however, includes not only debt held by the public debt limit, and trust funds hold most of the debt held by
but also debt held by Government accounts. The change Government accounts. The trust fund surplus reduces the
in debt subject to limit is therefore determined both by total budget deficit or increases the total budget surplus,
the factors that determine the total Government deficit decreasing the need to borrow from the public or increas-
or surplus and by the factors that determine the change ing the ability to repay borrowing from the public. When
in debt held by Government accounts. The effect of debt the trust fund surplus is invested in Federal securities,
held by Government accounts on the total debt subject the debt held by Government accounts increases, offset-
to limit can be seen in the second part of Table 42. The ting the decrease in debt held by the public by an equal
change in debt held by Government accounts results in 12 amount. Thus, there is no net effect on gross Federal debt.
percent of the estimated total increase in debt subject to Table 46 derives the change in debt subject to limit. In
limit from 2016 through 2026. 2015 the Federal funds deficit was $550 billion, and other
The budget is composed of two groups of funds, Federal
funds and trust funds. The Federal funds, in the main, are 20 For further discussion of the trust funds and Federal funds groups,
see Chapter 26, Trust Funds and Federal Funds.

factors reduced financing requirements by $100 billion. subject to limit increased by $332 billion, while debt held
While the change in the Treasury operating cash balance by the public increased by $337 billion.
increased financing requirements by $40 billion and the Debt subject to limit is estimated to increase by $1,313
net financing disbursements of credit financing accounts billion in 2016 and by $718 billion in 2017. The projected
increased financing requirements by $88 billion, other increases in the debt subject to limit are caused by the
factors decreased financing requirements by $228 billion. continued Federal funds deficit, supplemented by the
As discussed earlier in this chapter, this net $228 billion other factors shown in Table 46. While debt held by the
in other factors was mainly due to the disinvestment of public increases by $8,185 billion from the end of 2015
the TSP G-Fund. In addition, special funds and revolving through 2026, debt subject to limit increases by $9,325
funds, which are part of the Federal funds group, invested billion.
a net of $43 billion in Treasury securities. A -$167 billion Foreign Holdings of Federal Debt
adjustment is also made for the difference between the
trust fund surplus or deficit and the trust funds invest- During most of American history, the Federal debt was
ment or disinvestment in Federal securities (including the held almost entirely by individuals and institutions with-
changes in NRRITs investments in non-Federal securi- in the United States. In the late 1960s, foreign holdings
ties). As discussed above, this unusually large adjustment were just over $10 billion, less than 5 percent of the total
amount is due primarily to the extraordinary measures Federal debt held by the public. Foreign holdings began
taken with the CSRDF. As a net result of all these fac- to grow significantly starting in the 1970s and now rep-
tors, $326 billion in financing was required, increasing resent almost half of outstanding debt. This increase has
gross Federal debt by that amount. Since Federal debt been almost entirely due to decisions by foreign central
not subject to limit fell by $1 billion and the adjustment banks, corporations, and individuals, rather than the di-
for discount and premium changed by $5 billion, the debt rect marketing of these securities to foreign investors.
Table 47. FOREIGN HOLDINGS OF FEDERAL DEBT

Change in debt held

Debt held by the public by the public2
Fiscal Year
Percentage
Total Foreign1 foreign Total Foreign
1965 260.8 12.2 4.7 3.9 0.3
1970 283.2 14.0 4.9 5.1 3.7

1975 394.7 66.0 16.7 51.0 9.1
1980 711.9 126.4 17.8 71.6 1.3

1985 1,507.3 222.9 14.8 200.3 47.3
1990 2,411.6 463.8 19.2 220.8 72.0

1995 3,604.4 820.4 22.8 171.3 138.4
2000 3,409.8 1,038.8 30.5 -222.6 -242.6
2005 4,592.2 1,929.6 42.0 296.7 135.1

2006 4,829.0 2,025.3 41.9 236.8 95.7
2007 5,035.1 2,235.3 44.4 206.2 210.0
2008 5,803.1 2,802.4 48.3 767.9 567.1
2009 7,544.7 3,570.6 47.3 1,741.7 768.2
2010 9,018.9 4,324.2 47.9 1,474.2 753.6

2011 10,128.2 4,912.1 48.5 1,109.3 587.9
2012 11,281.1 5,476.1 48.5 1,152.9 564.0
2013 11,982.7 5,652.8 47.2 701.6 176.7
2014 12,779.9 6,069.2 47.5 797.2 416.4
2015 13,116.7 6,103.1 46.5 336.8 33.9

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.
The estimates include the effects of benchmark revisions in 1984, 1989, 1994, and 2000, annual June
benchmark revisions for 2002-2010, and additional revisions.
2 Change in debt held by the public is defined as equal to the change in debt held by the public from
the beginning of the year to the end of the year.

Foreign holdings of Federal debt are presented in Table sure the full impact of the capital inflow from abroad on
47. At the end of 2015, foreign holdings of Treasury debt the market for Federal debt securities. The capital inflow
were $6,103 billion, which was 47 percent of the total debt supplies additional funds to the credit market generally,
held by the public.21 Foreign central banks and other for- and thus affects the market for Federal debt. For example,
eign official institutions owned 68 percent of the foreign the capital inflow includes deposits in U.S. financial inter-
holdings of Federal debt; private investors owned nearly mediaries that themselves buy Federal debt.
all the rest. At the end of 2015, the nations holding the Federal, Federally Guaranteed, and
largest shares of U.S. Federal debt were China, which Other Federally Assisted Borrowing
held 21 percent of all foreign holdings, and Japan, which
held 19 percent. All of the foreign holdings of Federal debt The Governments effects on the credit markets arise
are denominated in dollars. not only from its own borrowing but also from the di-
Although the amount of foreign holdings of Federal rect loans that it makes to the public and the provision
debt has grown greatly over this period, the proportion of assistance to certain borrowing by the public. The
that foreign entities and individuals own, after increasing Government guarantees various types of borrowing by
abruptly in the very early 1970s, remained about 1520 individuals, businesses, and other non-Federal entities,
percent until the mid-1990s. During 199597, however, thereby providing assistance to private credit markets.
growth in foreign holdings accelerated, reaching 33 per- The Government is also assisting borrowing by States
cent by the end of 1997. Foreign holdings of Federal debt through the Build America Bonds program, which subsi-
resumed growth in the following decade, increasing from dizes the interest that States pay on such borrowing. In
34 percent at the end of 2002 to 42 percent at the end of addition, the Government has established private corpo-
2004 and to 48 percent at the end of 2008. Since 2008, rationsGovernment-sponsored enterprisesto provide
foreign holdings have remained relatively stable as a financial intermediation for specified public purposes; it
percentage of Federal debt. As a percent of total Federal exempts the interest on most State and local government
borrowing from the public, foreign holdings were 47 per- debt from income tax; it permits mortgage interest to be
cent at the end of 2014 and 2015. The dollar increase in deducted in calculating taxable income; and it insures
foreign holdings was about 10 percent of total Federal the deposits of banks and thrift institutions, which them-
borrowing from the public in 2015 and 43 percent over selves make loans.
the last five years. Federal credit programs and other forms of assistance
Foreign holdings of Federal debt are around 20-25 per- are discussed in Chapter 20, Credit and Insurance, in
cent of the foreign-owned assets in the United States, this volume. Detailed data are presented in tables accom-
depending on the method of measuring total assets. The panying that chapter.
foreign purchases of Federal debt securities do not mea-
21 The debt calculated by the Bureau of Economic Analysis is dif-
ferent, though similar in size, because of a different method of valuing

securities.
PERFORMANCE AND MANAGEMENT
49
5. SOCIAL INDICATORS
The social indicators presented in this chapter illus- consumer durable goods like cars and appliances amount-
trate in broad terms how the Nation is faring in selected ed to nearly $53 trillion in 2014, more than four times
areas in which the Federal Government has significant the size of the capital stock in 1960, after accounting for
responsibilities. Indicators are drawn from six selected inflation.
domains: economic, demographic and civic, socioeconomic, National saving, a key determinant of future prosper-
health, security and safety, and environment and energy. ity because it supports capital accumulation, fell from 5.8
The indicators shown in the tables in this chapter were percent in 2000 to 2.7 percent in 2005 as Federal budget
chosen in consultation with statistical and data experts surpluses turned to deficits, and fell even further in the
from across the Federal Government. These indicators are recession that followed, turning negative in 2010. Since
only a subset of the vast array of available data on condi- then, national saving has increased to 3.1 percent in 2015.
tions in the United States. In choosing indicators for these Meanwhile, the labor force participation rate, also critical
tables, priority was given to measures that are broadly for growth, has declined for more than a decade, in large
relevant to Americans and consistently available over an part reflecting the beginning of a trend in which the baby
extended period. Such indicators provide a current snap- boom generation retires.
shot while also making it easier to draw comparisons and The United States continues to be a leader in innova-
establish trends. tion. From 1970 to 2014, the rate of patents for invention
The measures in these tables are influenced to vary- by U.S. inventors increased from 231 to 454 per million
ing degrees by many Government policies and programs, population. National Research and Development (R&D)
as well as by external factors beyond the Governments spending has hovered between 2.2 percent and 2.8 per-
control. They do not measure the impacts of Government cent of GDP for the past 50 years, and currently stands at
policies. However, they do provide a quantitative pic- 2.7 percent of GDP.
ture of the progress (or lack of progress) toward some of Demographic and Civic: The U.S. population has
the ultimate ends that Government policy is intended steadily increased from 1970, when it numbered 204
to promote, and of the baseline on which future policies million, to 321 million in 2015. The foreign born popula-
are set. Subsequent chapters in the Performance and tion has increased rapidly since 1970, quadrupling from
Management section of this volume discuss approaches to about 10 million in 1970 to 42 million in 2014. The U.S.
assessing the impacts of Government programs and im- population is getting older, due in part to the aging of the
proving their quality. baby boomers, improvements in medical technology, and
The President has made it clear that policy decisions declining birth rates. From 1970 to 2014, the percent of
should be based upon evidenceevidence that identifies the population over age 65 increased from 9.8 to 14.5,
the Nations greatest needs and challenges and evidence and the percent over age 85 increased from 0.7 to 1.9.
about which strategies are working to overcome those The composition of American households and fami-
challenges. The social indicators in this chapter provide lies has evolved considerably over time. The percent of
useful context both for prioritizing budgetary and policy- Americans who have ever married continues to decline
making resources and for evaluating how well existing as it has over the last five decades. Average family sizes
approaches are working. have also fallen over this period, a pattern that is typi-
Economic: The 2008-2009 economic downturn pro- cal among developed countries. After increasing for over
duced the worst labor market since the Great Depression. three decades, births to unmarried women age 15-17 and
The employment-population ratio dropped sharply from the fraction of single parent households reached a turning
its pre-recession level, and real GDP per person also de- point in 1995. From 1995 to 2014, the number of births per
clined. The economy has steadily recovered since then. 1,000 unmarried women age 15-17 fell from 30 to 11, the
The unemployment rate stood at 5 percent in December lowest level on record. Meanwhile, the fraction of single
2015, down from a high of 10 percent in October 2009, parent households stopped increasing in 1995, stabilizing
and job growth continued in 2015. However, there re- at about 9 percent of all households.
mains room for further recovery. For example, rates of Charitable giving among Americans, measured by the
marginally attached and underemployed workers are average charitable contribution per itemized tax return,
still above pre-recession levels. has generally increased over the past 50 years.1 The ef-
Over the entire period from 1960 to 2015, the primary fects of the 2008-2009 recession are evident in the sharp
pattern has been one of economic growth and rising liv- drop in charitable giving from 2005 to 2010, but much of
ing standards. Real GDP per person has nearly tripled that decline was reversed in 2012. More Americans are
as technological progress and the accumulation of human
and physical capital have increased the Nations pro- 1This measure includes charitable giving only among those who
ductive capacity. The stock of physical capital including claim itemized deductions. It is therefore influenced by changes in tax
laws and in the characteristics of those who itemize.
51
volunteering. In 1990, 20 percent of Americans volun- After increasing from 1990 to 2005, homeownership
teered at least once over the course of a year; in 2014, rates have fallen since the 2008 housing crisis. The share
25 percent volunteered. The political participation of of families with children and severe housing cost burdens
Americans, measured by the voting rate in Presidential more than doubled from 8 percent in 1980 to 18 percent
elections, declined from about 63 percent in 1964 to 57 in 2011, before falling to 16 percent in 2013. In contrast,
percent in 1972. It fell further in the 1996 and 2000 elec- the share of families with children and inadequate hous-
tions, reaching a low of only 50 percent in 1996. However, ing steadily decreased from a high of 9 percent in 1980 to
the Presidential election voting rate rebounded in the a low of 5 percent in 2013.
past three elections, averaging close to 57 percent. The Health: America has by far the most expensive health
cultural engagement of Americans has changed over time. care system in the world, yet has historically had much
The percentage of adults attending visual or performing higher rates of uninsured than many other countries
arts activities, including movie going, decreased from 72 with comparable wealth. National health expenditures
percent in 1980 to 65 percent in 2013. The percentage of as a share of GDP have increased from about 5 percent
Americans engaging in leisure reading of novels, short in 1960 to over 17 percent in 2014. This increase in
stories, poetry, or plays decreased from 56 percent in 1980 health care spending has coincided with improvements
to 45 percent in 2013. However, new modes of cultural in medical technology that have improved health, but
engagement have emerged, such as consumption of en- the level of per capita spending in the United States is
tertainment and new kinds of media via the internet and far greater than that in other Organization for Economic
electronic devices. Cooperation and Development (OECD) countries that
Socioeconomic: Education is a critical component have experienced comparable health improvements. In
of the Nations economic growth and competitiveness, recent years, however, health care spending as a share
while also benefiting society in areas such as health, of GDP has grown more slowly, reflecting some combina-
crime, and civic engagement. Between 1960 and 1980, tion of structural changes and economic conditions. In
the percentage of 25- to 34-year olds who have gradu- addition, the uninsured rate, at 16 percent in 2010, has
ated from high school increased from 58 percent to declined substantially as the coverage provisions of the
84 percent, a gain of 13 percentage points per decade. Affordable Care Act have taken effect and is now below
Progress has slowed since then with a five percentage 10 percent for the first time in history.
point gain over the past 34 years. But the percentage of Some key indicators of national health have improved
25- to 34-year olds who have graduated from college con- since 1960. Life expectancy at birth increased by nine
tinues to rise, from only 11 percent in 1960 to 34 percent years, from 69.7 in 1960 to 78.8 in 2014. Infant mortality
in 2014. Reading and mathematics achievement show fell from 26 to approximately 6 per 1,000 live births, with
little if any improvement for American 17-year olds over a rapid decline occurring in the 1970s.
the period from 1970 to 2012. However, achievement in Improvement in health-related behaviors among
these areas has improved among 9- and 13-year olds, es- Americans has been mixed. Although the percent of adults
pecially for mathematics and particularly since the 2004 who smoke cigarettes in 2014 was less than half of what
assessment. While the percentage of the population with it was in 1970, rates of obesity have soared. In 1980, 15
a graduate degree has risen over time, the percentage of percent of adults and 6 percent of children were obese; in
graduate degrees in science and engineering fell by half 2013, 39 percent of adults and 17 percent of children were
in the period between 1960 to 1980, from 22 percent to obese. Adult obesity continued to rise even as the share
11 percent, and stood at 14 percent in 2014. of adults engaging in regular physical activity increased
Although national prosperity has grown considerably from 15 percent in 2000 to 22 percent in 2014.
over the past 50 years, these gains have not been shared Security and Safety: The last three decades have
equally. Real disposable income per capita more than witnessed a remarkable decline in crime. From 1980
tripled since 1960, but real income for the median house- to 2014, the property crime rate dropped by 76 percent
hold increased only 21 percent from 1970 to 2000, and while the murder rate fell by 59 percent. Road transpor-
has declined by 7 percent since 2000. The income share tation has also become safer. Safety belt use increased by
of the top 1 percent of taxpayers, approximately 9 percent 16 percentage points from 2000 to 2014, and the annu-
in 1980, rose to 19 percent in 2013. In contrast, the in- al number of highway fatalities fell by 38 percent from
come share of the bottom 50 percent of taxpayers declined 1970 to 2014 despite the increase in the population.
from 18 percent in 1980 to 12 percent in 2013. From 2000 The number of military personnel on active duty has
to 2012, the poverty rate, the percentage of food-insecure declined for several years, reflecting the withdrawal of
households, and the percentage of Americans receiving U.S. troops from Iraq and Afghanistan. In 2015 the active
benefits from the Supplemental Nutrition Assistance duty count fell to its lowest level since at least 1960. The
Program (formerly known as the Food Stamp Program), highest count of active duty military personnel was 3.07
increased as Americans struggled with the economic million in 1970, reached during the Vietnam War. The
downturn. These measures have declined over the past number of veterans has declined from 29 million in 1980
several years as the economy continued to strengthen, but to 22 million in 2015.
still remain high compared with levels prior to the 2008- Environment and Energy: The Nations future well-
2009 economic downturn. being and prosperity depend on stewardship of our
natural resources, the environment, and on our ability to
5. SOCIAL INDICATORS 53
grow a clean energy economy. Substantial progress has sions fell by 10 percent. Gross greenhouse gas emissions
been made on air quality in the United States, with the per capita and per unit of GDP fell by 15 and 18 percent,
concentration of particulate matter falling 35 percent respectively. Annual mean atmospheric carbon dioxide
from 2000 to 2014. (CO2) concentration, a global measure of climate change,
Although technological advances and a shift in produc- continues to rise. In 1960 the level of CO2 concentra-
tion patterns mean that Americans now use less than tion was 13 percent above its pre-industrial level of 280
half as much energy per real dollar of GDP as they did 50 ppm; in 2015 it was 43 percent above the pre-industrial
years ago, rising income levels have contributed to a level level. However, the December 2015 Paris Agreement, in-
of per capita consumption that has remained relatively volving more than 190 countries, sets a goal of keeping
constant over the last 40 years. The percent of U.S. elec- warming well below 2 degrees Celsius and aspires to limit
tricity production from renewable sources grew from 8.8 the increase in temperatures to 1.5 degrees Celsius. The
percent in 2005 to 13.2 percent in 2014. Agreement includes commitments to post-2020 climate
Moving forward, the greatest environmental chal- action targets by countries representing roughly 95 per-
lenge is reducing greenhouse gas emissions. In 2014, the cent of global greenhouse gas emissions, and establishes
President announced a target reduction in the range of a framework to ratchet up the ambition of those commit-
26-28 percent of 2005 net greenhouse gas emissions by ments over time.3
2025.2 From 2005 to 2013, gross greenhouse gas emis- 3 https://www.whitehouse.gov/the-press-office/2015/12/12/us-
leadership-and-historic-paris-agreement-combat-climate-change
2 http://www.whitehouse.gov/the-press-office/2014/11/11/fact-
sheet-us-china-joint-announcement-climate-change-and-clean-energy-c
Table 51. SOCIAL INDICATORS

Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2012 2013 2014 2015
Economic
General Economic Conditions
1 Real GDP per person (chained 2009 dollars) 1 17,198 23,024 28,325 35,794 38,167 44,475 48,090 47,719 48,822 49,184 50,010 50,777
2 Real GDP per person change, 5-year annual average 1 0.8 2.4 2.6 2.4 1.3 3.1 1.6 0.1 0.2 0.2 1.3 1.3
3 Consumer Price Index 2 12.5 16.4 34.8 55.2 64.4 72.7 82.5 92.1 97.0 98.4 100.0 N/A
4 Private goods producing (%) N/A N/A N/A N/A N/A 24.9 23.9 22.3 22.7 22.9 22.8 N/A
5 Private services producing (%) N/A N/A N/A N/A N/A 75.1 76.1 77.7 77.3 77.1 77.2 N/A
Jobs and Unemployment
6 Labor force participation rate (%) 59.4 60.4 63.8 66.5 66.6 67.1 66.0 64.7 63.7 63.2 62.9 62.7
7 Employment (millions) 65.8 78.7 99.3 118.8 124.9 136.9 141.7 139.1 142.5 143.9 146.3 148.8
8 Employment-population ratio (%) 56.1 57.4 59.2 62.8 62.9 64.4 62.7 58.5 58.6 58.6 59.0 59.3
9 Payroll employment change - December to December, SA
(millions) 0.4 0.5 0.3 0.3 2.2 1.9 2.5 1.1 2.3 2.4 3.1 2.7
10 Payroll employment change - 5-year annual average, NSA
(millions) 0.7 2.0 2.7 2.4 1.6 2.9 0.4 0.7 0.8 0.2 1.6 2.0
11 Civilian unemployment rate (%) 5.5 4.9 7.1 5.6 5.6 4.0 5.1 9.6 8.1 7.4 6.2 5.3
12 Unemployment plus marginally attached and underemployed (%) N/A N/A N/A N/A 10.1 7.0 8.9 16.7 14.7 13.8 12.0 10.4
13 Receiving Social Security disabled-worker benefits (% of
population) 3 0.9 2.0 2.8 2.5 3.3 3.7 4.5 5.5 5.9 5.9 5.9 N/A
Infrastructure, Innovation, and Capital Investment
14 Nonfarm business output per hour (average 5 year % change) 4 1.8 2.1 1.2 1.6 1.6 2.8 3.2 2.0 1.7 1.5 1.0 N/A
15 Corn for grain production (million bushels) 3,907 4,152 6,639 7,934 7,400 9,915 11,112 12,425 10,755 13,829 14,216 13,654
16 Real net stock of fixed assets and consumer durable goods
(billions of chained 2009 dollars) 11,383 16,921 23,265 30,870 34,246 40,217 46,305 50,332 51,438 52,117 52,866 N/A
17 Population served by secondary wastewater treatment or better
(%) 5 N/A 41.6 56.4 63.7 61.1 71.4 74.3 72.0 N/A N/A N/A N/A
18 Electricity net generation (kWh per capita) 4,202 7,486 10,076 12,170 12,594 13,475 13,723 13,335 12,886 12,847 12,838 N/A
19 Patents for invention, U.S. origin (per million population) 6 N/A 231 164 190 209 301 253 348 385 422 454 N/A
20 Net national saving rate (% of GDP) 1 10.8 8.5 7.2 3.9 4.0 5.8 2.7 0.9 1.8 2.4 2.9 3.1
21 R&D spending (% of GDP) 7 2.52 2.44 2.21 2.54 2.40 2.61 2.50 2.73 2.69 2.72 N/A N/A
Demographic and Civic
Population
22 Total population (millions) 8 N/A 204.0 227.2 249.6 266.3 282.2 295.5 309.3 314.1 316.5 318.9 321.4
23 Foreign born population (millions) 9 9.7 9.6 14.1 19.8 N/A 31.1 37.5 40.0 40.8 41.3 42.4 N/A
24 17 years and younger (%) 8 N/A N/A 28.0 25.7 26.1 25.7 24.9 24.0 23.5 23.3 23.1 22.9
25 65 years and older (%) 8 N/A 9.8 11.3 12.5 12.7 12.4 12.4 13.1 13.7 14.1 14.5 N/A
Table 51. SOCIAL INDICATORSContinued

Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2012 2013 2014 2015
26 8
85 years and older (%) N/A 0.7 1.0 1.2 1.4 1.5 1.6 1.8 1.9 1.9 1.9 N/A
Household Composition
27 Ever married (% of age 15 and older) 10 78.0 75.1 74.1 73.8 72.9 71.9 70.9 69.3 68.8 68.6 68.3 68.2
28 Average family size 11 3.7 3.6 3.3 3.2 3.2 3.2 3.1 3.2 3.1 3.1 3.1 3.1
29 Births to unmarried women age 1517 (per 1,000 unmarried
women age 1517) N/A 17.1 20.6 29.6 30.1 23.9 19.4 16.8 13.7 11.9 10.6 N/A
30 Single parent households (%) 4.4 5.2 7.5 8.3 9.1 8.9 8.9 9.1 9.3 9.1 8.9 8.8
Civic and Cultural Engagement
31 Average charitable contribution per itemized tax return (2012
dollars) 12 2,204 2,187 2,522 3,171 3,371 4,474 4,580 3,899 4,436 4,391 N/A N/A
32 Voting for President (% of voting age population) 13 63.4 57.0 55.1 56.4 49.8 52.1 56.7 58.3 54.9 N/A N/A N/A
33 Persons volunteering (% age 16 and older) 14 N/A N/A N/A 20.4 N/A N/A 28.8 26.3 26.5 25.4 25.3 N/A
34 Attendance at visual or performing arts activity, including movie-
going (% age 18 and older) 15 N/A N/A 71.7 72.1 N/A 70.1 N/A 63.9 63.5 65.4 N/A N/A
35 Reading: Novels or short stories, poetry, or plays (not required for
work or school; % age 18 and older) 15 N/A N/A 56.4 54.2 N/A 46.6 N/A 50.2 47.0 45.0 N/A N/A
Socioeconomic
Education
36 High school graduates (% of age 2534) 16 58.1 71.5 84.2 84.1 N/A 83.9 86.4 87.2 88.4 88.6 89.1 N/A
37 College graduates (% of age 2534) 17 11.0 15.5 23.3 22.7 N/A 27.5 29.9 31.1 32.2 32.9 33.5 N/A
38 Reading achievement score (age 17) 18 N/A 285 285 290 288 288 283 286 287 N/A N/A N/A
39 Math achievement score (age 17) 19 N/A 304 298 305 306 308 305 306 306 N/A N/A N/A
40 Science and engineering graduate degrees (% of total graduate
degrees) 22.0 17.2 11.2 14.7 14.2 12.6 12.7 12.1 12.6 13.2 13.7 N/A
41 Receiving special education services (% of age 321 public
school students) N/A N/A 10.1 11.4 12.4 13.3 13.7 13.0 12.9 12.9 N/A N/A
Income, Savings, and Inequality
42 Real median income: all households (2014 dollars) 20 N/A 47,538 48,462 52,623 52,604 57,724 56,160 53,507 52,605 54,462 53,657 N/A
43 Real disposable income per capita (chained 2009 dollars) 1 11,877 16,643 20,158 25,555 27,180 31,524 34,424 35,684 37,156 36,369 37,084 38,004
44 Adjusted gross income share of top 1% of all taxpayers N/A N/A 8.5 14.0 14.6 20.8 21.2 18.9 21.9 19.0 N/A N/A
45 Adjusted gross income share of lower 50% of all taxpayers N/A N/A 17.7 15.0 14.5 13.0 12.9 11.7 11.1 11.5 N/A N/A
46 Personal saving rate (% of disposable personal income) 1 10.0 12.6 10.6 7.8 6.4 4.2 2.6 5.6 7.6 4.8 4.8 5.1
47 Poverty rate (%) 21 22.2 12.6 13.0 13.5 13.8 11.3 12.6 15.1 15.0 14.8 14.8 N/A
48 Food-insecure households (% of all households) 22 N/A N/A N/A N/A 11.9 10.5 11.0 14.5 14.5 14.3 14.0 N/A
49 Supplemental Nutrition Assistance Program (% of population on
SNAP) 23 N/A 3.3 9.5 8.2 9.9 6.1 8.9 13.5 15.0 15.0 14.6 14.2
50 Median wealth of households, age 5564 (in thousands of 2013
dollars) 24 78 N/A 153 177 175 243 311 192 N/A 166 N/A N/A
Housing
51 Homeownership among households with children (%) 25 N/A N/A N/A 63.6 65.1 67.5 68.4 65.5 62.9 62.5 N/A N/A
52 Families with children and severe housing cost burden (%) 26 N/A N/A 8 10 12 11 14.5 17.9 17.0 15.7 N/A N/A
53 Families with children and inadequate housing (%) 27 N/A N/A 9 9 7 7 5.4 5.3 5.2 5.0 N/A N/A
Health
Health Status
54 Life expectancy at birth (years) 69.7 70.8 73.7 75.4 75.8 76.8 77.6 78.7 78.8 78.8 78.8 N/A
55 Infant mortality (per 1,000 live births) 26.0 20.0 12.6 9.2 7.6 6.9 6.9 6.1 6.0 6.0 5.8 N/A
56 Low birthweight [<2,500 gms] (% of babies) 7.7 7.9 6.8 7.0 7.3 7.6 8.2 8.2 8.0 8.0 8.0 N/A
57 Activity limitation (% of age 517) 28 N/A N/A N/A N/A N/A 7.0 8.0 9.2 9.4 9.2 N/A N/A
58 Activity limitation (% of age 18 and over) 29 N/A N/A N/A N/A N/A 27.9 29.1 29.9 28.4 29.5 28.9 N/A
59 Difficulties with activities of daily living (% of age 65 and over) 30 N/A N/A N/A N/A N/A 6.3 6.2 6.8 6.5 7.3 6.2 N/A
Health Behavior
60 Engaged in regular physical activity (% of age 18 and older) 31 N/A N/A N/A N/A N/A 15.0 16.6 20.7 20.8 21.0 21.5 N/A
61 Obesity (% of age 2074 with BMI 30 or greater) 32 13.4 N/A 15.0 23.2 N/A 30.9 35.1 36.1 N/A 38.6 N/A N/A
62 Obesity (% of age 219) 33 N/A N/A 5.5 10.0 N/A 13.9 15.4 16.9 N/A 17.2 N/A N/A
63 Cigarette smokers (% of age 18 and older) N/A 37.1 33.1 25.3 24.6 23.1 20.8 19.3 18.2 17.9 17.0 N/A
64 Heavier drinker (% of age 18 and older) 34 N/A N/A N/A N/A N/A 4.3 4.8 5.2 5.0 5.3 5.3 N/A
Access to Health Care
65 Total national health expenditures (% of GDP) 5.0 6.9 8.9 12.1 13.3 13.3 15.5 17.3 17.3 17.3 17.5 N/A

Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2012 2013 2014 2015
66 Persons without health insurance (% of age 1864) 35 N/A N/A N/A N/A 16.9 18.9 19.3 22.3 20.9 20.5 16.3 N/A
67 Persons without health insurance (% of age 17 and younger) 35 N/A N/A N/A N/A 13.0 12.6 9.3 7.8 6.6 6.6 5.4 N/A
68 Children age 1935 months with recommended vaccinations (%)
36 N/A N/A N/A N/A N/A N/A N/A 56.6 68.4 70.4 71.6 N/A
Security and Safety
Crime
69 Property crimes (per 100,000 households) 37 N/A N/A 49,610 34,890 31,547 19,043 15,947 12,541 15,584 13,144 11,806 N/A
70 Violent crime victimizations (per 100,000 population age 12 or
older) 38 N/A N/A 4,940 4,410 7,068 3,749 2,842 1,928 2,612 2,317 2,010 N/A
71 Murder rate (per 100,000 persons) 5.1 7.9 10.2 9.4 8.2 5.5 5.6 4.8 4.7 4.5 4.5 N/A
National Security
72 Military personnel on active duty (thousands) 39 2,475 3,065 2,051 2,044 1,518 1,384 1,389 1,431 1,400 1,382 1,338 1,314
73 Veterans (thousands) 22,534 26,976 28,640 27,320 26,198 26,551 24,521 23,032 22,328 22,299 21,999 21,681
Transportation Safety
74 Safety belt use (%) N/A N/A N/A N/A N/A 71 82 85 86 87 87 N/A
75 Highway fatalities 36,399 52,627 51,091 44,599 41,817 41,945 43,510 32,999 33,782 32,894 32,675 N/A
Environment and Energy
Air Quality and Greenhouse Gases
76 Ground level ozone (ppm) 40 N/A N/A 0.101 0.090 0.091 0.082 0.080 0.073 0.076 0.068 0.068 N/A
77 Particulate matter 2.5 (ug/m3) 41 N/A N/A N/A N/A N/A 13.5 12.8 9.9 9.1 8.9 8.8 N/A
78 Annual mean atmospheric CO2 concentration (Mauna Lao,
Hawaii; ppm) 42 316.9 325.7 338.7 354.4 360.8 369.5 379.8 389.9 393.8 396.5 398.6 400.8
79 Gross greenhouse gas emissions (teragrams CO2 equivalent) 43 N/A N/A N/A 6,301 6,695 7,213 7,350 6,899 6,545 6,673 N/A N/A
80 Net greenhouse gas emissions, including sinks (teragrams CO2
equivalent) N/A N/A N/A 5,525 5,940 6,571 6,438 6,027 5,665 5,791 N/A N/A
81 Gross greenhouse gas emissions per capita (metric tons CO2
equivalent) N/A N/A N/A 24.9 24.8 25.2 24.5 22.0 20.6 20.8 N/A N/A
82 Gross greenhouse gas emissions per 2009$ of GDP (kilograms
CO2 equivalent) N/A N/A N/A 0.704 0.658 0.574 0.516 0.467 0.426 0.425 N/A N/A
Energy
83 Energy consumption per capita (million Btu) 250 331 344 338 342 350 339 315 301 307 309 N/A
84 Energy consumption per 2009$ GDP (thousand Btu per 2009$) 14.5 14.4 12.1 9.4 8.9 7.9 7.0 6.6 6.2 6.2 6.2 N/A
85 Electricity net generation from renewable sources, all sectors (%
of total) 19.7 16.4 12.4 11.8 11.5 9.4 8.8 10.4 12.2 12.8 13.2 N/A
N/A=Number is not available.
1 Data for 2015 are averages of the first 3 quarters.
2 Adjusted CPI-U. 2014=100.
3 Gross prevalence rate for persons receiving Social Security disabled-worker benefits among the estimated population insured in the event of disability at end of year. Gross rates do
not account for changes in the age and sex composition of the insured population over time.
4 Values for prior years have been revised from the prior version of this publication.
5 Data correspond to years 1972, 1982, 1992, 1996, 2000, 2004, 2008.
6 Patent data adjusted by OMB to incorporate total population estimates from U.S. Census Bureau.
7 The R&D to GDP ratio data are now revised to reflect the new methodology introduced in the 2013 comprehensive revision of the GDP and other National Income and Product
Accounts by the U.S. Bureau of Economic Analysis (BEA). In late July 2013, BEA reported GDP and related statistics that were revised back to 1929. The new GDP methodology
treats R&D as investment in all sectors of the economy, among other methodological changes. The net effects of these changes are somewhat higher levels of GDP year to year and
corresponding decreases in the R&D to GDP ratios reported annually by the National Science Foundation (NSF). For further details see NSFs InfoBrief R&D Recognized as Investment
in U.S. Gross Domestic Product Statistics: GDP Increase Slightly Lowers R&D-to-GDP Ratio at http://www.nsf.gov/statistics2015 nsf15315 nsf15315.pdf.
8 Data source and values for 2010 to 2014 have been updated relative to the prior version of this publication.
9 Data source for 1960 to 2000 is the decennial census; data source for 2006, 2010, 2012, 2013, and 2014 is the American Community Survey.
10 For 1960, age 14 and older.
11 Average size of family households. Family households are those in which there is someone present who is related to the householder by birth, marriage, or adoption.
12 Charitable giving reported as itemized deductions on Schedule A.
13 Data correspond to years 1964, 1972, 1980, 1992, 1996, 2000, 2004, 2008, and 2012. The voting statistics in this table are presented as ratios of official voting tallies, as reported by
the U.S. Clerk of the House, to population estimates from the Current Population Survey.
14 Refers to those who volunteered at least once during a one-year period, from September of the previous year to September of the year specified. For 1990, refers to 1989 estimate
from the CPS Supplement on volunteers.

15 The 1980, 1990, 2000, and 2010 data come from the 1982, 1992, 2002, and 2008 waves of the Survey of Public Participation in the Arts, respectively.
16 For 1960, includes those who have completed 4 years of high school or beyond. For 1970 and 1980, includes those who have completed 12 years of school or beyond. For 1990
onward, includes those who have completed a high school diploma or the equivalent.
17 For 1960 to 1980, includes those who have completed 4 or more years of college. From 1990 onward, includes those who have a bachelors degree or higher.

18 Data correspond to years 1971, 1980, 1990, 1994, 1999, 2004, 2008, and 2012.
19 Data correspond to years 1973, 1982, 1990, 1994, 1999, 2004, 2008, and 2012.
20 Beginning with 2013, data are based on redesigned income questions. The source of the 2013 data is a portion of the CPS ASEC sample which received the redesigned income
questions, approximately 30,000 addresses. For more information, please see the report Income and Poverty in the United States: 2014, U.S. Census Bureau, Current Population Reports,
P60252.
21 The poverty rate does not reflect noncash government transfers. Beginning with 2013, data are based on redesigned income questions. The source of the 2013 data is a portion of
the CPS ASEC sample which received the redesigned income questions, approximately 30,000 addresses. For more information, please see the report Income and Poverty in the United
States: 2014, U.S. Census Bureau, Current Population Reports, P60252.
22 Food-insecure classification is based on reports of three or more conditions that characterize households when they are having difficulty obtaining adequate food, out of a total of 10
such conditions.
23 2015 reflects average monthly participation from January through August 2015 due to lags in data availability.
24 Data values shown are 1962, 1983, 1989, 1995, 2001, 2004, 2010, and 2013. For 1962, the data source is the SFCC; for subsequent years, the data source is the SCF.
25 Some data interpolated.
26 Expenditures for housing and utilities exceed 50 percent of reported income. Some data interpolated.
27 Inadequate housing has moderate to severe problems, usually poor plumbing, or heating or upkeep problems. Some data interpolated.
28 Total activity limitation includes receipt of special education services; assistance with personal care needs; limitations related to the childs ability to walk; difficulty remembering or
periods of confusion; limitations in any activities because of physical, mental, or emotional problems.
29 Activity limitation among adults aged 18 and over is defined as having a basic action difficulty in one or more of the following: movement, emotional, sensory (seeing or hearing), or
cognitive.
30 Activities of daily living include personal care activities: bathing or showering, dressing, getting on or out of bed or a chair, using the toilet, and eating. Persons are considered to have
an ADL limitation if any condition(s) causing the respondent to need help with the specific activities was chronic.
31 Participation in leisure-time aerobic and muscle-strengthening activities that meet 2008 Federal physical activity guidelines.
32 BMI refers to body mass index. The 1960, 1980, 1990, 2000, 2005, 2010, 2013 data correspond to survey years 19601962, 19761980, 19881994, 19992000, 20052006,
20092010, 20132014 respectively.

33 Percentage at or above the sex-and age-specific 95th percentile BMI cutoff points from the 2000 CDC growth charts. The 1980, 1990, 2000, 2005, 2010, 2013 data correspond to
survey years 19761980, 19881994, 19992000, 20052006, 20132014 respectively.

34 Heavier drinking is based on self-reported responses to questions about average alcohol consumption and is defined as more than 14 drinks per week for men and more than 7
drinks per week for women on average.

35 A person was defined as uninsured if he or she did not have any private health insurance, Medicare, Medicaid, CHIP (19992014), state-sponsored, other government-sponsored
health plan (19972014), or military plan. Beginning in 2014, a person with health insurance coverage through the Health Insurance Marketplace or state-based exchanges was
considered to have private coverage. A person was also defined as uninsured if he or she had only Indian Health Service coverage or had only a private plan that paid for one type of
service such as accidents or dental care. In 19931996 Medicaid coverage is estimated through a survey question about having Medicaid in the past month and through participation in
Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI) programs. In 1997 to 2014, Medicaid coverage is estimated through a question about current
Medicaid coverage. Beginning in the third quarter of 2004, a Medicaid probe question was added to reduce potential errors in reporting Medicaid status. Persons under age 65 with no
reported coverage were asked explictly about Medicaid coverage.
36 Recommended vaccine series consists of 4 or more doses of diphtheria and tetanus toxoids and pertussis vaccine (DTP), diphtheria and tetanus toxoids vaccine (DT), or diphtheria
and tetanus toxoids and acellular pertussis vaccine (DTaP); 3 or more doses of any poliovirus vaccine; 1 or more doses of a measles-containing vaccine (MCV); 3 or more doses or 4 or
more doses of Haemophilus influenzae type b vaccine (Hib) depending on Hib vaccine product type (full series Hib); 3 or more doses of hepatitis B vaccine; 1 or more doses of varicella
vaccine; and 4 or more doses of pneumococcal conjugate vaccine (PCV).
37 Property crimes, including burglary, motor vehicle theft, and property theft, reported by a sample of households. Includes property crimes both reported and not reported to law
enforcement.
38 Violent crimes include rape, robbery, aggravated assault, and simple assault. Includes crimes both reported and not reported to law enforcement. Due to methodological changes
in the enumeration method for NCVS estimates from 1993 to present, use caution when comparing 1980 and 1990 criminal victimization estimates to future years. Estimates from 1995
and beyond include a small number of victimizations, referred to as series victimizations, using a new counting strategy. High-frequency repeat victimizations, or series victimizations,
are six or more similar but separate victimizations that occur with such frequency that the victim is unable to recall each individual event or describe each event in detail. Including series
victimizations in national estimates can substantially increase the number and rate of violent victimization; however, trends in violence are generally similar regardless of whether series
victimizations are included. See Methods for Counting High-Frequency Repeat Victimizations in the National Crime Victimization Survey, NCJ 237308, BJS web, April 2012 for further
discussion of the new counting strategy and supporting research.
39 For all years, the actuals reflect Active Component only excluding full-time Reserve Component members and RC mobilized to active duty. End Strength for 2015 is preliminary.
40 Ambient ozone concentrations based on 218 monitoring sites meeting minimum completeness criteria.
41 Ambient PM2.5 concentrations based on 505 monitoring sites meeting minimum completeness criteria.
42 Data for 2015 are preliminary.
43 The gross emissions indicator does not include sinks, which are processes (sometimes naturally occurring) that remove greenhouse gases from the atmosphere. Gross emissions are
therefore more indicative of trends in energy consumption and efficiency than are net emissions.
Table 52. SOURCES FOR SOCIAL INDICATORS

Indicator Source
Economic
General Economic Conditions
1 Real GDP per person (chained 2009 dollars) Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
2 Real GDP per person change, 5-year annual average Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
3 Consumer Price Index Bureau of Labor Statistics, BLS Consumer Price Index Program. http://www.bls.gov/cpi/
4 Private goods producing (%) Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
5 Private services producing (%) Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
Jobs and Unemployment
6 Labor force participation rate (%) Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/cps
7 Employment (millions) Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/cps
8 Employment-population ratio (%) Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/cps
9 Payroll employment change - December to December, SA (millions) Bureau of Labor Statistics, Current Employment Statistics program. http://www.bls.gov/ces/
10 Payroll employment change - 5-year annual average, NSA (millions) Bureau of Labor Statistics, Current Employment Statistics program. http://www.bls.gov/ces/
11 Civilian unemployment rate (%) Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/cps
12 Unemployment plus marginally attached and underemployed (%) Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/cps
13 Receiving Social Security disabled-worker benefits (% of population) Social Security Administration, Office of Research, Evaluation, and Statistics, Annual
Statistical Supplement to the Social Security Bulletin, tables 4.C1 5.A4. http://www.ssa.gov/
policy/docs/statcomps/supplement/
Infrastructure, Innovation, and Capital Investment
14 Nonfarm business output per hour (average 5 year % change) Bureau of Labor Statistics, Major Sector Productivity Program. http://www.bls.gov/lpc/
15 Corn for grain production (million bushels) National Agricultural Statistics Service, Agricultural Estimates Program. http://www.nass.usda.
gov/
16 Real net stock of fixed assets and consumer durable goods (billions of chained Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
2009 dollars)
17 Population served by secondary wastewater treatment or better (%) U.S. Environmental Protection Agency, Clean Watersheds Needs Survey. http://www.epa.gov/
cwns
18 Electricity net generation (kWh per capita) U.S. Energy Information Administration (EIA) calculation from: EIA, Monthly Energy Review
(December 2015), Table 7.2a http://www.eia.gov/totalenergy/data/monthly/index.cfm; and
U.S. Census Bureau, Population Division, Vintage 2014 Population Estimates (2010-2014)
http://www.census.gov/popest/data/national/asrh/2014/index.html
19 Patents for invention, U.S. origin (per million population) U.S. Patent and Trademark Office, Patent Technology Monitoring Team, U.S. Patent Statistics
Chart, Calendar Years 1963-2013. http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.
htm; and, U.S. Census Bureau, Population Division.
20 Net national saving rate (% of GDP) Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
21 R&D spending (% of GDP) National Science Foundation, National Patterns of R&D Resources. http://www.nsf.gov/
statistics/natlpatterns/
Demographic and Civic
Population
22 Total population (millions) U.S. Census Bureau, Population Division, Vintage 2015 Population Estimates (2015), Vintage
2014 Population Estimates (2010-2014), 2000-2010 Intercensal Estimates (2000-2005),
1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal Estimates (1980),
1970-1980 Intercensal Estimates (1970).
23 Foreign born population (millions) U.S. Census Bureau, Population Division, Decennial Census and American Community
Survey. http://www.census.gov/prod/www/abs/decennial/ and http://www.census.gov/acs
24 17 years and younger (%) U.S. Census Bureau, Population Division, Vintage 2015 Population Estimates (2015), Vintage
25 65 years and older (%) U.S. Census Bureau, Population Division, Vintage 2015 Population Estimates (2015), Vintage
26 85 years and older (%) U.S. Census Bureau, Population Division, Vintage 2015 Population Estimates (2015), Vintage
Household Composition
27 Ever married (% of age 15 and older) U.S. Census Bureau, Current Population Survey. http://www.census.gov/hhes/families/
28 Average family size U.S. Census Bureau, Current Population Survey. http://www.census.gov/hhes/families/
29 Births to unmarried women age 15-17 (per 1,000 unmarried women age 15-17) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Vital Statistics System (natality); Births: Final data for 2014: http://www.cdc.gov/nchs/data/
nvsr/nvsr64/nvsr64_12.pdf.
Table 52. SOURCES FOR SOCIAL INDICATORSContinued

Indicator Source
30 Single parent households (%) U.S. Census Bureau, Current Population Survey. http://www.census.gov/hhes/families/
Civic and Cultural Engagement
31 Average charitable contribution per itemized tax return (2012 dollars) U.S. Internal Revenue Service, Statistics of Income - Individual Income Tax Returns (IRS
Publication 1304). http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-
Publication-1304-(Complete-Report)
32 Voting for President (% of voting age population) The Office of the Clerk of the U.S. House of Representatives and the U.S. Census Bureau,
Current Population Survey. http://www.census.gov/cps/
33 Persons volunteering (% age 16 and older) Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/cps
34 Attendance at visual or performing arts activity, including movie-going (% age 18 The National Endowment for the Arts, Survey of Public Participation in the Arts & Annual Arts
and older) Benchmarking Survey.
35 Reading: Novels or short stories, poetry, or plays (not required for work or school; The National Endowment for the Arts, Survey of Public Participation in the Arts & Annual Arts
% age 18 and older) Benchmarking Survey.
Socioeconomic
Education
36 High school graduates (% of age 25-34) U.S. Census Bureau, Decennial Census and American Community Survey. http://www.census.
gov/prod/www/decennial.html and http://www.census.gov/acs
37 College graduates (% of age 25-34) U.S. Census Bureau, Decennial Census and American Community Survey. http://www.census.
gov/prod/www/decennial.html and http://www.census.gov/acs
38 Reading achievement score (age 17) National Center for Education Statistics, National Assessment of Educational Progress. http://
nces.ed.gov/nationsreportcard/
39 Math achievement score (age 17) National Center for Education Statistics, National Assessment of Educational Progress. http://
nces.ed.gov/nationsreportcard/
40 Science and engineering graduate degrees (% of total graduate degrees) National Center for Education Statistics, Integrated Postsecondary Education Data System.
http://nces.ed.gov/ipeds/
41 Receiving special education services (% of age 3-21 public school students) National Center for Education Statistics, Digest of Education Statistics, 2012. http://nces.
ed.gov/programs/digest/d12/tables/dt12_046.asp
Income, Savings, and Inequality
42 Real median income: all households (2014 dollars) U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements.
http://www.census.gov/hhes/www/income/data/historical/household/
43 Real disposable income per capita (chained 2009 dollars) Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
44 Adjusted gross income share of top 1% of all taxpayers U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/SOI-Tax-Stats-
Individual-Statistical-Tables-by-Tax-Rate-and-Income-Percentile
45 Adjusted gross income share of lower 50% of all taxpayers U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/SOI-Tax-Stats-
Individual-Statistical-Tables-by-Tax-Rate-and-Income-Percentile
46 Personal saving rate (% of disposable personal income) Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/national/
47 Poverty rate (%) U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements.
http://www.census.gov/hhes/www/poverty/publications/pubs-cps.html
48 Food-insecure households (% of all households) Economic Research Service, Household Food Security in the United States report series.
http://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/readings.
aspx
49 Supplemental Nutrition Assistance Program (% of population on SNAP) Food and Nutrition Service, USDA
50 Median wealth of households, age 55-64 (in thousands of 2013 dollars) Board of Governors of the Federal Reserve System, Survey of Consumer Finances 2013
Estimates inflation-adjusted to 2013 dollars (Internal Data) http://www.federalreserve.gov/
econresdata/scf/scfindex.htm
Housing
51 Homeownership among households with children (%) U.S. Census Bureau, American Housing Survey (Current Housing Report). Estimated by
Housing and Urban Developments Office of Policy Development and Research. http://
www.census.gov/housing/ahs
52 Families with children and severe housing cost burden (%) U.S. Census Bureau, American Housing Survey. Tabulated by Housing and Urban
Developments Office of Policy Development and Research. http://www.census.gov/
housing/ahs
53 Families with children and inadequate housing (%) U.S. Census Bureau, American Housing Survey. Tabulated by Housing and Urban
Developments Office of Policy Development and Research. http://www.census.gov/
housing/ahs
Health
Health Status
54 Life expectancy at birth (years) Centers for Disease Control and Prevention, National Center for Health Statistics, Health,
United States 2015 forthcoming, Table 15.
55 Infant mortality (per 1,000 live births) Centers for Disease Control and Prevention, National Center for Health Statistics, Health,
United States, 2015 forthcoming, Table 11.
56 Low birthweight [<2,500 gms] (% of babies) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Vital Statistics System (natality); Births: Final data for 2014: http://www.cdc.gov/nchs/data/
nvsr/nvsr64/nvsr64_12.pdf.

Indicator Source
57 Activity limitation (% of age 5-17) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health Interview Survey; Americas Children in Brief: Key National Indicators of Well-Being,
Table HEALTH5, crude percentages; http://www.childstats.gov/americaschildren/tables/
health5.asp?popup=true.
58 Activity limitation (% of age 18 and over) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health Interview Survey, http://www.cdc.gov/nchs/nhis.htm, Health, United States, 2015
forthcoming, Table 42, age-adjusted.
59 Difficulties with activities of daily living (% of age 65 and over) Center for Disease Control and Prevention, National Center for Health Statistics, National
Health Interview Survey: http://www.cdc.gov/nchs/nhis.htm (unpublished data).
Health Behavior
60 Engaged in regular physical activity (% of age 18 and older) Centers for Disease Control and Prevention, National Center for Health Statistics, National
forthcoming, Table 57, age adjusted.
61 Obesity (% of age 20-74 with BMI 30 or greater) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health and Nutrition Examination Survey, http://www.cdc.gov/nchs/nhanes.htm. Health
E-stat: http://www.cdc.gov/nchs/data/hestat/obesity_adult_11_12/obesity_adult_11_12.pdf
and unpublished data (2013).
62 Obesity (% of age 2-19) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health and Nutrition Examination Survey, http://www.cdc.gov/nchs/nhanes.htm. Health
E-stat: http://www.cdc.gov/nchs/data/hestat/obesity_child_11_12/obesity_child_11_12.pdf
and unpublished data (2013).
63 Cigarette smokers (% of age 18 and older) Centers for Disease Control and Prevention, National Center for Health Statistics, National
forthcoming, Table 47 and unpublished data (1970 and 1980), age adjusted.
64 Heavier drinker (% of age 18 and older) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health Interview Survey, http://www.cdc.gov/nchs/nhis.htm, Health, United States, 2014,
Table 58 and unpublished data (2014), age adjusted.
Access to Health Care
65 Total national health expenditures (% of GDP) Centers for Medicare and Medicaid Services, National Health Expenditures Data. http://
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/index.html
66 Persons without health insurance (% of age 18-64) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health Interview Survey.
67 Persons without health insurance (% of age 17 and younger) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Health Interview Survey.
68 Children age 19-35 months with recommended vaccinations (%) Centers for Disease Control and Prevention, National Center for Health Statistics, National
Immunization Survey: http://www.cdc.gov/vaccines/imz-managers/coverage/nis/child/index.
html, Health, United States, 2015 forthcoming, Table 66.
Security and Safety
Crime
69 Property crimes (per 100,000 households) Bureau of Justice Statistics, National Crime Victimization Survey. http://www.bjs.gov/index.
cfm?ty=dcdetail&iid=245
70 Violent crime victimizations (per 100,000 population age 12 or older) Bureau of Justice Statistics, National Crime Victimization Survey. http://www.bjs.gov/index.
cfm?ty=dcdetail&iid=245
71 Murder rate (per 100,000 persons) Federal Bureau of Investigation, Uniform Crime Reports, Crime in the United States. http://
www.fbi.gov/about-us/cjis/ucr/ucr
National Security
72 Military personnel on active duty (thousands) ES actuals for 1960 and 1970 as reported in Table 2-11 of the DoD Selected Manpower
Statistics for FY 1997 (DoD WHS, Directorate for Information Operations and Reports). The
source for the remaining fiscal year actuals are the Service budget justification books.
73 Veterans (thousands) U.S. Department of Veterans Affairs. 1960-1999 (Annual Report of the Secretary of Veterans
Affairs); 2000-2009 (VetPop07); 2010-2012 (VetPop11); 2013-2015 (VetPop2014), Office of
the Actuary. http://www.va.gov/vetdata/Veteran_Population.asp
Transportation Safety
74 Safety belt use (%) National Highway Traffic Safety Administration, National Center for Statistics and Analysis.
http://www-nrd.nhtsa.dot.gov/Pubs/811875.pdf
75 Highway fatalities National Highway Traffic Safety Administration, National Center for Statistics and Analysis.
http://www-nrd.nhtsa.dot.gov/Pubs/812032.pdf
Environment and Energy
Air Quality and Greenhouse Gases
76 Ground level ozone (ppm) U.S. Environmental Protection Agency, AirTrends Website. http://www.epa.gov/airtrends/ozone.
html
77 Particulate matter 2.5 (ug/m3) U.S. Environmental Protection Agency, AirTrends Website. http://www.epa.gov/airtrends/
pm.html
78 Annual mean atmospheric CO2 concentration (Mauna Lao, Hawaii; ppm) National Oceanic and Atmospheric Administration. http://www.esrl.noaa.gov/gmd/ccgg/trends/

Indicator Source
79 Gross greenhouse gas emissions (teragrams CO2 equivalent) U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and
Sinks: 1990-2013. http://epa.gov/climatechange/ghgemissions/usinventoryreport.html
80 Net greenhouse gas emissions, including sinks (teragrams CO2 equivalent) U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and
81 Gross greenhouse gas emissions per capita (metric tons CO2 equivalent) U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and
82 Gross greenhouse gas emissions per 2009$ of GDP (kilograms CO2 equivalent) U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and
Energy
83 Energy consumption per capita (million Btu) U.S. Energy Information Administration, Monthly Energy Review (December 2015), Table 1.7
http://www.eia.gov/totalenergy/data/monthly/index.cfm
84 Energy consumption per 2009$ GDP (thousand Btu per 2009$) U.S. Energy Information Administration, Monthly Energy Review (December 2015), Table 1.7
85 Electricity net generation from renewable sources, all sectors (% of total) U.S. Energy Information Administration, Monthly Energy Review (December 2015), Table 7.2a
6. DELIVERING A HIGH-PERFORMANCE GOVERNMENT
Building a government that works smarter, better, and accountability. Management and leadership engagement
more efficiently to deliver results for the American people are central to government performance, leading organi-
is a cornerstone of this Administration. Since taking of- zation commitment to performance management through
fice, the President has challenged Federal leaders and the linkage between resources and results.
managers to build a Government that is leaner, smarter, Several key leadership roles have been established
and more effective, while delivering the best results for within the Administrations performance management
the American taxpayer. framework to lead and focus performance management
The Administration has continued to shift the empha- efforts in each agency:
sis from simply publishing performance information to Chief Operating Officer (COO),
focus on increasing its use to inform decision-making and
deliver greater impact for the American public. Looking Performance Improvement Officer (PIO), and
to incorporate successful practices from both private and
public organizations, the Administration designed its
Goal Leader.
performance management framework to recognize the Agency Secretaries or equivalents name a Chief
critical role senior leadership plays in driving agency Operating Officer (COO). Often the Deputy Secretary,
results. agency COOs perform a number of specific roles and
In 2010, the Administration worked with the Congress responsibilities which are outlined by OMB, serving
to enact the Government Performance and Results to both elevate accountability as well as drive agency
(GPRA) Modernization Act, incorporating performance performance. From conducting quarterly data-driven per-
management best practices while also ensuring reforms formance reviews to setting clear and ambitious goals to
and lessons learned were institutionalized to ensure improve results and reduce costs, COOs provide the orga-
stability. The approach to delivering more effective and nizational leadership to improve performance by bringing
efficient Government rests on the following proven man- a broader set of players together to overcome challenges
agement practices: across the organization while empowering accountable of-
Engaging Leaders ficials to lead and make data-driven decisions. Each COO
names a Performance Improvement Officer (PIO) to sup-
Focusing on Clear Goals and Data-Driven Perfor- port agency heads and COOs by leading efforts to drive
mance Reviews that Incorporate a Broad Range of coordinated performance improvement practices across
Qualitative and Quantitative inputs the organization, amongst program managers, and with
other agencies.
Expanding Impact through Strategic Planning and Agency heads and COOs identify Goal Leaders for
Strategic Reviews
each Strategic Objective and Agency Priority Goal (APG),
Strengthening Agency Capabilities, Collaboration, which are implementation-focused two-year priorities
and Knowledge set by agencies to accelerate progress towards achieving
ambitious goals. Accountable for implementation efforts,
Communicating Performance Results Effectively Goal Leaders are agency officials that lead an agencys
Working in conjunction with agencies, the collective strategy for realizing strategic objectives and
Administration continues to build upon and ingrain these APG outcomes. From determining implementation strat-
proven management practices in the operations of the egies to managing execution toward goal objectives,
Federal Government. This chapter reviews the Federal engaging team members, and making course correc-
Governments progress to date as well as looks ahead to tions as appropriate, Goal Leader responsibilities often
efforts to further embed these practices within the Federal bridge traditional organizational boundaries to ensure
performance management framework. all programs and components needed to deliver against
Engaging Leaders a specified goal are engaged throughout planning, imple-
mentation, and evaluation. Over 90 Goal Leaders led
Frequent and sustained leadership engagement is a agency performance management practices during the
key ingredient of an effective performance management Federal Governments most recently completed two-year
system. It fosters a high-performance culture by help- APG cycle covering Fiscal Years (FY) 2014-2015, and have
ing to facilitate dialogue across different parts of the already begun executing strategies across agencies for
organization that must work together to achieve shared achieving results during the current FY 2016-2017 APG
outcomes, empowers employees at all levels by establish- performance period.
ing a results-oriented culture, enables the organization to While efforts to build capabilities on the part of agen-
change existing processes to solve problems, and ensure cy performance officials and staff continue, preliminary
61
research has nonetheless validated early successes the Administration such as improving veterans mental
regarding the Administrations integration of leader en- health and furthering the outcomes of STEM education
gagement in its performance management framework. A programs.
2013 Government Accountability Office (GAO) survey of For each CAP Goal, Goal Leaders are identified, action
PIOs at all 24 CFO Act Federal agencies found that most plans are developed, and goal teams track performance
agency COOs, PIOs, Deputy PIOs, Goal Leaders, and oth- and discuss results using quarterly data-driven reviews.
er senior-level officials were to a large extent involved Progress updates and results are published quarterly on
in processes central to improving agency performance Performance.gov. OMB, the Performance Improvement
management, such as strategic planning and goal setting, Council (PIC), and agencies have worked together to sup-
performance measurement and analysis, quarterly data- port progress on CAP Goals. The end of 2015 marks the
driven performance reviews, and the communication of half-way point in delivery of the CAP Goals, with real
agency progress towards performance goals.1 GAO notes progress and successes being realized as agencies work
that PIOs who reported large involvement for themselves together and break down silos. The following examples
generally reported larger involvement for other officials, are illustrative of the progress being made.
suggesting that agencies with a strong commitment to To achieve the Customer Service goal, the General
performance management were following this philoso- Services Administration launched the Feedback
phy. The designation of senior officials responsible for USA customer experience initiative, a simple tool
goal performance and progress has served to not only ele- that allows customers to rate their transactional
vate accountability for performance, but also reinforce the experience by tapping a button at a kiosk. Agencies
role of leader engagement throughout the performance can use FeedbackUSA to solicit, aggregate, and ana-
cycle, further strengthening performance management lyze customer service feedback in real time to quick-
practices within agencies. ly act to resolve any issues and improve services to
Focusing on Clear Goals and Data-Driven the public. Feedback USA is currently being piloted
Performance Reviews that Incorporate a Broad in two Federal agencies, with individuals registering
Range of Qualitative and Quantitative Inputs their customer service experience at 27 Department
of State passport processing centers and 14 Social
Goal-setting provides agencies an opportunity to outline Security Administration card centers. The success of
a clear expectation of the level of success to be achieved this pilot has led to the initiative being expanded to
during a set period of time. Goals clarify what success is, other agencies, including its planned launch by the
motivate people, communicate priorities, and mobilize Transportation Security Administration in Spring
agency resources to tackle challenges while improving the 2016 at four of the nations busiest airports.
Federal Governments performance, transparency, and
accountability to the American people. Through a com- Positive work has occurred on the part of agen-
bination of near-term and longer-term goal-setting, the cies to achieve the goal of Improved Mental Health
Administration has focused on implementing a limited Outcomes for Service Members, Veterans, and their
number of actionable goal strategies to advance the well- Families. The inTransition program supports Ser-
being of the American people, stimulate economic growth vice Members with behavioral health care as they
and job creation, and cut the costs of service delivery. transition to the VA system. Since the program be-
gan tracking cases in the third quarter of FY 2015,
Cross-Agency Priority Goals over 3,200 new coaching cases have been opened
The Administration uses the CAP Goals to overcome and over 1,400 coaching cases closed. Survey respon-
organizational barriers and achieve better performance dents have expressed high levels of satisfaction with
than one agency can achieve on its own. Moreover, CAP inTransition, with 94% indicating the assistance
Goals are a key mechanism by which we implement the received from the inTransition program increased
four pillars of the Presidents Management Agenda the likelihood of continuing treatment at the new
Effectiveness, Efficiency, Economic Growth, and People location, and 95% stating the products and servic-
and Culturewith eight of the 15 CAP Goals being used es offered by inTransition met their needs. Newly
to execute that agenda. Specifically, the eight manage- available data also showed that for those Service
ment CAP Goals have been set to achieve some of the members completing a Post-Deployment Health Re-
most pressing priorities within the Federal Government, assessment (PDHRA) in 2013, who screened positive
including delivering world-class customer service to the for PTSD, depression, or alcohol abuse and received
American people, smarter IT, expanding shared services a referral to a mental health specialty or behavioral
across Federal agencies, and modernizing the Federal health in primary care, 55% received care at the De-
infrastructure permitting and review process for major partment of Veterans Affairs or Department of De-
infrastructure projects, to name a few. The remaining fense (FY 2013), up from 46% in 2011 and perform-
seven CAP Goals are focused on key mission areas for ing well against a target of 56% by FY 2016.
1 Agencies Have Elevated Performance Management Leadership Efforts to Modernize the Federal Infrastructure
Roles, but Additional Training is Needed. Through the results of GAOs Permitting and Review Process have also returned
PIO survey, GAO found most key officials were greatly involved in cen- promising results, with the Administrations permit-
tral aspects of performance management. April 2013. www.gao.gov/
products/GAO-13-356.
ting team working closely with Congress to establish
6. DELIVERING A HIGH-PERFORMANCE GOVERNMENT 63
a Federal Permitting Improvement Council as part cies. Towards this end, the Administration has taken
of the FAST (Fixing Americas Surface Transpor- steps to institutionalize capacity to address cross-cutting
tation) Act. The Federal Permitting Improvement challenges.
Council will provide technical assistance on infra- First, consistent with authority granted in FY 2016, the
structure permitting, including developing model Presidents FY 2017 Budget includes authority for agen-
performance timelines for commonly required infra- cies, with prior notification to Congress from the Director
structure project permits and reviews, maintaining of OMB, to transfer up to $15 million from agency budgets
a public dashboard to increase transparency and ac- to support these cross-cutting management initiatives.
countability for coordinated permitting timetables, This institutionalizes a capability to fund cross-agency ef-
and supporting new fee structures for project pro- forts, rather than handling them on a case-by-case basis,
ponents to reimburse the Federal Government for and provides a powerful tool to turn management reforms
reasonable permitting and review costs. In 2015, the ideas into real and lasting results for the American peo-
U.S. Army Corps of Engineers, Department of Trans- ple. Absent this continued authority, CAP Goal leaders
portation, U.S. Coast Guard and three other agen- are constrained in their ability to implement effective so-
cies also released the first update in nearly 30 years lutions across agencies, leaving various Federal programs
to the Synchronizing Environmental Reviews for and activities to address shared issues in a duplicative,
Transportation and Other Infrastructure Projects siloed, and ad hoc way.
handbook (known as the Red Book). The Red Book Second, in November 2015, the inaugural class of
provides practical, real-world guidance to Federal 16 White House Leadership Development Program
agencies, applicants, project sponsors, and consul- (WHLDP) fellows began their one-year rotations pro-
tants on how to improve the efficiency and effective- viding additional support to implement the CAP Goals.
ness of key permits and reviews required for these Originally announced by the President in December 2014,
project. the WHLDP is an initiative to deliver on the Presidents
Management Agenda, representing a continued commit-
To achieve the Shared Services goal the Administra- ment to developing and strengthening the next generation
tion announced the establishment of the first-ever,
of Federal career leaders while increasing our capacity to
government-wide shared services management and
make progress on issues that cut across multiple agencies.
oversight operation model for delivering mission
Program fellows are comprised of emerging leaders and
support functions such as financial management,
Senior Executive Service (SES) candidates, and through
human resources, and acquisition. A new cross-gov-
a one-year rotational assignment, are assigned to work
ernmental Shared Services Governance Board, led
on the Federal Governments highest priority and highest
by OMB, was launched to serve as the decision-mak-
impact challenges that require the coordination of mul-
ing body for the shared services ecosystem. A Unified
tiple Federal agencies to succeed. Through the WHLDP,
Shared Services Management (USSM) office is also
the Administration is focused on developing and unlock-
being established within the General Services Ad-
ing the full potential of the Federal workforce to drive
ministration (GSA) to serve as an integration body
greater effectiveness and efficiency within government
for the ecosystem, working across functions, provid-
and better harness taxpayer resources. Over the course
ers and consumers to improve shared service deliv-
of the next year, these emerging leaders will play a key
ery and increase agency adoption. This new model
role in addressing the governments critical management
will expand shared services to acquisitions, grants,
challenges with participants gaining valuable experience
and information technology by leveraging lessons
as they take on leadership roles in their agency.
learned from prior successes in financial manage-
ment and human resources, such as the consolida- Agency Priority Goals
tion of government-wide payroll operations, or the
Agency Priority Goals are used to achieve an agencys
Department of Housing and Urban Developments
near-term, implementation-focused priorities. Agencies
(HUD) successful transition of many of its core fi-
establish Priority Goals every two years and use clearly-
nancial management and human resource functions
identified Goal Leaders and Deputy Goal Leaders and
to the Department of the Treasury in October 2015.
quarterly metrics and milestones to manage progress.
Though these examples do not encapsulate the entire- COOs lead quarterly data-driven performance reviews
ty of performance accomplishments made in pursuit of to overcome barriers and accelerate performance results.
CAP goals, they nonetheless offer a brief glimpse into the Progress on APGs is updated publicly on a quarterly ba-
hard work and promising initiatives being launched by sis with data and progress reported on Performance.gov.
agencies to strengthen the way Government works. And Agency leaders have set goals for improving access to
while the results on CAP Goal progress are encouraging, capital to enhance job creation, reducing foodborne illness
challenges nonetheless remain on program and service through targeted inspections, coordinating multiple agen-
delivery across agency boundaries. Often few resources cy services to reduce veteran homelessness, and reducing
are dedicated to identifying and solving interagency hospital acquired infections.
challenges. In many instances, significant management Since 2009, the Administration has seen measurable
improvements require investments that cut across agen- progress from the use of Agency Priority Goals. Illustrative
examples of performance results achieved this past year proves customer service by adding multiple touch
include: points with disaster survivors.
Restoring Vitality to Contaminated Sites. The Envi-
ronmental Protection Agencys Superfund, Resource Fiscal Year 2016 marked both the end of the FY 2014-
Conservation and Recovery Act (RCRA) correc- 2015 APG cycle as well as the beginning of an updated
tive action (CA), leaking underground storage tank round of APGs covering FY 2016-2017. At the start of
(LUST), and Brownfields cleanup programs reduce FY 2016, major Federal agencies working in conjunction
risks to human health and the environment by as- with OMB announced 99 APGs for the new two-year cycle
sessing and cleaning up contaminated sites to en- covering FY 2016-2017. This is the fourth cohort of APGs
hance the livability and economic vitality of neigh- of this Administration, and included the continuation of
borhoods. Since the EPA began collecting the number approximately sixty percent of the APGs from the FY
of sites ready for anticipated use (RAU) in FY 2008, 2014-2015 cohort. Progress to date on APGs is encour-
the cumulative number of sites RAU has increased. aging and leading to measurable improvements on the
As of the end of FY 2015, more than 463,500 sites ground. Over eighty percent of APGs able to be assessed
were made ready for anticipated use with the EPA in the FY 2014-2015 cycle saw improved performance dur-
adding 21,836 RAU sites over the course of the FY ing the course of the goal period. The 99 APGs announced
2014-2015 APG cycle and exceeding the agencys for the FY 2016-2017 cycle will focus agencies over the
goal of 18,970 RAU sites by 15%. next two years to improve near-term outcomes that at the
same time advance progress towards longer-term, out-
Reduce the Federal Footprint. The General Services come-focused strategic goals and objectives within each
Administration established a goal of reducing the agencys four-year strategic plan.
amount of Federal leased office space by 5% for re- With this Budget, agencies have identified action plans
placement leases by the end of FY 2015. GSA re- for each of these goals, ranging from the Department of
duced federally leased office space by a half-million Housing and Urban Developments goal to end homeless-
square feet which far exceeds its target throughout ness by reducing the total number of homeless families,
the FY 2014-2015 goal cycle. youth and children, and people experiencing chronic
Decreasing Veterans Disability Claims Backlog. Im- homelessness, to Department of Justice efforts to protect
proving customer service and reducing the length of the most vulnerable within society, including victims and
time it takes to process disability claims are integral survivors of human trafficking, and the Department of
to the Department of Veterans Affairs (VA) mission the Interiors initiatives to improve the graduation rate
of providing benefits to eligible Veterans in a timeof tribal high school students and facilitate tribal self-
ly and efficient manner. Between March 2013 and determination in shaping the educational curriculum
September 30, 2015, the claims backlog (defined as for students. Looking ahead, agencies continue to build
claims that have been pending over 125 days) was upon the successes and performance outcomes achieved
reduced from 611,073 to 71,352 claims, a decrease over the past two years while charting new and even more
of 88.3%. Moreover, while decreasing the disability ambitious priority performance goals. Agencies and their
claims backlog, the VA also increased the accuracy Goal Leaders have announced their plans for achieving
of processing the claims, with nearly 98% accuracy targets outlined in the FY 2016-2017 APGs, and as with
across all categories. prior APG cycles, updates will continue to be published to
Performance.gov.
Access to Capital and Disaster Loan Application Studies on implementation of the Administrations
Rate. Providing access to capital, particularly to new performance management approach point towards
survivors of natural disasters, has been one of the a broader, more measureable impact across agencies
Small Business Administrations critical strategies through the use of performance measures in the budget
in meeting its objective to drive business formation, process. Results of recent research have yielded promising
job growth and economic expansion. Helping expand insights in terms of CAP Goals, APGs, and the quarterly
the agencys footprint to increase small businesses data-driven review process leading to greater rates of per-
access to capital, the SBA added 292 new and return- formance information use by agency leadership to assess
ing lenders to its flagship lending program as these progress and inform decisions surrounding resource allo-
lenders made 752 loans totaling over $260 million in cations. Using data from nationwide surveys2 conducted
capital funding in FY 2015. Additionally, the agency over the last decade by GAO in the major 24 agencies,
has sought to increase the return rate for disaster researchers have found evidence that mid- and upper-
survivor applications by the end of September, 2015. level Federal managers engaged in the implementation
Since implementing a new process for issuing appli- of the priority goals, and exposed to data-driven reviews,
cations to disaster survivors in Presidential disaster were significantly more likely to use performance data to
declarations for Individual Assistance (IA), SBA has
2 Agencies Trends in the Use of Performance Information to Make
attained a disaster loan application return rate of
Decisions. GAO measured agency use of performance information by
98% at the end of FY 2015. SBAs new process for creating an index from manager survey data collected in 2007 and 2013.
issuing applications in Presidential-IA declarations The index reflected the extent to which managers reported that their
helped increase the application return rate and im- agencies used performance information for various management activi-
ties. September 2014. http://www.gao.gov/products/GAO-14-747.
manage programs and employees, and identify and solve propriate stakeholders, and balancing a focus on learning
problems, suggesting successwhere prior [Federal] re- from the reviews with a focus on accountability. Progress
forms have struggled.3 Such early successes regarding updates for each major agencys strategic objectives are
performance information use have been further expand- available on Performance.gov, and also in annual agency
ed beyond the context of priority goals and data-driven Performance Reports.
reviews, incorporating strategic planning and reviews
Reflecting on 2015 Reviews, Looking Ahead to 2016
to further inform strategic decision-making, budget for-
mulation, and near-term agency actions in addition to In 2015, the Administration established FedStat,
initiatives for strengthening the resources of performance which combined Strategic Reviews with two other da-
management staff within agencies. ta-driven reviewsPortfolioStat and Benchmarkingin
order to facilitate one integrated review among senior
Expanding Impact Through Strategic
Administration and agency leadership. In preparing for
Plans and Strategic Reviews
the 2015 strategic review, agencies focused their assess-
New agency strategic plans were published in February ments on providing a snapshot of mission performance
2014 on Performance.gov and agency websites concurrent with a prioritized focus on mission support functions to
with the Presidents FY 2015 Budget. Agencies are now achieve performance gains in efficiency and effectiveness.
in the 3rd year of these strategic plans, which serve to To facilitate management decisions, agencies also made
chart a course for long-term agency performance over a meaningful distinctions in performance across strategic
five-year time horizon, define agency missions, long-term objective assessments, identifying areas of noteworthy
goals and objectives, and strategies planned for achiev- progress as well as where significant challenges existed.
ing these objectives. Outcomes are advanced by strategic Agencies were asked to identify only a limited number of
objectives, which are supported by specific performance areas where the agency made noteworthy progress and
goals and indicators. As part of their strategic plans, a limited number as focus areas for improvement. Areas
Federal agencies have identified more than 350 strategic demonstrating noteworthy progress could be identified as
objectives, reflecting the scope of each agency mission as a result of new innovations in strategy, program design,
well as the breadth of Federal activities and outcomes.4 or operations that have led to notable improvements in
To expand proven performance management practices outcomes or cost reductions. Focus areas for improve-
further and ensure that agency strategic plans are being ment could be the result of challenges during program
implemented and assessed, the Administration estab- execution, for example, or when a problem the strategic
lished annual strategic reviews. The strategic reviews objective seeks to address is growing more quickly than
provide a comprehensive framework at each agency to current actions or resources can address it.
make informed strategic, budget, legislative, and man- Across the strategic objectives analyzed in 2015, agen-
agement decisions based on evidence in alignment with cies identified approximately 15% as making noteworthy
the agency strategic plan. The annual assessments are progress, and 10% as focus area for improvement, a slight
expected to incorporate not only performance measures, improvement over 2014s assessments. The validity and
but also evaluation results, challenges, risks, and external implications of these findings will continue to be reviewed
factors to inform the decision-making at the agency and annually for refinement as agencys strategic review and
OMB. Incentivizing organizations to develop a culture fo- performance management capabilities continue to ma-
cused on learning and improving performance, strategic ture and strengthen. More information is available in the
reviews help leadership in identifying opportunities for progress updates provided for each major agencys strate-
reform proposals and executive actions. gic objectives on Performance.gov, and in the 2015 Annual
To date, agencies have conducted two rounds of strate- Performance Reports. Agencies have summarized pro-
gic reviews. The 2015 strategic reviews were intended to posed next steps in their 2017 Annual Performance Plans.
build upon the successes and gains made by agencies dur- Based on feedback, the Administrations strategic
ing the first round in 2014. OMBs approach reflects an review policy confers a range of benefits, including im-
embrace of a multi-year maturity model, recognizing that proved interagency collaboration, a chance to identify
effective reviews would take multiple years to establish evidence gaps and opportunities to improve data quality
as part of a planning and review process that adds value to inform better resource allocation decisions, and further
to agencys strategic and performance planning activities. institutionalizing a strategic review policy framework
As such, agencies are provided flexibility to tailor their that uses data-driven performance reviews to improve
reviews to the uniqueness of agency missions and capa- decision-making as part of the budget formulation pro-
bilities. OMB has also encouraged agencies to use proven cess. The Department of the Interior offers an example
management principles for their implementation, such as of such an approach. The agency makes funding alloca-
leveraging existing business processes, engaging the ap- tions related to each of the strategic objectives based on
3 Moynihan, Donald, & Kroll, Alexander. Performance Management
its department-wide strategic plan and an assessment of
its performance measures. Past performance and future
Routines that Work? An Early Assessment of the GPRA Modernization
Act. Public Administration Review, DOI: 10.1111/puar.12434. http:// targets are discussed in the context of the accompanying
onlinelibrary.wiley.com/doi/10.1111/puar.12434/abstract. trends in funding, including past allocated funding and
4 The 350 objectives do not include all government corporations and future corresponding budget projections. This is especially
independent establishments. Rather, this number consists of the 24 useful for those programmatic areas where performance
CFO Act Agencies excluding the Nuclear Regulatory Commission.
takes more than one year of funding and effort to realize In addition to ongoing working groups, summits, and
results. While the Department of the Interiors strategic speaker series, the PIC has launched two websites in re-
plan integrates across the various bureaus to show how cent years, expanding its reach and impact to the larger
the different programmatic efforts in the different bu- government performance community through a strength-
reaus contribute to related goals, funding allocations are ened online presence. Their namesake website, PIC.gov,
provided by individual bureaus and the budget activity provides news about the Federal performance manage-
or program supporting each strategic objective. This ap- ment and improvement community. The Performance
proach at the Department of the Interior illustrates the Learning Center at LearnPerformance.gov has been op-
performance and budget link, based on evidence and eval- erating in beta form but will be updated in 2016, and
uation, which the strategic review process is intended to promises to be a one-stop-shop for online training, re-
inform within agencies. sources, and career development for federal performance
Looking ahead to 2016, the upcoming round of strate- measurement and management. LearnPerformance.gov
gic reviews will look to cement gains made in agencies will provide users with a variety of learning resources
capacity for conducting effective reviews, advancing them and training course information, and is designed for mul-
further along the maturity model by providing an appro- tiple audiences, including performance analysts, program
priate policy structure and framework to anchor their managers, and others contributing to government perfor-
strategic plans and review processes. OMB guidance mance management.
largely aligns with and complements several practices The PIC has also led in establishing innovative, cross-
for conducting effective agency strategic reviews recently agency initiatives focused on strengthening agency
identified by GAO,5 underscoring the importance of provid- performance management capabilities that move agency
ing a strong policy framework in which to institutionalize progress on performance goals. The PIC engages in build-
this critical component of performance management. As ing capacity for those new to the performance field through
OMB, the PIC, and agencies share best practices and les- an established training program offered at no charge to
sons learned from previous rounds of strategic reviews, Federal employees three-times per year, as well as a pro-
the Administration anticipates they will play an expand- fessional development program called the Performance
ed role in informing budget development and operational Enthusiast and Ambassador Program. These programs
decisions, facilitating a broader improvement in the use invest in community members through building their
of evidence for decision-making by managers across the knowledge and skills in performance management and
Federal Government. measurement, ultimately transferring that knowledge
Strengthening Agency Capabilities, back to their agency.
Collaboration, and Knowledge Supporting a facilitative approach to cross-agency
collaboration, the PICs Collaboration Studio team suc-
Since its establishment, the Performance Improvement cessfully delivered 65 engagements during FY 2015, with
Council (PIC) continues to play an important role in sharp- a focus ranging from cross-agency and agency priority
ening and broadening the application of performance goals to supporting agency and policy council teams in
management tools throughout the Federal Government building better clarity on goals and outcomes. In one il-
by providing opportunities for Federal program manag- lustrative example, the Collaboration Studio team led the
ers and performance professionals to share practices and design and implementation of the IT Solutions Challenge
build their own capabilities. Initiative for the Federal CIO, finding innovative solu-
The PIC offers a number of ways for agencies to col- tions based on the fresh perspectives of Federal IT staff.
laborate and build capabilities. Most recently the PIC In 2016, the Collaboration Studio will continue to focus on
released the results from a working group involving in- using action-based approaches to help teams solve leader-
dividuals from across Law Enforcement entities in the ship and cross-cutting government challenges.
Federal Government. This working group explored some And lastly, the Leaders Delivery Network (LDN) is a
of the challenges of performance measurement in their leadership and cross-agency networking program de-
particular work. In the lead-up to the 2014 strategic signed for APG deputy goal leaders across the Federal
review sessions, the PIC hosted several strategic review- Government. Throughout the FY 2016-2017 APG cycle, a
themed summits for agencies, and published a training cohort of approximately 25 leaders from 17 major agencies
guide on leading an effective strategic review as a follow- will meet bi-monthly to engage with high profile speakers,
up to agencys initial experiences. The PIC holds a speaker discuss challenges, and share best practices in program
series on performance issues and convenes a number of management and implementation. LDN participants are
larger-scale government-wide events for employees to also offered several additional opportunities throughout
work together to solve common challenges around imple- the two-year cycle, including coaching, individualized
mentation of the Government Performance and Results managerial consultations, and self-assessments that help
Modernization Act. These collaboration opportunities target opportunities for professional growth and results.
have brought together hundreds of people across two doz- Through efforts like the LDN and Collaboration Studio,
en agencies and will continue in 2016. the PIC and OMB continue to strengthen the performance
management framework, spark targeted improvements,
and most importantly, expand agency capabilities and
5 Practices for Effective Agency Strategic Reviews. July 2015. http:// capacity for performance management. Collaboration
www.gao.gov/products/GAO-15-602.
across the PIC and OMB will continue to be a priority in on the men and women in our Armed Forces who need
order to promote learning and innovation in performance the best resources when in uniform and who, after they
management in 2016 and beyond. have served, deserve the benefits they earned. Whether
Communicating Performance Results Effectively protecting individuals and communities, modernizing in-
frastructure, investing in our children, or taking care of
Performance.gov offers an online portal to Federal the most vulnerable, the American people deserve a highly
performance management efforts, helping to improve effective government. Delivering high-performing Federal
accountability by providing one, centralized reporting loca- programs for the American people is not the exception,
tion for the public to find information on agency programs, but the norm. Building a government that works smart-
goals, and regular progress updates towards achiev- er, better, and more efficiently to deliver results for the
ing APGs and CAP Goals. In support of the Presidents American people is a cornerstone of this Administration.
commitment to transparency and implementation of the The five management practices outlined in this chapter
GPRA Modernization Act, the Administration continues inform the Administrations approach to delivering on
to develop Performance.gov to inform stakeholders on the goal of a high performing Federal Government, and
performance improvement on the part of major Federal offer descriptive insight into the progress that has been
agencies. achieved by agencies to date.
Formal, cross-collaborative structures have been cre- These practices provide the framework to shape future
ated to assist in this endeavor and make continued initiatives in Federal performance management. As work
advancements in this important aspect of Federal per- continues on agency internal controls and enterprise risk
formance management policy. Chartered in 2013, the management, 2016 offers an opportunity to integrate risk
Performance Management Line of Business (PMLOB) was management profiles around mission and mission sup-
founded with a charge to take a lead role in overseeing port functions in agency strategic planning and reviews.
future development of Performance.gov. An interagency Opportunities also exist for collaboration and integration
effort comprised of representatives from major Federal across evidence, evaluation, and performance teams.
agencies, OMB, and the PIC, the PMLOB works col- The Administration is strongly committed to the
laboratively to develop government-wide performance Presidents charge to deliver a government that works,
management capabilities to help meet the transparency a government that is smarter, leaner, and more effective,
requirements of the GPRAMA. PMLOB continues to sup- one that produces tangible results all around us in a
port the evolution of Performance.gov from a site that is small business opening its doors, more homes becom-
not just a GPRAMA-compliant tool, but to one that coming energy-efficient, new wind turbines generating clean
municates performance results effectively and offers a renewable energy, healthier children, better served vet-
cohesive, comprehensive view of Federal performance. erans, and falling crime rates. Leadership engagement,
Performance Agenda Looking Ahead clear goals, measurement, analysis of progress, and fre-
quent progress reviews to find and promote what works
The work of the Federal Government has a tangible and fix or eliminate what does not are keys to improving
effect on peoples lives on small business-owners who the lives of the American people.
need loans, on young people who want to go to college,
7. BUILDING THE CAPACITY TO PRODUCE AND USE EVIDENCE
We usually do better when were on the side of facts and evidence and science. Just as a general rule,
thats proved to be our strength as Americans.
President Obama, Remarks by the President to the Business Roundtable September 16, 2015
The President has made it clear that policy decisions decision-making, it is essential that Federal agencies de-
should be driven by evidenceevidence about what works velop the capacity to credibly build and use evidence and
and what does not, and evidence that identifies the great- implement a culture that supports doing soand many
est needs and opportunities to solve great challenges. The agencies are making progress in doing so. Given the cen-
Administration is committed to living up to this principle trality of agency capacity to these efforts, this chapter
through a broad-based set of activities to better integrate focuses on a few specific components of capacity, espe-
evidence and rigorous evaluation in budget, management, cially the principles and practices that support credible
and policy decisions, including through: (1) making bet- evaluation functions.
ter use of data already collected by government agencies; What is Evidence and How Should it be Used?
(2) promoting the use of high-quality, low-cost evaluations
and rapid, iterative experimentation in addition to larger The best government programs use a broad range of
evaluations examining long-term outcomes; (3) adopting analytical and management tools, which collectively com-
more evidence-based structures for grant programs; and prise an evidence infrastructure, to learn what works
(4) strengthening agency evidence-building capacity and (and what does not) for whom and under what circum-
developing tools to better communicate what works.1 stances, as well as improve results. Broadly speaking,
There is a growing momentum for these evidence-based evidence is the available body of facts or information
approaches at all levels of government, as well as among indicating whether a belief or proposition is true or val-
nonprofits, foundations, faith-based institutions, and id. Evidence can be quantitative or qualitative and may
community-based organizations. The Administrations come from a variety of sources, including performance
embrace of these approaches has resulted in important measurement, evaluations, statistical series, retrospec-
gains in areas ranging from reducing veterans homeless- tive reviews, and other data analytics and research.
ness, to improving educational outcomes, to enhancing Evidence cannot be separated from the purposes for
the effectiveness of international development programs. which it is being used, and the credible use of evidence
The 2017 Budget advances these approaches through a in decision-making requires an understanding of what
range of investments in evidence building, as well as by conclusions can and, equally important, cannot be drawn
increasing investment in programs with strong evidence from the information. For example:
of effectiveness. These proposals are described in the main Multiple rigorous impact evaluations, in particular
budget volume and accompanying documents.2 randomized experiments, may provide strong evi-
All of these efforts embody the simple guiding prin- dence that a particular intervention is effective with
ciple that: Where evidence is strong, we should act on a particular population in a particular setting. How-
it. Where evidence is suggestive, we should consider it. ever, they may be less definitive on how effective
Where evidence is weak, we should build the knowledge that intervention may be in other settings or with
to support better decisions in the future.3 In order to in- other populations.
tegrate this guiding principle in all aspects of government
1Several
Quasi-experimental evidence from large, diverse
Administration documents lay out this evidence agenda, samples of administrative data may make it easier
including previous versions of this chapter, the Evaluation as a Tool to generalize across a range of circumstances, but
for Improving Federal Programs chapter of the Council of Economic
Advisers 2014 Economic Report to the President, and the OMB Memo- they could lack definitive evidence on causality or
randum M-13-17, Next Steps in the Evidence and Innovation Agenda, be silent on important outcomes not captured in the
May 2012, jointly signed by the Office of Management and Budget, the administrative data.
Domestic Policy Council, the Office of Science and Technology Policy, and
the Council of Economic Advisers. Many of these documents are avail- Descriptive analyses from Federal statistical series
able on the OMB website at http://www.whitehouse.gov/omb/evidence. provide context to examine societal and economic
In addition, note that OMB Circular A-11 has been updated to be consis- trends over time.
tent with many of these principles.
2See http://www.whitehouse.gov/omb/evidence.
Studies of the observed behavior of individuals,
3See OMB Memorandum M-12-14, Use of Evidence and Evaluation groups, businesses, and other entities can provide
in the 2014 Budget, May 2012.
69
important insights into the dynamics that policies advances in this area are tiered-evidence or innovation
and programs may be designed to address, whether fund grant designs that focus resources on practices with
through the use of administrative, survey, or linked strong evidence while also promoting innovation and fur-
datasets. However, they do not provide direct tests ther evaluation. The Administration has adopted tiered
of specific policies, nor account for the exigencies of evidence grant programs in multiple areas, such as K-12
program administration. education interventions, teenage pregnancy prevention,
social innovations for communities, voluntary home visi-
Qualitative and quantitative implementation stud- tations for parents, and international assistance efforts.
ies can complement other evidence by providing in-
The Administration is also promoting the Pay for
sight into how programs and practices can be suc-
Success financing model in a wide range of programs,
cessfully implemented.
including for workforce, education, recidivism, housing,
High-quality performance measures can provide and environmental interventions. Pay for Success financ-
valid, reliable, and useful information on program ing leverages philanthropic and private dollars to fund
inputs and/or outputs. preventive services and other interventions, which are pro-
vided by nonprofits and other non-governmental entities
Evidence has varying degrees of credibility, and the up front, with the Government paying only after the in-
strongest evidence generally comes from a portfolio of terventions generate sufficient measurable results. Since
high-quality evidence rather than a single study or data as early as 2012, agencies including the Departments
point, i.e., from multiple sources and/or multiple studies of Education (ED), Housing and Urban Development
covering different aspects and nuances of the topic. While (HUD), Justice (DOJ), and Labor (DOL) as well as the
many of these forms of evidence are complementary, some Corporation for National and Community Service (CNCS)
evidence that is useful for one purpose may not be use- have been working to implement Pay for Success. So far,
ful for another. For example, performance measures are Federal agencies have made awards supporting roughly
an essential resource for agencies to understand ongoing, 50 efforts, and still more agencies continue to explore pos-
real-time program performance so they can use that infor- sible applications of this model.
mation to build a culture of continuous improvement, but In addition, the Administration created Performance
they often do not tell us a lot about some key questions, Partnership Pilots for Disconnected Youth that allow
including the effects of programs. Evaluations provide States, tribes, and localities to blend funding from various
context for the performance measures and help us better programs and receive waivers under multiple youth-serv-
understand what can and cannot be learned from them. ing programs in order to improve education, employment,
In particular, rigorous impact evaluations, particularly and other key outcomes and build evidence about more
randomized experiments, can provide the most credible effective ways to help vulnerable youth. In FY 2015, a
information on the impact of the program on outcomes, consortium of six agencies awarded the first cohort of nine
isolated from the effects of other factors. Thus combining pilots to give State, local, and tribal communities custom-
both performance and evaluation information, and using ized flexibility to make a difference in the lives of local
the results of one to inform the design of the other, can youth. Each pilot is conducting a site-specific evaluation
be very powerful in understanding program performance of local outcomes, and the Department of Labor is leading
and ensuring that the program is maximizing perfor- an evaluation to look at cross-site implementation of the
mance and impact on an ongoing basis. initiative overall. In FY 2016, the interagency consortium
Examples of Progress has grown to include HUD alongside ED, DOL, DOJ, the
Department of Health and Human Services (HHS), CNCS,
The Administration encourages agencies to generate and the Institute for Museum and Library Services. In
more high quality evaluations, place greater attention on the coming year, this consortium expects to select up to 20
goal-setting and measuring performance through the im- new pilots under two competitions.
plementation of the Government Performance and Results At the same time, the Administration has pursued inno-
Modernization Action of 2010, increase the use of existing vative approaches to improve federal capacity to identify
administrative data for evidence building, and strength- more effective strategies. For example, the Administration
en the capacity of statistical agencies to build objective established the Social and Behavioral Sciences Team
and quality evidence. The Administration is committed to (SBST)a cross-agency group of experts in applied be-
acting on available evidence and has proposed to invest havioral scienceto help agencies translate findings and
in, scale up, or change a variety of programs on the basis methods from the social and behavioral sciences into
of strong evidence that they are effective. These propos- improvements in Federal policies and programs. Due to
als cover a broad range of policy areas including ending SBST projects, more military service members are sav-
homelessness, improving employment outcomes, reducing ing for retirement, more students are going to college and
crime and recidivism, and reducing global poverty and better managing their student loans, more Veterans are
improving global health. taking advantage of education and career counseling ben-
The Administration has also introduced a number of efits, more small farms are gaining access to credit, and
grant program innovations that embed evidence more fun- more families are securing health insurance coverage.4
damentally into their structures. Among the most notable
4For additional information on SBSTs work please see their website
(https://sbst.gov/) and their 2015 Annual Report.

7. BUILDING THE CAPACITY TO PRODUCE AND USE EVIDENCE 71
One common component of SBSTs work is making Most recently, OMB issued Statistical Policy Directive
better use of the administrative data that government 1, Fundamental Responsibilities of Federal Statistical
already collects in order to learn which approaches work Agencies and Recognized Statistical Units,10 which af-
best. The Administration encourages all Federal agencies firms the Federal Statistical Systems responsibility to
to make better use of these data to identify effective prac- produce and disseminate relevant and timely informa-
tices, facilitate day-to-day performance measurement, tion; conduct credible, accurate, and objective statistical
and inform the public about how society and the econ- activities; and protect the trust of information providers
omy are faring. As discussed in the Building Evidence by ensuring confidentiality and exclusive statistical use of
with Administrative Data chapter in the 2016 Analytical their responses. The framework articulates principles and
Perspectives volume,5 the ability to access and make better practices that support these responsibilities and requires
use of these datawhile protecting privacy and confiden- Federal statistical agencies and recognized statistical
tialityhas played a pivotal role in a range of policy areas, units to adopt policies, best practices, and appropriate
including some of the most innovative grant reforms and procedures to implement these responsibilities. These
increased accountability and transparency across a range guidelines and policies provide a common foundation for
of programs. For example, multiple studies on student aid core statistical agency functions to ensure that the infor-
simplification showed the feasibility and importance of mation they provide adheres to a high standard of quality
simplifying the Free Application for Federal Student Aid and utility to evidence based decision making.
(FAFSA), using Federal administrative records as well Under this Administration, several evaluation offices
as survey data. This research influenced the steps the have also established agency-specific statements of evalu-
Administration has already taken to simplify the FAFSA ation policyfor example The Administration for Children
and motivated both Administration and Congressional & Families (ACF) Evaluation Policy (in the Department
proposals to make further legislative progress. of Health and Human Services) and The Department of
Labor Evaluation Policy. These resources have generat-
Principles and Practices that Support
Credible Evidence Development ed useful conversations and agreements within agencies
about their evaluation-related practices and principles.
In order for government to make credible use of evi- Many Federal evaluators believe that establishing a
dence, the evidence itself must be crediblemeaning that common set of government-wide principles and practices
it must be objective and of sufficient quality, utility, and for evaluation offices could help to ensure that Federal pro-
integrity. Informed by national and international program evaluations meet scientific standards, are designed
fessional practice, the Federal Government has taken a to be useful, and are conducted and the results dissemi-
number of steps to foster the credibility of evidence. For nated without bias or undue influence. Establishing these
example, pursuant to the Information Quality Act6 and standards is an important building block in furthering
OMB guidelines,7 agencies are required to establish pro- agencies capacity to routinely build and use high-qual-
cedures to ensure the objectivity, utility, and integrity of ity evidence to improve program performance, and help
information provided to the public, and to match the qual- evaluation offices maintain standards for their programs
ity of the study with its intended use. across administrations and changes in personnel.
Similarly, a central theme of the Presidential While the process for developing such a set of stan-
Memorandum on the Preservation and Promotion of dards is ongoing, a few fundamental principles emerge
Scientific Integrity8 and the associated implementation as common themes in the established U.S. frameworks
guidance9 is that the public must be able to trust the discussed above as well as in international frameworks.
science and scientific processes informing public policy de- These principles include: Rigor, Relevance, Independence,
cisions. These documents articulate and provide guidance Transparency, and Ethics.
on principles and procedures integral to the preservation
and promotion of scientific integrity, including those relat- Rigor
ed to strengthening the actual and perceived credibility of The accuracy and quality of evaluation results are
Government research, communicating scientific and tech- dependent on the design and implementation of the un-
nological information to the public, and the importance of derlying studies. All forms of evaluation should use the
shielding scientific data and analysis from undue political most rigorous methods as appropriate, and should use the
influence. most appropriate type of evaluation to answer the specific
question(s) being asked. Rigor is not restricted to impact
5See Building Evidence with Administrative Data, chapter 7 in the
evaluations. It is also necessary in implementation or
2016 Analytical Perspectives volume.
process evaluations, assessments, descriptive studies,
6See Section 515 of the Treasury and General Government Appro- outcome evaluations, and formative evaluations, as well
priations Act, 2001 (Pub. L. No. 106-554, 44 U.S.C. 3516 note). as in both qualitative and quantitative approaches.
7See Guidelines for Ensuring and Maximizing the Quality, Objectiv- There are several practices that agencies use to sup-
ity, Utility, and Integrity of Information Disseminated by Federal Agen- port the rigor of evaluations. One of the most important is
cies, February 22, 2002 (67 FR 8452). recruiting and maintaining an evaluation workforce with
8See Memorandum for the Heads of Executive Departments and Agen-
cies 3-9-09, May 2009. 10See Federal Register, Volume 79, Number 231, Part III, Statistical
9See OSTP Memorandum, Memorandum for the Heads of Executive Policy Directive 1, Fundamental Responsibilities of Federal Statistical
Departments and Agencies, December 2010. Agencies and Recognized Statistical Units, December 2014
training and experience appropriate for planning and Guidelines for Education Research and Development in
overseeing a rigorous evaluation portfolio. To accomplish 2013.11 These guidelines clarify how different types of
this, agencies seeking to maintain or increase the rigor studies contribute to the evidence base, including basic
of their evaluation functions recruit staff with advanced research and impact evaluations, and set expectations for
degrees and experience in a range of relevant disciplines the evidence that different types of studies seek to gen-
and provide professional developmental opportunities erate. Other agencies, such as DOL and components of
so that staff can keep their skills current. Agencies have HHS, are using the same guidelines for their evaluation
cited hiring and retaining a skilled evaluation workforce activities. Research experts from Federal agencies, States,
as an area of difficulty. The Administration is working on and academia are working with the National Academy of
how best to address these issues. Sciences on ways to build consensus on standards for ben-
Another practice that helps agencies ensure rigor is the efit-cost analysis of preventive interventions for children,
development and implementation of quality review and youth, and families that would help government compare
control procedures. Examples of strong procedures that the benefits and costs of multiple strategies focused on sim-
maintain the integrity of evaluations include technical re- ilar target populations and outcomes. Common research
views of all aspects of evaluation designs (methodological standards and evidence frameworks across agencies can
design, data collection instruments and procedures, sta- facilitate evaluation contracting, information collection
tistical and analytic plans); minimization of the burden clearance, and the strengthening or creation of research
of data collection; and external peer reviews by third-par- clearinghouses and repositories about what works.
ty independent technical experts and technical working
Relevance
groups.
Finally, evaluation guidelines and/or frameworks that Evaluations that do not inform decision-making have
indicate the standards for high quality evaluationsand little applied value. For that reason this Administration
how different types of evaluations and studies contribute has made integrating evidence into all types of budget,
to the evidence basefacilitate both the production and management, and policy decision-making a priority.
use of rigorous evidence. OMB encourages agencies to es- Performance, evaluation, and other research evidence
tablish such frameworks and make them available as a plays an important role in annual agency strategic
technical resource for in-house and external evaluators review processes. Agencies seeking to increase the rel-
when designing evaluations. These guidelines are also evance and eventual use of evaluation findings take
useful when assessing the quality of the evaluation as it into account the viewpoints of a variety of stakehold-
was actually implemented. ers when establishing their research agendas, including
These guidelines can be particularly powerful when
they apply to more than one agency. For example, ED 11See Institute of Education Sciences, Department of Education and
and National Science Foundation (NSF) issued Common the National Science Foundation, Common Guide-lines for Education
Research and Development, August 2013.
INCREASING RELEVANCE: THE LEARNING AGENDA APPROACH

The Administration encourages agencies to adopt learning agenda approaches in which agencies collaboratively identify the
critical questions that, when answered, will help their programs work more effectively and develop a plan to answer those
questions using the most appropriate tools. The key components of this learning agenda approach are that agencies:
Identify the most important questions that need to be answered in order to improve program implementation and perfor-
mance. These questions should reflect the interests and needs of a large group of stakeholders, including program office
staff and leadership, agency and Administrative leadership, program partners at state and local levels, and researchers,
as well as legislative requirements and Congressional interests.
Strategically prioritize which of those questions to answer within available resources, including which studies or analy-
ses will help the agency make the most informed decisions.
Identify the most appropriate tools and methods (e.g. evaluations, research, analytics, and/or performance measures) to
answer each question.
Implement studies, evaluations, and analysis using the most rigorous methods appropriate to the context.
Develop plans to disseminate findings in ways that are accessible and useful to program officials, policy-makers, practi-
tioners, and other key stakeholdersincluding integrating results into performance measurement and strategic plan-
ning activities.
Several agencies have successfully implemented learning agendas. For example, the Department of Housing and Urban Devel-
opment (HUD) has been a leader in integrating its performance measurement, evaluation, and research efforts into a HUD-
Stat process that engages its leadership in evidence-driven discussions of key priorities. These HUDStat processes not only
discuss evidence but identify areas where more evidence is needed. The Millennium Challenge Corporation (MCC) organizes
itself around its learning agenda. Its decisions to enter into compacts with developing countries are based upon evidence on
the effectiveness of particular types of interventions in particular types of countries and typically embed evaluations into those
compacts in order to inform future decisions.
Congress, Administration leadership, agency leader- onstration of rigor, these offices establish their authority
ship, the implementing program, and other partners and to determine the appropriate designs, data, and methods
stakeholders. While evaluations can be expensive and to use to conduct their work. They establish the capacity
lengthy undertakings, taking these viewpoints into ac- to make persuasive arguments for their chosen methods
count when developing evaluations or research agendas based on scientific principles and not by fiat. This capac-
increases the likelihood that the eventual results will ity requires assurance that the selection and promotion of
be relevant to those implementing programs and mak- candidates for evaluation positions is based primarily on
ing important policy decisions. Taking these viewpoints each candidates scientific and technical knowledge, cre-
into consideration also ensures that federal evaluation dentials, experience, and integrity.
offices continue to be connected to programs as they are Given the potential for political or other undue pres-
implemented, and ensures that they are addressing the sures, credible evaluation offices must demonstrate that
most pressing questions, rather than those that may be their efforts can withstand critical review. Any personal
of interest academically but have little practical impact. or professional biases are stated and made transparent
Such an approach requires agencies to develop strong through the scientific testing of hypotheses, and both sig-
partnerships and collaborations among evaluation staff, nificant and null results are made transparent so that
program staff, policy makers and service providers. It also users understand the full array of hypotheses that were
requires agencies to effectively disseminate evaluation tested. The objectivity of the information released to the
findings in formats that are easier to interpret and apply. public is maximized by making information available on
an equitable, policy neutral, transparent, and timely ba-
Credibility and Independence
sis. As such, directors of credible evaluation offices have
Actively engaging stakeholders in identifying evalua- the authority to approve the design of evaluation projects
tion priorities and questions and assessing the implications and analysis plans, and the authority to approve, release,
of findings increases relevance. However, developing and and disseminate evaluation reports, subject to legal, judi-
maintaining a widely acknowledged position of indepen- cial, and security restrictions.
dence from political or other undue external influences is In this way, evaluation offices can demonstrate their
critical in order for evaluation offices and their work to independence from undue influences that may attempt to
be credible. Credible evaluations are not constructed or sway their work. The credibility that comes from indepen-
intended to deliver a predetermined or politically expedi- dence and the independence that comes from credibility
ent resultrather they seek to develop the most accurate are both essential for users to maintain confidence in the
evidence practicable to answer a specific question. Just as accuracy and objectivity of evaluation results and for pro-
federal statistics, such as the calculation of the unemploy- grams to be willing to cooperate with evaluation entities
ment rate, do not change based on which political party is requests.
in power, credible evaluation methods are not be altered
due to undue external influences. Credible evaluation of- Transparency
fices produce products that are methodologically sound, This Administration has placed a particular empha-
impartial, clear, and readily perceived to be so by the users sis on increasing the transparency of federal evaluation
of their products and the general public. Through dem-
INCREASING THE TRANSPARENCY AND RELEVANCE OF

EVALUATIONS THROUGH RESEARCH CLEARINGHOUSES
At the Federal level, many agencies have moved to increase the transparency and relevance of their evaluation findings by
making them publicly available through what works repositories, sometimes referred to as research clearinghouses. What
works repositories synthesize evaluation findings in ways that make research useful to decision-makers, researchers, and
practitioners in the field. They also make evaluation results easily accessible to the public, and improve the transparency
of evaluation results. Information in the repositories also indicates the implementation contexts of programs and strategies
evaluated, and areas where more innovation or more evaluation is needed. Examples of Agency what works repositories
include the:
Administration for Children and Families (HHS) Home Visiting Evidence of Effectiveness (HomVEE),
Administration for Children and Families (HHS) Employment Strategies for Low-Income Adults (ESER),
Office of the Assistant Secretary for Planning and Evaluation (HHS) Teen Pregnancy Prevention Evidence Review,
Substance Abuse and Mental Health Services Administration (HHS) National Registry of Evidenced-based Programs
and Practices (NREPP),
Department of Justice CrimeSolutions.gov,
Department of Justice What Works in Reentry Clearinghouse,
Department of Education What Works Clearinghouse, and
Department of Labor Clearinghouse for Labor Evaluation and Research (CLEAR).
activities.12 Transparency increases public awareness of and maintenance, and those responsible for using data
ongoing and planned evaluation work, and of evaluation and evaluation to understand a programs effectiveness.
results, regardless of their findings. Public awareness of It requires consistent messages from leaders at different
evaluation findings increases the likelihood that evalua- levels of an agencypolicy officials, program and perfor-
tion results will be used to inform a wide range of decision mance managers, strategic planning and budget staff,
making; thus transparency is related to relevance. evaluators, and statistical staffto ensure that data and
Transparent evaluation offices make information evidence are collected or built, analyzed, understood, and
about planned and ongoing evaluations/assessments appropriately acted upon.
easily accessible, typically through posting online infor- No one individual in an agency has the knowledge
mation about the contractor or grantee conducting the and skills necessary to develop research designs that ad-
work, descriptions of the evaluation/assessment ques- dress actionable questions; collect, maintain, curate, and
tions, methods to be used, and the expected timeline for analyze administrative data; understand different types
reporting results. of evidence; interpret evidence; and develop and imple-
In addition, except in cases where there are legal, ju- ment effective, evidence-based practices. Rather, it takes
dicial, or security restrictions, transparent evaluation an agency leadership team to oversee these efforts and
offices make evaluation plans, progress on ongoing evalu- to build and sustain a commitment to learning. It also
ation work, and evaluation findings easily accessible to takes a team of implementers at the program level to
the public and release them in a timely way regardless of encourage the use of evidence and data so that it reaches
the findings. When these evaluations are released, the re- program management.
ports describe the methods used, including strengths and This section highlights two of the many capacities that
weaknesses, and discuss the generalizability of the find- support an effective evidence infrastructure: making bet-
ings. The released reports present comprehensive results, ter use of administrative data, and the establishment of
including favorable, unfavorable, and null findings. centralized evaluation offices.
Ethics Building Evidence with Administrative Data
Evaluations/assessments should be conducted in an As described in last years version of this chapter, 13
ethical manner and safeguard the dignity, rights, safety, making better use of the administrative data that the gov-
and privacy of participants. Individuals and entities that ernment already collects to build evidence is an incredibly
participate in evaluations and the custodians of adminis- promising strategy. Administrative data are data collected by
trative data that may be used in support of evaluations government entities for program administration, regulatory,
must be able to trust that the information they provide as or law enforcement purposes. Federal and state administra-
a part of an evaluation will be used only for the purposes tive data include rich information on labor market outcomes,
that the agency has described. Thus, they must be able health care, criminal justice, housing, and other important
to trust that information collected for evaluation pur- topics, but they are often greatly underutilized in evaluating
poses will not be used for another purpose, such as law programs effects as well as in day-to-day performance mea-
enforcement or regulation, directed at specific individu- surement and for informing the public about how society and
als or organizations. Evaluation offices should further the economy are faring.
build trust by minimizing the intrusiveness of ques- Over the course of this and previous Administrations,
tions and the time and effort required to respond to such Federal agencies have steadily made progress improving
questions, consistent with the agencys requirements for the use of administrative data for evidence building. Some
information. This can be accomplished through informing agencies are creating capacity to support research and eval-
respondents of the expected time required to participate uation in a particular policy area. For example, since 1995,
in the data collection, whether the collection is mandatory the Bureau of Justice Statistics (BJS) has administered the
or voluntary, and any additional uses of the information. National Criminal History Improvement Program which,
Multiple laws are in place in order to protect the rights, among other accomplishments, helped all states achieve
safety, and privacy of participants, and evaluations should full participation in the Federal Bureau of Investigations
comply with both the spirit and the letter of the relevant Interstate Identification Index. This critical operational net-
requirements. work allows criminal justice agencies in the United States
to exchange automated criminal history records (records
Operationalizing an Effective
which chronicle offenders contacts with the justice system
Evidence Infrastructure
i.e., rapsheets). Recently, BJS constructed an automated
Operationalizing an effective evidence infrastructure process which standardizes these variable federal and state
requires a wide variety of capacities in addition to the records and creates unified researchable databases which
principles and practices for evaluation offices articulated can support a variety of research and evaluation of recidi-
above. Developing and supporting the use of evidence and vism patterns and sentencing.
evaluation in decision-making requires a coordinated ef- Similarly, ED has improved public understanding of how
fort between those charged with managing the operations well colleges serve their students by matching administra-
of a program, including administrative data collection tive federal student loan and grant data to Department of
12See, for example, OMB Memorandum M-10-01, Increased Empha- 13See Building Evidence with Administrative Data, chapter 7 in the
sis on Program Evaluation, October 2009. 2016 Analytical Perspectives volume.

Treasury tax data to create the new College Scorecard. The broad array of policy- and program-relevant analyses. The
new College Scorecard provides students with the clearest, Budget requests $10 million in funding for the Census
most accessible, and most reliable national data on college Bureau to build on these existing strengths and start de-
cost, graduation, debt, and post-college earnings to enable veloping a more comprehensive infrastructure to prepare
them to make better informed choices about colleges that fit and share administrative data. This investment would
their educational and career aspirations. The matched ad- help the Census Bureau work with States to obtain ac-
ministrative data are also integrated into an open API that cess to data from State-administered programs, such as
allows researchers and policymakers to customize analysis of the Supplemental Nutrition Assistance Program or the
college performance and allows other organizations to build Special Supplemental Nutrition Program for Women,
tools to help students make more informed college choices. Infants, and Children, allowing new analysis of how these
However, most Federal agencies could make greater programs are used and their effects. Census would also
use of administrative data to build evidence. In addition, improve its infrastructure for processing and linking data
many agencies have data that would be useful to other sets, as well as for providing data to researchers outside
agencies, other levels of government, or outside research- the Census Bureau.
ers for these same purposes. At the same time, not all
agencies have the technological infrastructure or the ex- Administrative Data Legislative Proposals
pertise needed to utilize, share, or link data themselves, The above examples illustrate some of the exciting
nor does it make sense to fully duplicate these capacities progress that agencies have made to better use adminis-
at every agency. trative data. However, some significant barriers remain,
Federal statistical agencies already play a leading role including legislative barriers. The Budget continues many
in bringing together data from multiple sources, protecting of the Administrative data legislative proposals included
privacy and confidentiality and ensuring data security, us- in the 2016 Budget, including the package of proposals
ing data to create a wide variety of statistical products, and designed to facilitate greater use of employment and
providing secure access to researchers inside and outside earnings information and ease implementation of the
of government to conduct a broad array of policy- and pro- Workforce Innovation and Opportunity Act. Employment
gram-relevant analyses. There are several examples where and earnings data are among the most valuable Federal
high-capacity statistical agencies have partnered with other administrative data. Because many Federal (as well
Federal agencies to link and analyze administrative and as State and local) programs are intended, in whole or
survey data for evidence building purposes. Such partner- in part, to increase employment and earnings, accurate
ships build on the critical capacities that statistical agencies employment and earnings data are needed to measure
already have in order to make better use of existing data performance or conduct rigorous evaluations across a
without creating unnecessary duplication. range of programs. The National Directory of New Hires
Some agencies are leveraging capacity across the statisti- (NDNH) is a database of employment and Unemployment
cal system to build evidence in a particular policy area. For Insurance information administered by the Office of Child
example, HUD has collaborated with the Census Bureau, the Support Enforcement within HHS. Access to this data is
Centers for Medicare and Medicaid Services, and most recent- tightly controlled by statute, and HHS implements strong
ly National Center for Health Statistics to combine data and privacy, confidentiality, and security protections to pro-
expertise to study relationships between housing, health risk tect the data from unauthorized use or disclosurethere
behaviors, and health in order to use housing as a platform to has never been a breach of the national NDNH data.
improve quality of life. One outcome of these collaborations Currently several programs are successfully using this
is new availability of linked survey and administrative da- data for program integrity, implementation, and research
tasets for researchers. Similarly, the Census Bureau and the purposes.
Bureau of Labor Statistics are leading a multiagency effort The Budget proposes to build on this strong history of data
to improve the Supplemental Poverty Measure (SPM). The stewardship and protection and allow additional programs
SPM is designed to complement the official poverty measure, and agencies to access this valuable data to learn what works
which is based on outdated assumptions and does not take and improve program implementation, while continuing to
into account most government transfer programs, and hence, protect the privacy, security and confidentiality of that data.
cannot be used to evaluate their impact.In order to estimate Specifically, the Budget proposes a package of proposals,14
the effectiveness of targeting resources toward the disadvan- each of which is designed to clearly specify the purpose for
taged, the SPM integrates household income and expenditure which the data may be used, require that the minimum data
information from national survey data with administrative necessary be used to achieve the purpose, and include strong
data from a variety of Federal programs that help families, penalties for the unauthorized access, use, disclosure, or re-
households, and individuals meet their basic needs. disclosure of the data. In order to streamline access to the
The Budget proposes to expand this successful collab- data by authorized agencies for program integrity purposes,
orative model. The Census Bureau is a leader for the often the package includes a proposal which would allow the au-
highly technical work of bringing together data from mul- thorized agencies to access the NDNH data through the Do
tiple sources, protecting privacy and confidentiality and Not Pay Business Center at the Department of the Treasury.
ensuring data security, using data to create a wide variety 14See Budget Chapter 5, A Government of the Future, and HHSs
of statistical products, and providing secure access to re- Administration for Children and Families Congressional Justification
searchers inside and outside of government to conduct a for additional information on the full package of NDNH access proposals
and the criteria for considering access to NDNH data.
In addition, each component of the package is designed to flective of these core principles is a particularly strong and
satisfy the Administrations criteria for when authority to mutually reinforcing combination. Establishing a centralized
access NDNH data should be considered. The package also office allows the agency to credibly establish the independence
requires HHS to review each agencys data security before and transparency of its evaluation work, develop the special-
allowing that agency to access the data, prohibits HHS from ized expertise required to implement rigorous evaluations,
granting access to the data for any purpose not authorized and creates a centralized entity responsible for coordinating
in statute, and requires HHS to publicly report on the use of and disseminating research findings.
NDNH data. These offices also play a central role in implement-
ing effective learning agendas. Learning agendas cross
Centralized Evaluation Offices program and agency boundaries and thus are difficult
Centralized or chief evaluation offices play an impor- to implement well without an office with the responsi-
tant role in developing and sustaining agency capacity to bility to look across programs and work across agencies.
build and use evidence. A recent General Accountability Often data from one program may be useful in the learn-
Office (GAO) report15 found that Federal agencies with ing agenda for another program; centralized evaluation
a centralized evaluation authority reported greater offices can play an important role in that cross-program
evaluation coverage of their performance goals and were and cross-agency collaboration. Centralized evaluation of-
more likely to use evaluation results in decision making. fices also develop expertise about evaluation, about how
However, the GAO report also found that only half of the to integrate evaluation and other research evidence with
existing centralized evaluation offices reported having a performance measurement and strategic review process-
stable source of funding. es, and about how to help decision-makers use evidence.
Centralized or chief evaluation offices are often a key com- In several cases these offices, working in partnership
ponent of implementing evaluation policies reflective of the with other evaluation offices and statistical agencies,
core principles discussed above. Indeed the establishment of also play a crucial role in using administrative data to
a centralized evaluation function and an evaluation policy rebuild evidence about what works. Several agencies have
successfully implemented centralized or chief evalua-
15Government Accountability Office Publication No. 15-25, Program tion offices. CNCS has successfully used its centralized
Evaluation: Some Agencies Reported that Networking, Hiring, and In- evaluation office to coordinate its learning agenda across
volving Program Staff Help Build Capacity, November 2014.
CHIEF EVALUATION OFFICE AT THE DEPARTMENT OF LABOR

Over the last six years, the Department of Labor (DOL) has made significant progress in institutionalizing a culture of evi-
dence and learning. The Chief Evaluation Office (CEO), established in 2010, plays a critical role in developing and maintaining
this culture within DOL. As a part of its primary responsibility to manage DOLs evaluation program, CEO maintains a strong
commitment to conducting rigorous, relevant, and independent evaluations. CEO is also committed to identifying and funding
research and evaluation priorities established through a collaborative learning agenda process with DOLs various agencies.
These agencies cover a broad range of topics, from employment and training programs to worker protection and enforcement
activities. CEO plays an important role in initiating research that cuts across these agency and program silos.
CEO also serves as an honest broker on evidence issues within DOL, and its work is not limited to implementing evaluations.
CEO actively participates in the performance management and strategic planning processes of the Department, and dissemi-
nates the results of their evaluations in formats that enable use by programs and policy makers.
Some of the key capacities that DOL developed to support this important work include:
Hiring staff with sufficient expertise for CEO to manage rigorous evaluations of various methodologies. For example,
using behavioral insights, CEO worked with Occupational Safety and Health Administration to implement a large ran-
dom assignment study that identified an effective way to support establishments that have injury and illness rates above
the national average.
Launching the Clearinghouse for Labor Research and Evaluation (CLEAR), which makes research on labor topics
more accessible to practitioners, policymakers, researchers, and the public more broadly, thus increasing the transpar-
ency and relevance of the Departments evaluation efforts.
Implementing a learning agenda process for the Department, in which CEO collaborates with each agency to identify
key evaluation and research priorities.
Securing the budget authority to set aside a portion of specified program funds (.75% in 2016) to support these
evaluations.
Creating a data analytics unit to support and complement agencies on their analytic needs and work; build data, sta-
tistical, and analytical expertise and capacity for the Department; and promote and innovate DOL administrative and
public use data.
Establishing a Departmental of Labor Evaluation Policy to institutionalize and guide the Departments evaluation
efforts.
programs and to work with other agencies. NSF has re- ling challenging but important issues that are integral
cently instituted a centralized evaluation office that is in to making government work better. This chapter articu-
the process of developing a learning agenda for the first lates common principles that support the development
time. The Chief Evaluation Office at DOL has become a of credible evidence, as well as the capacity required to
leader both at DOL and across the Federal government operationalize an effective evidence infrastructure. This
in advancing the role of evidence in decision-making. See Budget makes substantial investments in programs
the box above for more on DOLs Chief Evaluation Office. based on evidence in addition to further building the ca-
pacity to produce and use evidence.
Conclusion
The evidence capacity building efforts outlined in this
chapter fit into the Budgets broader emphasis on tack-
8. STRENGTHENING THE FEDERAL WORKFORCE
In President Obamas Public Service Recognition Week Every day Federal employees actively collaborate with
Proclamation, issued on May 2, 2015, he reflected: the private and nonprofit sectors, as well as state and lo-
cal governments to advance our national priorities.
With more than 2 million civilian workers During the years of delayed budgets, sequestration,
and more than 1 million active duty service pay freezes and award caps, Federal employees have
members, our Federal workforce represents continued to serve their country. In 2015 alone, Federal
extraordinary possibility. Our Government employees addressed a wide range of national priorities
can and must be a force for good, and togeth- including modernizing the military by opening all combat
er, we can make sure our democracy works positions to women, negotiating complex trade and politi-
for all Americans. We know there are some cal treaties and determining a way to rate colleges return
things we do better when we join in common on investment. Thanks in part to the efforts of Federal
purpose, and with hard work and a commit- employees, the Nations economy and fiscal outlook con-
ment worthy of our Nations potential, we tinued to improve in 2015, with unemployment falling to 5
can keep our country safe, guarantee basic percent and annual deficits continuing a historic decline.
security, and ensure everyone has a shot at Reflecting the importance of the workforce, one of
success. the four pillars of the Presidents Management Agenda
(PMA) is People & Culture, focused on unlocking the
Historically, this sentiment has had bipartisan sup- full potential of todays Federal workforce and building
port. President Ronald Reagan stated, Government the workforce we need in the future. This Cross-Agency
employees, with their commitment to excellence and di- Priority (CAP) Goal is improving how we hire, engage and
versity of skills, contribute significantly to the leadership lead our workforce. Removing frustrating barriers will al-
of the United States in the world. These dedicated men low us to achieve the breakthroughs and daily operational
and women are a valuable national resource, serving in success that the American public expects. Fixing broken
the Executive, Legislative, and Judicial branches at all human capital processes will help agencies concentrate
levels of government, and dealing with nearly every as- on performance and results.
pect of national life.1 This chapter discusses four broad areas related to the
Investing in a strong Federal workforce is integral to Federal workforce. First, it describes trends in Federal
the competitiveness and security of the United States. The employment levels over the past several decades and
workforce needs to be hired based on merit, trained to be includes estimates for the FY 2017 Budget. Second, it
prepared for tomorrow, engaged to improve performance, outlines the shifts in composition of the Federal workforce
and compensated on the basis of results. Personnel rules over the past decades. Third, the chapter lays out some
must support the type of work the Government does today of the challenges the Federal workforce has faced, such as
and tomorrow, balancing flexibility and consistency. pay freezes, sequester and furloughs. Finally, it discusses
the Administrations recent accomplishments and future
The Federal Workforce Today plans to fully capitalize on the talents in the Federal
workforce today, and recruit and develop the capabilities
Investments to strengthen the workforce have far- we need to serve the American people tomorrow.
reaching implications. The Federal Government is
Americas largest employer, with more than 2.1 million ci- Trends in Federal Workforce Size
vilian workers and 1.3 million active duty military serving
throughout the country and the world. About 85 percent of The size of the Federal civilian workforce relative to
Federal employees work outside of the Washington, D.C. the countrys population has declined dramatically over
metropolitan area. Federal Employees are our neighbors, the past several decades, with occasional upticks due,
civic leaders, and tax-payers. The Federal Government is for example, to military conflicts and the administra-
the Nations largest employer of doctors and employs indi- tion of the Census. Since the 1960s, the U.S. population
viduals responsible for protecting our natural resources, increased by 67 percent, the private sector workforce in-
waterways and historic landmarks, providing grants for creased by 136 percent, and State and local government
research, housing, and education. Federal employees are workforces (excluding education workers) increased by
also called into action in the event of a disaster, whether 127 percent, while the size of the Federal workforce rose
that means stopping Ebola or out-of-control forest fires. about 10 percent.2
2 Teachers, professors, and workers in schools, colleges, and universi-
ties make up almost half of the State and local workforce. To make the
1 Proclamation 5813 - Public Service Recognition Week, 1988, May State and local workforce more comparable to the Federal workforce,
5, 1988 those educational workers are excluded from these comparisons.
79
Chart 8-1. Changes Since 1975 in

Employment/Population by Sector
50%
Federal - Security Private Sector State & Local
40%
Federal - Non-Security
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Source: Office of Personnel Management and the Bureau of Labor Statistics.
Notes: Federal excludes the military and Postal Service. Security agencies include the
Department of Defense, the Department of Homeland Security, the Department of State,
and the Department of Veterans Affairs. Non-Security agencies include the remainder of the
Executive Branch. State & Local excludes educational workers.
Chart 8-1 highlights the sharp drops, relative to popu- an estimated 1.5 percent increase compared to 2016, or
lation, in both the security and non-security parts of the approximately 30,000 Federal jobs. This increase is pri-
Federal workforce since 1975 (the end of the Vietnam marily driven by growth at the Departments of Veterans
War), compared to increases in the private sector and Affairs, Homeland Security and Treasury. Table 8-3 shows
State and local governments (excluding education). Since actual 2015 total and estimated 2016 and 2017 total
1975, the security and non-security parts of the Federal Federal employment, including the Uniformed Military,
workforce have declined 32 and 38 percent, respectively, Postal Service, Judicial and Legislative branches. The
relative to the population, but the patterns in the declines total growth of .1 percent is a result of decreases in the
differ. The Federal security workforce (63 percent of the Uniformed Services and Postal Service, but increases in
current Federal civilian workforce) has largely tracked the the Executive, Legislative and Judicial Branches. Total
history of U.S. engagement in conflicts overseas. The non- compensation is summarized in Table 8-4, with an in-
security workforced decreased drastically in the 1980s. crease of 1.9 percent between the estimates for 2016 and
While the 1990s reversed some of that decline, the non-se- 2017.
curity Federal workforce has declined by about 18 percent
since 1992 (during a period of time when the private sec- Attributes of the Federal Workforce
tor workforce has increased 34 percent). The reasons for
the decline in the non-security Federal workforce are less The previous section describes the long-term decline
clear than for the security workforce, particularly given in the size of the Federal workforce relative to the U.S.
increasing responsibilities at many Federal agencies. population, the private sector workforce, and State and
Explanations for the relative decline of the non-secu- local government workforces. That relative reduction in
rity Federal workforce include: (1) relative increases in size in the face of a Federal mission that has only grown
efficiency in the Federal sector; (2) an increase in the more complex, along with an historical trend of greater
contract workforce (which likely also plays a role on reliance on contractors and State and local partners in
the security side); and (3) shifting of some duties of the many areas, results in Federal jobs that have become in-
Federal Government to State and local governments. creasingly complex and require greater levels of skill. It is
Both an increased reliance on a contract workforce and equally important to consider how the Federal workforce
shifting responsibilities to State and local governments differs from the private sector and how it has changed
have required the Federal workforce to take on greater over time. As discussed in more detail below, in compari-
management roles over time. son to private sector jobs, Federal jobs are concentrated
Table 8-2 shows actual Federal civilian full-time equiv- in higher paying professions and are based in higher cost
alent (FTE) levels in the Executive Branch by agency for metropolitan areas.
fiscal years 2014 and 2015, with estimates for 2016 and Type of occupation. The last half century has seen
2017. Estimated employment levels for 2017 result in significant shifts in the composition of the Federal work-
8. STRENGTHENING THE FEDERAL WORKFORCE 81
Table 81. OCCUPATIONS OF FEDERAL AND PRIVATE SECTOR WORKFORCES

(Grouped by Average Private Sector Salary)
Percent
Occupational Groups Federal Private Sector
Workers Workers
Highest Paid Occupations Ranked by Private Sector Salary

Lawyers and judges 2.0% 0.6%
Engineers 4.3% 1.9%
Scientists and social scientists 5.2% 0.7%
Managers 11.8% 13.8%
Pilots, conductors, and related mechanics 2.0% 0.5%
Doctors, nurses, psychologists, etc. 7.7% 6.3%
Miscellaneous professionals 15.4% 8.8%
Administrators, accountants, HR personnel 6.1% 2.7%
Inspectors 1.3% 0.3%
Total Percentage 55.8% 35.6%
Medium Paid Occupations Ranked by Private Sector Salary

Sales including real estate, insurance agents 1.3% 6.2%
Other miscellaneous occupations 3.4% 4.5%
Automobile and other mechanics 1.7% 3.0%
Law enforcement and related occupations 9.4% 0.8%
Office workers 2.5% 6.0%
Social workers 1.4% 0.5%
Drivers of trucks and taxis 0.8% 3.2%
Laborers and construction workers 3.4% 9.5%
Clerks and administrative assistants 13.4% 10.9%
Manufacturing 2.8% 7.6%
Lowest Paid Occupations Ranked by Private Sector Salary

Other miscellaneous service workers 2.2% 5.9%
Janitors and housekeepers 1.1% 2.4%
Cooks, bartenders, bakers, and wait staff 0.8% 4.0%
Source: 2011-2015 Current Population Survey, Integrated Public Use Microdata Series.
Notes: Federal workers exclude the military and Postal Service, but include all other Federal workers in the Executive,
Legislative, and Judicial Branches. However, the vast majority of these employees are civil servants in the Executive Branch.
Private sector workers exclude the self-employed. Neither category includes state and local government workers. This analysis
is limited to full-time, full-year workers, i.e. those with at least 1,500 annual hours of work.
force. Fifty years ago, most professional Federal employees the differences in composition between the Federal and pri-
performed clerical tasks, such as filing or data entry. vate workforces. Professionals such as doctors, engineers,
Today their jobs are vastly different, requiring advanced scientists, statisticians, and lawyers now make up a large
skills to serve a knowledge-based economy. For example, and growing portion of the Federal workforce. For example,
the IRS previously required thousands of employees in the Federal STEM workforce has increased by about10 per-
warehouses to print and sort hard-copy tax returns, while cent from FY 2008 to FY 2015, with all other occupations
thousands more manually adjudicated the returns. With growing 6 percent. More than half (56 percent) of Federal
the majority of tax returns now electronically filed, the workers are employed in the nine highest-paying private sec-
IRS today requires more forensic accountants and ana- tor occupation groups, such as judges and lawyers, engineers,
lysts rather than warehouse clerks. Federal employees and scientists, compared to a little over a third (36 percent)
must manage highly sensitive tasks that require great of private sector workers. In contrast, 12 percent of private
skill, experience, and judgment. Many need sophisticated sector workers are employed in the three lowest-paying oc-
management and negotiation skills to effect change, not cupation groups, as cooks, janitors, service workers, etc. Only
just across the Federal Government, but also with other about 4 percent of Federal workers are employed in those
levels of government and the private sector. three lowest-paying occupation groups.
Using data from the Bureau of Labor Statistics on full- Education level. The complexity of much Federal
time, full-year workers, Table 8-1 breaks all Federal and work whether that work is analyzing security or financial
private sector jobs into 22 occupation groups to demonstrate risk, forecasting weather, planning bridges to withstand
Table 82. FEDERAL CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH

(Civilian employment as measured by full-time equivalents (FTE) in thousands, excluding the Postal Service)
Actual Estimate Change: 2016 to 2017
Agency
2014 2015 2016 2017 FTE Percent
Cabinet agencies:
Agriculture 86.1 85.9 90.1 90.5 0.4 0.4%
Commerce 39.5 40.4 44.1 45.6 1.5 3.4%
Defense 723.9 725.0 738.1 732.9 -5.2 -0.7%
Education 4.0 4.1 4.3 4.5 0.2 4.7%
Energy 15.0 14.7 16.0 16.1 0.1 0.6%
Health and Human Services 69.9 70.6 72.6 74.4 1.8 2.5%
Homeland Security 183.2 179.3 184.0 188.1 4.1 2.2%
Housing and Urban Development 8.4 8.3 8.3 8.4 0.1 1.2%
Interior 64.4 63.5 65.6 66.7 1.1 1.7%
Justice 112.4 113.6 118.3 119.8 1.5 1.3%
Labor 16.7 16.6 16.9 17.7 0.8 4.7%
State 33.1 34.0 34.2 34.5 0.3 0.9%
Transportation 54.1 54.3 55.7 56.2 0.5 0.9%
Treasury 99.2 95.1 99.0 103.0 4.0 4.0%
Veterans Affairs 323.0 335.3 349.8 366.5 16.7 4.8%
Other agenciesexcluding Postal Service:
Broadcasting Board of Governors 1.7 1.7 1.9 1.9 0.0 0.0%
Corps of EngineersCivil Works 21.8 21.6 22.2 22.2 0.0 0.0%
Environmental Protection Agency 15.3 14.7 15.5 15.6 0.1 0.6%
Equal Employment Opportunity Comm 2.1 2.2 2.3 2.4 0.1 4.3%
Federal Deposit Insurance Corporation 7.3 6.8 7.1 6.8 -0.3 -4.2%
General Services Administration 11.5 11.1 11.7 11.9 0.2 1.7%
International Assistance Programs 5.5 5.6 5.7 5.8 0.1 1.8%
National Aeronautics and Space Admin 17.7 17.3 17.4 17.4 0.0 0.0%
National Archives and Records Administration 2.9 2.8 2.9 2.9 0.0 0.0%
National Labor Relations Board 1.5 1.6 1.6 1.6 0.0 0.0%
National Science Foundation 1.4 1.4 1.4 1.4 0.0 0.0%
Nuclear Regulatory Commission 3.8 3.7 3.6 3.5 -0.1 -2.8%
Office of Personnel Management 5.0 5.0 5.6 5.8 0.2 3.6%
Railroad Retirement Board 0.9 0.9 0.9 0.9 0.0 0.0%
Securities and Exchange Commission 4.2 4.3 4.6 4.9 0.3 6.5%
Small Business Administration 3.3 3.1 3.3 3.3 0.0 0.0%
Smithsonian Institution 4.9 4.9 5.4 5.6 0.2 3.7%
Social Security Administration 60.8 63.9 65.5 67.0 1.5 2.3%
Tennessee Valley Authority 11.3 10.9 11.5 11.5 0.0 0.0%
All other small agencies 17.6 17.8 18.8 19.3 0.5 2.7%
Total, Executive Branch civilian employment * 2,033.4 2,042.0 2,105.9 2,136.6 30.7 1.5%
* Totals may not add due to rounding.
extreme events, conducting research to advance human slower than in the Federal sector. Even in large firms, the
health or energy efficiency, or pursuing scientific advance- percentage of highly educated workers is less than half
ments in a laboratory necessitates a workforce with that of the Federal sector and the rate of growth over the
education requirements and licensures. Charts 8-2 and last decade is only about half as fast.
8-3 present trends in educational levels for the Federal Size of organization and responsibilities. Another
and private sector workforces over the past two decades. important difference between Federal workers and pri-
In 1992 there were only about half as many highly-educat- vate sector workers is the average size of the organization
ed Federal workers (masters degrees or above) compared in which they work. Federal agencies are large and of-
to less-educated workers (high school degrees or less); by ten face challenges of enormous scale distributing
2015 there were almost twice as many highly-educated benefit payments to over 66 million Social Security and
Federal workers than less educated workers. The private Supplemental Security Income beneficiaries each year,
sector has also experienced increases in educational level, providing medical care to 8.9 million veterans, or man-
but the increases in highly educated workers have been aging defense contracts costing billions of dollars. Most
Chart 8-2. Masters Degree or Above

by Year for Federal and Private Sectors
30%
Federal Private Sector All Firms Private Sector Large Firms
25%
20%
15%
10%
5%
0%
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Notes: Federal excludes the military and Postal Service, but includes all other Federal
workers. Private Sector excludes the self-employed. Neither category includes State
and local government workers. Large firms have at least 1,000 workers. This analysis is
limited to full-time, full-yea workers, i.e. those with at least 1,500 annual hours of work
and presents five-year averages
Federal employees work in large organizations more Demographic characteristics. Federal workers
comparable to the largest firms. Data shows that work- tend to have demographic characteristics associated with
ers from large firms (those with 1,000 or more employees) higher pay in the private sector. They are more experi-
are paid about 16 percent more than workers from small enced, older, and live in higher cost metropolitan areas.
firms (those with fewer than 100 employees), even after For example, Federal workers, on average, are 45.4 years
accounting for occupational type, level of education, and old up 2.6 years from 20 years ago and higher than the
other characteristics. However, even large private sector average age of 42.1 years old in the private sector (even
firms may not be ideal comparisons to the Federal sector, in large firms). Chart 8-4 shows the trends in average age
because the Federal sector is larger and more highly edu- in both the Federal and private sectors over the past two
cated (see Charts 8-2 and 8-3). decades.
Table 83. TOTAL FEDERAL EMPLOYMENT

(As measured by Full-Time Equivalents)
2016 2017 Change: 2016 to 2017
Description 2015
Actual Estimate Estimate FTE Percent
Executive Branch Civilian:
All Agencies, Except Postal Service 2,041,974 2,105,915 2,136,590 30,675 1.5%
Postal Service 1 575,906 574,122 562,024 -12,098 -2.1%
Subtotal, Executive Branch Civilian 2,617,880 2,680,037 2,698,614 18,577 0.7%
Executive Branch Uniformed Military:
Department of Defense 2 1,356,612 1,340,473 1,327,007 -13,466 -1.0%
Department of Homeland Security (USCG) 40,025 41,777 42,054 277 0.7%
Commissioned Corps (DOC, EPA, HHS) 7,004 7,100 7,112 12 0.2%
Subtotal, Uniformed Military 1,403,641 1,389,350 1,376,173 -13,177 -0.9%
Subtotal, Executive Branch 4,021,521 4,069,387 4,074,787 5,400 0.1%
Legislative Branch3 29,825 33,953 34,256 303 0.9%
Judicial Branch 32,467 33,101 33,343 242 0.7%
Grand total 4,083,813 4,136,441 4,142,386 5,945 0.1%
1 Includes Postal Rate Commission.
2 Includes activated Guard and Reserve members on active duty. Does not include Full-Time Support (Active
Guard & Reserve (AGRs)) paid from Reserve Component appropriations.

3 FTE data not available for the Senate (positions filled were used).
Chart 8-3. High School Graduate or Less

by Year for Federal and Private Sectors
60%
50%
40%
30%
20%
10%
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
limited to full-time, full-year workers, i.e. those with at least 1,500 annual hours of work and
presents five-year averages
In FY 2015 (as of September 2015), the percentage of at NSF (lowest). By the end of FY 2014, veterans were
minorities in the Federal workforce increased by 0.5 per- 33.2 percent of new hires Government-wide, and 47.1
cent from 34.9 percent in FY 2014 to 35.4 percent in FY percent of new hires at DOD (highest) and 8.1 percent of
2015. The Federal workforce is 17.7 percent Black, 8.4 new hires at NSF (lowest). The total number of veterans
percent Hispanic, 5.7 percent Asian, 0.5 percent Native employed by the Government also increased. In FY 2011,
Hawaiian/Pacific Islander, 1.7 percent American Indian/ there were 567,314 veterans in the Federal Government,
Alaska Native, 1.3 percent Non-Hispanic/Multi-Racial, or 27.3 percent of the workforce. By the end of FY 2014
and 64.6 percent White. Men comprised 56.8 percent of (the most recent available data), the number of veterans
all Federal permanent employees and women 43.2 per- had grown to over 612,661, or 30.8 percent of the entire
cent. The SES is 11.3 percent Black, 4.4 percent Hispanic, Federal workforce, and veterans represented 46.9 per-
3.3 percent Asian, 0.2 percent Native Hawaiian/Pacific cent of the workforce at DOD (highest) and 7.2 percent of
Islander, 1.2 percent American Indian/Alaska Native, the workforce at HHS (lowest). By comparison, veterans
and 0.7 percent Non-Hispanic/Multi-Racial. In addition, comprise approximately 6 percent of the private sector
women now make up 34 percent of the SES, which is a non-agricultural workforce.
0.5 percent increase from FY 2014. Federal employment
for people with disabilities increased from 239,615 in FY Federal Compensation Trends
2014 to 258,001, representing an increase from 11.7 per- Chart 8-5 shows how increases in the Federal pay
cent to 12.5 percent. Overall, the percentage of minority scale have compared to increases in private sector wages
employment increased 1.4% from 2009 to 2015. since 1978. After more than a decade when the percent-
Veteran hiring. In recent years, the Executive age increases in annual Federal pay raises did not keep
Branch has had made considerable progress hiring vet- pace with the percentage increase in private sector pay
erans, and the Federal Government continues to benefit raises, Congress passed the Federal Employees Pay
from retaining the dedication, leadership, and skills these Comparability Act of 1990 (FEPCA) pegging Federal pay
veterans have honed. In November 2009, President raises, as a default, to changes in the Employment Cost
Obama signed Executive Order 13518, establishing the Index (ECI). The law gives the President the authority
Veterans Employment Initiative and the Council on to propose alternative pay adjustments for both base and
Veterans Employment. In FY 2011, the first full year of locality pay, and Presidents have regularly supported
the Presidents Veteran Employment Initiative, veter- alternative pay plans. A civilian pay raise less than 2.1
ans made up 28.3 percent of the total new hires in the percent in FY 2017 would result in the eighth consecutive
Federal Government and veterans were 47.1 percent of below-ECI increase, resulting in a relative decrease in
new hires at DOD (highest) and 4.1 percent of new hires civilian pay compared to the private sector of about 9 per-
Table 84. PERSONNEL COMPENSATION AND BENEFITS

Change: 2016 to 2017
Description
2015 Actual 2016 Estimate 2017 Estimate Dollars Percent
Civilian Personnel Costs:
Executive Branch (excluding Postal Service):
Direct compensation 181,206 189,584 195,929 6,345 3.3%
Personnel Benefits 74,580 77,809 79,908 2,099 2.7%
Subtotal 255,786 267,393 275,837 8,444 3.2%
Postal Service:
Direct compensation 36,208 35,853 35,768 -85 -0.2%
Personnel benefits 19,051 18,967 18,177 -790 -4.2%
Subtotal 55,259 54,820 53,945 -875 -1.6%
Legislative Branch: 1
Direct compensation 2,036 2,147 2,228 81 3.8%
Personnel benefits 614 680 709 29 4.3%
Subtotal 2,650 2,827 2,937 110 3.9%
Judicial Branch:
Personnel benefits 988 1,047 1,073 26 2.5%
Subtotal 4,083 4,422 4,491 69 1.6%
Total, Civilian Personnel Costs 317,778 329,462 337,210 7,748 2.4%
Military personnel costs:
Department of Defense
Direct compensation 96,160 96,118 97,856 1,738 1.8%
Personnel benefits 44,135 44,261 43,693 -568 -1.3%
Subtotal 140,295 140,379 141,549 1,170 0.8%
All other Executive Branch, uniformed personnel:
Personnel benefits 720 698 698 0 0.0%
Subtotal 4,014 4,015 4,056 41 1.0%
Total, Military Personnel Costs 2 144,309 144,394 145,605 1,211 0.8%
Grand total, personnel costs 462,087 473,856 482,815 8,959 1.9%
ADDENDUM
Former Civilian Personnel:
Retired pay for former personnel
Government payment for Annuitants: 83,864 84,820 86,983 2,163 2.6%
Employee health benefits 11,695 12,004 12,984 980 8.2%
Employee life insurance 45 47 48 1 2.1%
Former Military personnel:
Retired pay for former personnel 56,829 57,334 58,256 922 1.6%
Military annuitants health benefits 9,508 9,770 10,272 502 5.1%
1 Excludes members and officers of the Senate.
2 Amounts in this table for military compensation reflect direct pay and benefits for all service members, including active duty, guard, and reserve
members.
cent since 2009. This would be the largest relative pay cut sation for civilian Federal employees. For example, the
over an eight year period since the passage of FEPCA by Bipartisan Budget Act of 2013 requires Federal employees
a significant margin (the second largest eight year drop, hired after January 2014 to pay an additional 3.6 percent
from 1990 to 1997, was roughly 2 percent). of their salaries, 4.4 percent in total, into the Federal
While increases in Federal and private sector pay re- Employees Retirement System (FERS) compared to those
mained fairly even during the early 1990s, private sector hired before 2013. The Office of Personnel Management
pay incrementally rose in comparison to the public sector (OPM) also reports that budgetary constraints have cre-
in the mid-1990s. That trend reversed itself in the 2000s ated an impediment for agencies in funding discretionary
when the Federal pay scale rose relative to private sector civilian recruitment and retention programs, one of the
wages. Other factors have also eroded relative compen- most popular being student loan repayments.
Chart 8-4. Average Age by Year for

Federal and Private Sectors
48
46
44
42
40
38
36
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
limited to full-time, full-year workers, i.e. those with at least 1,500 annual hours of work and
presents five-year averages.
Comparisons of Federal and Private

was enacted in 2016 and a 1.6 percent increase is pro-
Sector Compensation
posed in 2017.
Federal worker compensation receives a great deal of A series of reports released in January 2012 by the
attention, particularly in comparison to that of private Congressional Budget Office (CBO) that accounted for
sector workers. Comparisons of the pay and benefits of some, but not all, of the factors described above, found
Federal employees and private sector employees must ac- that prior to the three-year Federal pay freeze, Federal
count for factors affecting pay, such as differences in skill pay, on average, was slightly higher (2.0 percent) than
levels, complexity of work, scope of responsibility, size of comparable private sector pay. CBO reported that overall
the organization, location, experience level, and exposure Federal sector compensation (including benefits) was on
to personal danger, and should account for all types of average substantially higher, but noted that its findings
compensation, including pay and bonuses, health benefits, about comparative benefits relied on far more assump-
retirement benefits, flexibility of work schedules, job secu- tions and were less definitive than its pay findings. The
rity, training opportunities, and profit sharing. CBO study also excluded forms of compensation, such as
Taking into account both the pay freezes in place in job security, that favor the Federal sector, and factors such
2011 through 2013 and the changes in retirement con- as training opportunities and profit sharing that favor the
tributions that started in 2014, earnings for new Federal private sector.
employees have fallen more than 10 percentage points CBO emphasized that focusing on averages is mis-
relative to the private sector between 2009 and 2015. The leading, because the Federal/private sector differentials
Presidents Pay Agent Report, which is unique in basing vary dramatically by education and complexity of job.
its findings on Federal employee job descriptions, rather Compensation for highly educated Federal workers (or
than the characteristics of the employees filling the jobs, those in more complex jobs) is lower than for comparable
concludes that Federal jobs are severely underpaid, rela- workers in the private sector, whereas CBO found the op-
tive to a salary that would be needed to attract a truly posite for less educated workers. These findings suggest
qualified candidate for a similar job in the private sector. that across-the-board compensation increases or cuts
While the average gap is currently 35 percent, it varies may not be the most efficient use of Federal resources.
considerably by grade level with higher GS levels show- The CBO reports focus on workers and ask what em-
ing a 70 percent gap or more with their private sector ployees with the educational backgrounds and other
counterparts and lower grade levels being closer to zero characteristics of Federal workers earn in the private sec-
in some areas. Following the 3-year pay freeze, a one per- tor. The Presidents Pay Agent Report, mentioned above,
cent pay increase for General Schedule employees was focuses on jobs and asks what the private sector would
implemented in 2014 and 2015, a 1.3 percent increase pay people with the same roles and responsibilities as
Chart 8-5. Pay Raises for Federal vs.

Private Workforce, 1978-2017
2%
0%
-2%
-4%
FEPCA
passed
-6%
Changes in Federal Pay Scale Relative to Private Pay
Including Increases in Retirement Contributions for New Employees

-8%
-10%
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: Public Laws, Executive Orders, and the Bureau of Labor Statistics.
Notes: Federal pay is for civilians and includes base and locality pay. Private pay is
measured by the Employment Cost Index wages and salaries, private industry workers
series, lagged 15 months.
Federal workers. Unlike CBO, which found that Federal alternative work schedules, those benefit only a subsec-
pay is (on average) roughly in line with private sector pay, tion of employees whose positions do not require either
the Pay Agent Report found that in 2015 Federal jobs paid onsite performance or 24/7 coverage.
35 percent less than comparable non-Federal jobs.
There are possible explanations for the discrepancy Workforce Challenges
in the CBO versus the Pay Agent Report findings. First,
methodological issues around the classification of Federal The Federal Government faces unique human capital
and private sector jobs introduce considerable uncertain- challenges, including a personnel system that requires
ty into the Pay Agent Report approach. It is significantly further modernization, an aging and retiring workforce,
easier to compare college graduates in Federal versus and the need to engage a future generation of Federal
private sector jobs than it is to determine what private workers. According to the Partnership for Public Service,
sector job is most comparable to a given Federal job. individuals younger than 30 years of age make up 23
Second, the studies ask fundamentally different ques- percent of the U.S. workforce, but account for only 7 per-
tions that are not necessarily in conflict. It could be the cent of permanent, full-time Federal employees. If the
case that Federal and private sector workers with similar Government loses top talent, experience, and institutional
characteristics are paid about the same, but that jobs in memory through retirements, but cannot recruit, retain,
the Federal sector are underpaid relative to their private and train highly qualified workers, performance suffers.
sector counterparts. That would imply that, at least in While the current Federal age distribution and potential
some jobs, the Federal Government could have difficulty for a large number of retiring workers poses a challenge,
hiring and retaining workers with the same skills or man- it also creates an opportunity to reshape the workforce
agerial experience as their counterparts in equivalent and to infuse it with new workers excited about govern-
private sector jobs. This could be a reason for concern, ment service and equipped with strong management
given the decline in the size of the Federal workforce rela- skills, problem-solving ability, technology skills, and fresh
tive to the population and the increasingly supervisory perspectives. A national climate of criticism of service in
role it plays (e.g., supervising contractors and State and the Federal Government makes it difficult to recruit the
local governments). needed workforce and convince them to commit their tal-
Finally, differences in non-salary compensation such as ents and develop into future leaders.
student loan repayment, transportation subsidies, travel
Modernizing the Federal Personnel System
funds to attend professional development conferences or
site visits, training and professional certifications, as well In the past sixty years, the workplace and workforce have
as sabbaticals and other incentives common in the private changed dramatically, and approaches to personnel manage-
sector can also affect an employees choice of employer. ment in the private sector have continued to adapt to reflect
While the Federal Government is a leader in telework and this evolution. While the Federal personnel system is founded
on core principles and requirements that necessarily distin- plish the varied and challenging missions the Federal
guish it from other employment sectors (e.g., providing hiring Government must deliver.
preference to veterans, or ensuring fair and open competition
so that every citizen who is interested in a Federal job has Employee Engagement
a fair opportunity to apply), in many ways, the Federal per- OPM administers the Government-wide Employee
sonnel system can also benefit from modernization. Recent Viewpoint Survey (EVS) to gather employee perceptions
hiring reform efforts are showing some progress in simplify- about whether, and to what extent, their agencies share the
ing hiring, however, additional reforms are needed to ensure characteristics of successful organizations. The EVS mea-
that hiring, pay, classification, benefits systems, and the per- sures employee engagement, defined as employees sense of
formance management process (including how to reward top purpose, evident in their display of dedication, persistence,
performers and address low performers) meet todays needs and effort in their work or overall attachment to their or-
and demands. The General Schedule (GS) pay system has ganization and its mission. The commitment of the Federal
been in effect since 1949. Enacted in 1951, aspects of the workforce is evident in the 2015 EVS results. Federal em-
current benefit and leave laws do not always reflect todays ployees continue to be engaged in their work, with a one
employee and family structures. The Administration is com- percent increase in the Employee Engagement Index (EEI)
mitted to developing modern, cost-effective systems that will reported since the 2014 survey. Additionally, 53 items showed
allow the Government to compete for and reward top talent, increases of at least one percentage point, and for the first
incentivize performance, and encourage adequate flexibility time ever, no items decreased Government-wide. While
to family caregivers, among other requirements. these changes are modest, they are in the right direction and
To that end, the Administration proposed to the consistent across the survey results.
Joint Select Committee on Deficit Reduction that the One well-documented challenge in any organization is
Congress establish a Commission on Federal Public managing a workforce so it is engaged, innovative, and com-
Service Reform comprised of Members of Congress, rep- mitted to continuous improvement. Federal employees are
resentatives from the Presidents National Council on extremely positive about the importance of their work and
Federal Labor-Management Relations, members of the repeatedly express a willingness to put in extra effort to
private sector, and academic experts. The purpose of a accomplish the goals of their agencies. Consistent with the
Congressionally-chartered Commission would be to de- 2014 results, the 2015 EVS indicates that 96 percent of re-
velop recommendations on reforms to modernize Federal spondents answer positively to the statement When needed
personnel policies and practices within fiscal constraints I am willing to put in the extra effort to get the job done.
and core principles, including but not limited to com- Addressing training needs has increased two percentage
pensation, staff development and mobility, and personnel points to 52 percent positive, approaching the 2012 level of
performance and motivation. 53 percent. Also a one percentage point increase was noted
One clear manifestation of the challenges of the GS for whether employees feel encouraged to come up with new
system is the continued requests for additional flexibili- and better ways of doing things.
ties, exceptions, and authorities that the agencies need to The Employee Engagement Index is an important tool
effectively manage their workforce. While a fragmented to measure the conditions likely to lead to employee en-
personnel system provides needed customization, todays gagement. There are three subfactors that make up the
personnel strategy and oversight must strike a balance index Leaders Lead, Supervisors and Intrinsic Work
between flexibility and consistency to continue to reflect Experiences. Ratings of Leaders Lead and Intrinsic
and uphold longstanding core merit principles. Quite sim- Work Experience each improved by one percentage point
ply, a 21st Century Government must be supported by a Government-wide, and supervisors maintained a score
21st Century personnel system. of 71 percent positive. Given the focus in the Presidents
Management Agenda on engaging agency leaders and
Retirement-Eligible Workforce
managers, these results provide some evidence that the
Between FY 2009 and FY 2013, the annual number Federal workforce is responding to these initiatives.
of Federal retirements steadily increased, rising from
87,907 to 116,039, leveling at 99,710 in 2014. The 99,864 Budgetary Constraints
Federal retirements in 2015 represent approximately 3.6 Throughout the Administration, relative reductions
percent of the total workforce, including Postal, Judiciary in Federal employee compensation have contributed
and Congressional workers. Consistent with 2014 levels, significant Federal savings during a period of rapidly de-
twenty-five percent of respondents to the 2015 Employee clining federal deficits. Cuts in salaries and benefits over
Viewpoint Survey (EVS) expressed intent to retire during the past six years have already saved the Government
the next five years, with four percent intending to retire tens of billions of dollars. Using the current pay assump-
in the next year. Given these demographics, the Federal tions for 2017 and assuming ECI-level pay increases in
Government faces a few immediate challenges: prepar- FY2018 and later, these reductions in benefits will save
ing for retirements by maximizing knowledge transfer the Government an additional $260 billion over the next
from one generation to the next; succession planning to decade. This equals more than $100,000 per FTE, the
assure needed leadership; and hiring and developing the equivalent of an entire year of the civilian payroll.
next generation of the Government workforce to accom-
Addressing Federal Workforce Challenges Since 2012, Chief Human Capital Officer (CHCO) level
agencies have utilized HRstat reviews. These quarterly
The Administration is committed to accelerating em- data-driven reviews, which are led by the agency CHCOs
ployee performance and human capital management. in collaboration with the designated agency Performance
These initiatives are a core component of the Presidents Improvement Officer (PIO), focus on agency-specific hu-
Management Agenda, as discussed in the main Budget man capital performance and key human resources
volume. Multiple efforts are underway, including: build- management metrics. Agencies have the flexibility to
ing a workforce with the skills necessary to meet agency focus on areas critical to their mission and use metrics
missions, developing and using personnel analytics to to understand issues such as performance management,
drive decision making, new programs to infuse talent into succession planning, recruitment timeliness, and strate-
agencies, heightened attention to a diverse and inclu- gic workforce planning. The HRstat reviews are intended
sive workforce, continued focus on the Senior Executive to enable quick course correction, if needed, to help ensure
Service (SES) hiring and performance appraisal systems, progress is being made on key human resources issues.
and strengthened labor-management partnerships. For example, through HRstat, the Treasury Department
matched up different bureaus as partners to collaborate
Mission Focused and Data-Driven
on veterans hiring and in one year more than doubled the
Personnel Management
rate of new veterans hires.
The Administration is committed to strengthening
Federal agencies capacity to analyze human resources Creating a Culture of Excellence and
data to address workplace problems, improve produc- Engagement to Enable Higher Performance
tivity, and cut costs. OPM, in conjunction with OMB, is Leadership, organizational culture, and employee en-
implementing several key initiatives that will lead to bet- gagement are critical factors in the success of private
ter evaluation and management of Federal employees. and public institutions. While employee engagement is
These efforts include using the EVS as a diagnostic tool linked to everything from higher earnings per share, to
to guide management of our Federal workers, expanding lower workplace accidents and turnover, and overall high
implementation of data-driven review sessions, greater performance in the private sector3, the Administrations
alignment between human capital and mission perfor- focus on employee engagement and mission performance
mance, and quarterly updates of key HR performance are critical to supporting a Culture of Excellence that can
indicators on Performance.gov. improve all Federal services, and are important compo-
As discussed earlier, OPMs EVS is a valuable manage- nents of the Management Agenda. As the President said
ment tool that helps agencies identify areas of strength in his remarks to the SES on December 9, 2014: One of
and weakness and informs the implementation of tar- the things that we know in the private sector about con-
geted action plans to help improve employee engagement tinuous improvement is youve got to have the folks right
and agency performance. Notably, OPM has worked with there on the front lines able to make suggestions and
agencies in recent years to increase the number of com- know that theyre heard, and to not simply be rewarded
ponents within agencies for which office-specific results for doing an outstanding job, but to see their ideas imple-
are available. Whereas only 1,687 components received mented in ways that really make a difference.
results in 2011, more than 26,000 offices received results Elevating employee engagement is a top priority for
in 2015. The increased response and reporting granular- the Administration. In December 2014, the Director and
ity enables agencies to identify areas of strength, offering Deputy Director of OMB, Director of OPM and Deputy
possible models for others, and areas of weakness need- Director of the White House Presidential Personnel Office
ing attention. Agencies across Government are using EVS co-signed a memorandum to the Heads of all Agencies
data to develop and implement targeted, mission-driven that outlined the linkage between strengthening employ-
action plans to address identified challenges. With the ee engagement and organizational performance. Building
2014 release of UnlockTalent.Gov, an innovative, data on strong evidence from the private sector and case stud-
visualization tool, OPM is providing managers across ies within the Federal Government, Senior Leaders will
Government the ability to review their own results on be held accountable for ensuring that employee engage-
engagement and satisfaction indices in comparison to ment is a priority and becomes an integral part of the
the rest of Government. In addition, while previously performance-management system.
only Federal managers and leaders were able to access Following the signing of the memorandum, OPM and
Unlocktalent.gov, with the release of the 2015 EVS re- OMB staff met with each of the 24 Senior Accountable
sults, members of the public can view agency-level data Officials (SAO) designated by agency heads to lead em-
on the website and Federal employees can register to ployee engagement initiatives. These meetings included
see their agency-specific dashboards with more granular candid discussions on the challenges individual agencies
data. This broadening of access to the results provides and the Federal Government are facing. Throughout the
transparency to Federal employees, who share their views year, the agencies collaborated to share best practices and
through the survey, and to the taxpayer, who wants ac- 3 Heskett, J. L., T. O. Jones, G. W.Loveman, W. Earl Sasser, and L. A.
countability. The Administration continues its investment Schlesinger.Putting the Service-Profit Chain to Work. Harvard Busi-
in OPMs data analytics to increase the number of data ness Review 72, no. 2 (March-April 1994): 164-174; Heskett, J., W. E.
sets available to Federal managers. Sasser Jr., and L. Schlesinger. The Service Profit Chain. N.Y.: Free Press,
1997
refine their engagement efforts. The results are promising ommendations issued as part of an Executive Order in
as no EVS questions showed a decline in 2015. December 2015. The Executive Order, along with a se-
There are also effective tools available for managers ries of actions the administration is undertaking, focus
and supervisors to address employee performance chal- on three key themes hiring the best talent, strengthen-
lenges. OPM offers periodic classroom training sessions; ing SES development and improving SES accountability,
on-line training on HR University; and an OPM desk recognition and rewards. Many of these recommenda-
guide for supervisors to assist them in addressing and tions will be implemented immediately, while some will
resolving poor performance of employees they supervise. be phased in over three years.
Consistent with recommendations from the Presidents To improve the hiring process, agency leadership will
Management Council (PMC), OPM will help agencies un- track and monitor SES vacancies and recruiting efforts
derstand the authorities they have and how to use them on a regular basis. OPM will review the Qualifications
effectively to spread best practices to deal with poor per- Review Board (QRB) process and determine new mate-
formers who fail to improve as needed or are ill suited to rials acceptable for QRB consideration and agencies will
their current positions. streamline their hiring process accordingly. Building on
One other promising development is a new way to successful models currently employed at the Department
permit part-time details, allowing employees to work on of Defense and in the Intelligence Community, agencies
agency projects for different managers. GovConnect is will establish an annual talent and succession manage-
helping agencies deploy a more mobile, agile, and innova- ment process to inform decisions about promotions, career
tive Federal workforce through testing and adopting new development, and executive rotations.
workforce models. The Environmental Protection Agency To strengthen SES development, agencies will imple-
(EPA), General Services Administration (GSA), Housing ment robust onboarding programs, capitalizing on the
and Urban Development (HUD), and OPM collaborat- success of onboarding pilots in six agencies. Agencies are
ed to develop GovConnect. The proposal was approved required to develop plans to facilitate the rotation of their
by Presidents Management Council (PMC) and the SES based on the needs of the agency and the develop-
GovConnect initiative was launched at a PMC meeting mental needs and growth opportunities of the executive.
in March 2014. Agencies are already seeing success with In addition, executives are required to participate in reg-
manager-initiated micro-projects, employee suggested ular professional development opportunities, including a
projects and cloud-based skills deployment systems. multi-rater assessment, such as a 360 degree review, ev-
As capabilities are enhanced and credibility is built, ery three years.
these efforts will incorporate continuous improvement in The Administration is also taking steps to improve per-
learning and development opportunities and tools avail- formance and accountability. In October, 2015, OPM issued
able to Federal managers and employees. As part of the a final rule to help standardize a common framework for
Government Performance and Results Act implemen- the performance management of all SES members across
tation, agencies are aligning strategic human capital the Federal Government, ensuring agencies have a con-
planning, with mission planning specifically strategic sistent approach to SES performance management and
and performance plans. hold leaders accountable for individual and agency per-
formance. While the new rules only took effect on October
Building a World-Class Federal Management
26, 2015, many agencies are already meeting these new
Team Starting with Enhancements
requirements under the basic SES performance appraisal
to the Senior Executive Service
system that they have voluntarily adopted. Executive re-
One of the key pillars of the Presidents Management views will also include performance factors that address
Agenda is building a world-class Federal workforce, start- customer and employee perspectives, leadership effective-
ing with the Senior Executive Service. The Administration ness in promoting diversity, inclusion and engagement in
is committed to investing in and supporting the thou- their organizations, and the productivity and effective-
sands of hard working and dedicated leaders in the SES ness of their employees.
and ensuring the Federal government remains competi- In 2016, OPM plans to launch an education campaign
tive in attracting and retaining top talent for leadership on SES performance and accountability. OPM will de-
positions. velop a short summary of the rules and processes that
On December 9th, 2014 the President announced the govern SES performance and will host quarterly we-
creation of a White House Advisory Group (WHAG) to binars to provide information, training, and sharing of
Strengthen the Senior Executive Service. The WHAG, successful practices. Furthermore, OPM is establishing
comprised of 24 leaders from across the Federal an expert team to consult two or three agencies to address
Government, was charged with making recommendations SES conduct and performance challenges. OPM will help
to the Administration on how to improve the way the agencies assess SES performance management systems
Federal Government recruits, hires, develops, manages, and programs, prepare action plans, and provide techni-
retains, and ensures accountability for its senior career cal assistance.
leaders. Over the past year, OMB and OPM, working col- The Executive Order creates a subcommittee of the
laboratively with the WHAG, sought the viewpoints of PMC to advise OPM, members of the PMC, and the
many agencies and stakeholder groups and incorporated President on implementation of the order and additional
feedback and input on proposals that have led to the rec- ways to strengthen and improve the SES workforce. The
Deputy Director for Management for OMB, the Director Family Friendly Workplace Policies
of OPM and three other members of the PMC will serve
on the Subcommittee. The Subcommittee will select at The Federal Government has also made progress to-
least two career members of the SES to advise them and wards pay equality. Based on recent studies, the gap
will collaborate with the Chief Human Capital Officers between average male and female salaries in the Federal
Council. Government is about half the gap in the private sector. A
growing number of working Americans both men and
The White House Leadership Development Fellows
women struggle to balance the needs of their families
Announced in December 2014, the Administration with the responsibilities of their jobs. Leading companies
launched the White House Leadership Development in the private sector are working to develop new tools
Program. Through this program, GS-15 (and equivalent) to redesign their workplaces to provide greater flex-
emerging leaders participate in rotational assignments to ibility to workers. While the Federal leave system has
drive progress on Cross-Agency Priority (CAP) Goals and been enhanced over the years and is generally regarded
lead change across Departments and programs. Agencies as providing good benefits and flexibilities, there is room
nominated dozens of their top-performing leads who then for further enhancements that would help the Federal
were assessed by panels comprised of existing executives Government in its efforts to recruit and retain a quality
across Government. The initial class of 16 Fellows en- workforce.
tered on duty in November 2015 and are now working On June 23, 2014, the President issued a broadly fo-
on cross-agency priorities such as shared service centers, cused Presidential Memorandum (PM) on Enhancing
veterans mental health, climate change and human capi- Workplace Flexibilities and Work-Life Programs that
tal. The cadre meets weekly for executive development directs agency heads to ensure that various workplace
sessions. Participants in the program will gain valuable flexibilities are available to the maximum extent prac-
cross-agency experience by playing a key role in address- ticable, including the advancement of leave for employee
ing critical management challenges facing the Federal and family care situations. The June PM requires that
Government while building networks and best practices agencies review and assess the efficacy of existing work-
to bring back to their agencies. Upon completion of the place flexibilities and work-life programs in meeting
program many of the Fellows will be better prepared to employee needs.
enter senior leadership roles with a whole-of-government While Federal workers already have access to paid
perspective. sick leave and vacation time, the Government has fallen
behind industry-leading companies and offers no paid
Enabling Agencies to Hire the Best Talent
time off specifically for family or parental leave. In order
The Administration is committed to working with to recruit and retain the best possible workforce to pro-
labor groups, universities, nonprofits and the private vide outstanding service to American taxpayers, OPM is
sector to improve hiring outcomes by exploring flexible proposing legislation, with the Presidents support, that
approaches to recruit, hire, and retain individuals with would provide Federal employees with six weeks of paid
high-demand talents and skills to fill our most critical po- administrative leave for the birth, adoption, or foster
sitions. As part of the Presidents Management Agenda, placement of a child. In addition, the proposal would al-
the Administration will continue to engage with agen- low parents to use sick days to care for a new child. In
cies in 2016 to identify promising practices in recruiting, doing so, the proposals will strengthen Federal recruit-
hiring, onboarding, and deploying talent across agencies. ment and retention, and make significant progress in
The goal remains to increase the quality of new Federal bringing Federal parental leave policies in line with ben-
hires, foster diversity and inclusion throughout the hir- efit programs already provided by many companies, while
ing process, and improve organizational outcomes. OPM also encouraging wider adoption of such standards in the
is working individually with agencies to untie the knots private sector. The costs of providing this benefit would be
that previously hindered the ability to hire the best talent covered within agency budget requests for salaries and
from all segments of society. Also in FY 2015, OPM com- expenses.
pleted the design and development of a web-based Hiring The President also signed a Presidential Memorandum,
Toolkit that will provide a wide variety of resources and Modernizing Federal Leave Policies for Childbirth,
information related to hiring authorities, hiring process, Adoption and Foster Care to Recruit and Retain Talent
mythbusters, and technical support/information for hiring and Improve Productivity on January 15, 2015, direct-
managers and HR practitioners. In FY 2016, OPM will be ing agencies to allow for the advance of 30 days of paid
building upon the 2010 Hiring Reform efforts but with a sick leave for parents with a new child, employees caring
focus on Hiring Excellence, ensuring the Government can for ill family members, and other sick leave-eligible uses.
attract applicants and hire highly qualified and diverse This allows new mothers the opportunity to recuperate
talent, achieved through engaged and empowered hiring after child birth, even if they have not yet accrued enough
managers, and supported by highly skilled HR staff. In sick leave. It allows spouses and partners to care for a
FY 2016, OPM will launch a Hiring Excellence Campaign new mother during her recuperation period and both par-
for outreach and education to human resources profes- ents to attend proceedings relating to the adoption of a
sionals, managers and supervisors supported by robust new child. Finally, it directs agencies to consider a ben-
tools and guidance. efit some agencies already providehelp finding, and in
some cases subsidizing, emergency backup child care (as her of their progress by providing updated metrics that
well as backup care for seniors and adults with disabili- will be reported on Performance.gov.
ties) that parents can use for a limited numbers of days OPM will continue to work with these occupations
per year when they need to go to work but their regular leaders to close skill gaps. In Cybersecurity, OPM has
care is not available. Some agencies provide this benefit completed a major initiative to populate the Enterprise
through their Employee Assistance Program and it can Human Resources Integration (EHRI) database with a
help parents with a temporary need for safe care for their Cybersecurity data code that designates which Federal
children. positions work in the Cybersecurity function, and in
The Federal Government should be a model employer which specialty area. In FY 2014, all agencies met their
and has already aggressively increased the use of telework targets to add a Cybersecurity identifier to all relevant
and other policies to promote family-friendly policies. The positions. In FY 2015, OPM validated and analyzed the
2015 EVS indicated that teleworkers are more likely to data to identify tools that can be applied to workforce
feel empowered (47 percent versus 41 percent), and more planning for this occupation, which poses high risk to the
likely to be satisfied with their jobs (69 percent compared Federal Government if the positions are not filled. As part
to 63 percent of non-teleworkers). Finally, employees who of the Office of the Federal CIOs Cybersecurity Strategy
telework are more likely to want to stay with their agencies Implementation Plan, OPM is partnering with several
(67 percent compared to 64 percent of non-teleworkers) agencies to map the current cybersecurity workforce and
and to recommend their agencies to others (67 percent identify strategies to close critical skills gaps in this area
compared to 61 percent of non-teleworkers). As document- in 2016. In the STEM functional area, a specific Pathways
ed by OPMs 2013 report on the status of telework (the Program was developed for attracting STEM applicants
most recent available), the percentage of eligible Federal for the Presidential Management Fellows opportunity.
employees who participated in routine telework grew to The PMF-STEM Pathways track was piloted during FY
21 percent as of September 2012, compared to 10 percent 2014. The Acquisition area has begun to increase efficien-
during calendar year 2009. Equally important, the num- cies in training, development, and management of the
ber of employees deemed eligible to telework increased workforce. Interagency workgroups are exploring possible
by nearly 50 percent from 2011 to 2012. However, there pilots to test special hiring and compensation authorities
is still more work to be done in breaking down barriers to for several occupations, including Economist, STEM, and
the effective use of telework. Cybersecurity roles. OPM is assisting the Auditor occupa-
tional area in studying what changes are needed to the
Closing Skills Gaps in the Workforce
classification and qualification requirements to increase
The demands of the workplace necessitate new and the talent brought into that workforce. Individual agen-
agile skill sets in the Federal workforce. OPMs mis- cies are also identifying and targeting critical skills gaps
sion is to ensure that the Federal Government recruits, as a priority, and are piloting innovative approaches to
retains, and honors the talent agencies require to serve competency gap closure. OPM is helping agencies share
the American people. In 2011, OPM partnered with the promising practices and lessons learned from these pilot
CHCO Council to take on the challenge of closing skills projects, and will drive replication of best practices upon
gaps across the Government. This initiative was launched completion of the pilots.
in response to the Presidents 2012-2013 CAP Goal to Successful skills gap closure is particularly dependent
close skills gaps, as well as GAOs designation of hu- on a strong HR workforce that can provide strategies,
man capital as a Government-wide high risk area. The programs, and tools that help occupational leaders design
Department of Defense joined OPM in chairing an inter- and implement skills gaps closure efforts. For this rea-
agency workgroup that designed a sustainable strategic son, OPM has been focusing heavily on this workforce and
workforce planning method to identify and close skills designated HR Skills Gaps as an Agency Priority Goal.
gaps in mission-critical occupations. Based on rigorous One of the ways OPM is addressing skills gaps among
data analysis, the workgroup identified the following human resources professionals is through HR University.
mission-critical occupations: IT-Cybersecurity Specialists, Developed in 2011 by the CHCO Council, HR University
Acquisition Specialists, Economists, Human Resources provides an excellent training foundation for human
Specialists, and Auditors. In addition, the workgroup resources professionals to become more effective. HR
identified STEM (science, technology, engineering, and University is a source of centralized training that takes
mathematics) as a sixth functional area covering multiple courses and resources Federal agencies have already de-
occupations which requires sustained strategic attention veloped and provides a platform for cross-agency sharing.
across Government. In 2016, the workgroup is expanding HR University realizes savings through the sharing of
its work to more broadly involve subject matter experts resources (agencies no longer need to independently de-
and examine more series. velop courses that already exist) and economies of scale.
To close skills gaps in these areas, OPM designated In addition, HR University ensures that courses meet
sub-goal leaders from agencies whose missions critically OPMs high standards by vetting each course through a
depend on these occupations. Together with these sub- very rigorous quality review.
goal leaders, OPM is developing and executing strategies In partnership with the CHCO Council, OPM will con-
to close skills gaps in these occupations. The sub-goal tinue to expand HR Universitys offerings. This effort may
leaders meet quarterly with the OPM Director to apprise include more partnerships with colleges and universities,
development of HR certifications, accreditation of courses, ment tools supplement the inclusion index. The index and
greater use of social media, website enhancements, and tools, referred to jointly as the New Inclusion Quotient
more courses on key topics that will close identified skill Plus, arm agencies with instruments and practices nec-
and competency gaps in the human resources field. OPM essary to support diversity and inclusion more fully. In
registered 98 percent of the human resources workforce addition, OPM will continue to promote proven practices
onto HR University by September 30, 2015. In FY 2015, in using all workforce data to inform everyday support for
OPM added 10 courses to HR University. In FY 2016, diversity and inclusion in the workplace.
OPM will continue to engage agencies to register and ex-
pand the course offerings. Strengthening Labor-Management Relations
In early FY 2015, OPM released a report on Labor
Developing an Agile Workforce
Management Relations in the Executive Branch, de-
To maximize effectiveness and potential, the Federal scribing how labor-management relations are structured
Government must continue to prepare its talent for chal- and how they operate in the Federal Government. This
lenges on the horizon. New cost-effective programs are report detailed examples of the benefits that can result
being implemented to develop current employees, foster from strengthening labor-management relationships.
collaboration with innovators from the private sector, and Specifically, improving labor-management relations
enhance institutional knowledge transfer. For example, facilitates opportunities for agencies to improve their per-
OPM has implemented a phased retirement program that formance. This report is expected to be updated in early
provides employees who once had a financial incentive to FY 2017.
retire fully, to work part time while mentoring and train- The Administration continues to fulfill the robust
ing new employees. Several agencies have implemented vision laid out in Executive Order 13522, Creating Labor-
phased retirement, and others are currently developing Management Forums to Improve Delivery of Government
policies to fully implement and leverage this important Services. Issued in 2009, this Executive Order created a
tool.These efforts are essential for developing a nimble, National Council, which meets regularly to coordinate
efficient 21st Century workforce that can help ensure Government-wide efforts, and a multitude of labor-
agencies achieve their important missions under a tight- management forums around Government where agency
ening fiscal climate. management and union representatives work collabora-
tively to improve service delivery to the public. In 2016,
Informing Our Work with a
Labor-Management Forums will continue to use metrics
Diversity of Experiences
to track progress.
A rich diversity of experiences and talents inform At the Councils meetings, representatives from both
the abilities of Federal applicants and everyday work of management and labor regularly provide details about
Federal employees. Opportunities exist both in employee their efforts to improve performance and productiv-
hiring and throughout employment experiences to lever- ity at their agencies by working together. Recently, the
age this diversity. In recent years, OPM has been focusing Council heard from participants in the General Services
on improving the way agencies use Federal applicant and Administration, Region 5, the American Federation of
applicant flow data to improve the hiring process. OPM Government Employees, and the National Federation of
continues to increase the accessibility and use of this Federal Employees on their formation of a Space Council,
data by hiring managers, so they can determine whether a joint, collaborative body formed to facilitate sharing
outreach, recruitment, and hiring strategies have been information about how to handle office relocations early
successful in attracting and retaining a workforce that and often to avoid the disagreements that occur when
reflects the diversity of our country and the many talents employees are not involved in these major changes. The
of its people. Council also allowed them to reduce the need for formal
Leveraging the diversity of our workforce also requires bargaining. They were able to establish a consistent,
that we measure and improve the extent to which diver- known, participatory process that encouraged pre-deci-
sity and inclusion are supported in work units. To that sional involvement (PDI) even outside of the space issues.
end, and mirroring the aforementioned efforts to measure The Council also heard from participants in the forum
and target improvements in employee engagement, OPM between the EPA and the National Treasury Employees
developed an index based on 20 EVS items called the New Union. This group worked together to implement the
Inclusion Quotient (New IQ) that represents each work Skills Marketplace at EPA, which was the first large
units inclusive intelligence and provides feedback to ex- scale use of PDI for an initiative at the agency. The Skills
ecutive leadership, program managers, and supervisors Marketplace is a program that gives employees the op-
on how well work units are leveraging the unique experi- portunity to work on a program 20 percent of the time
ences, perspectives, and viewpoints of their employees to anywhere else in the agency without leaving their home
improve program delivery. office. In the past year, they have done 340 projects. EPA
Importantly, the Budget recognizes that increased employees who participate bring new skills back, and are
availability of this data is not sufficient. Fostering inclu- provided an opportunity for staff career growth without
sive work environments and realizing the full potential them leaving permanently or going on full time detail.
of our workforces diversity requires agencies to employ The Council will continue to seek ways to spread these
effective management practices. OPMs change manage- and other labor-management successes to other agencies
in 2016 and 2017. One method employed by the Council lations aspects of space management and the potential
has been to develop training and guidance to assist fo- use of PDI in office moves and space allocation. The pilot
rums with successfully engaging in PDI and with using program will lead to additional training opportunities, in-
metrics to track their activities. The Council is currently cluding a webinar. The Council will continue working in
gathering lessons-learned narratives which are based 2016 to ensure that additional labor-management forums
upon the many success stories that the Council has heard transition into effective partnerships with a focus on im-
about labor-management cooperation and PDI. The nar- proving the productivity and effectiveness of the Federal
ratives will allow the parties to share their experiences Government.
and how they succeeded with regard to PDI. The infor-
Honoring a World-Class Workforce
mation gleaned from the narratives will be compiled
and posted on the Council website as a series of lessons Federal Employees make a difference every single day
learned that can be used by other parties. Additionally, in the lives of millions of people across the country and
the Council is exploring the measurement and reporting around the world. As President Obama said in his Public
of PDI outcomes, PDI awards and recognition, and PDI Service Recognition Proclamation:
barriers and accountability. The Council is also working
to identify common contract language in collective bar- In the face of difficult challenges, public
gaining agreements and make it available to agencies and servants give new life to the values that bind
unions in contract negotiations. The goal is to find con- our Nation together Public service is a
tract language that could serve as a template for agencies calling which has meant so much to so many.
and labor unions in order to reduce time and resources It embodies our sense of shared values and
spent by parties in the negotiation process. Recently, the reflects our drive to serve a cause beyond our
Council supported the work of the Federal Labor Relations ownto give back to our Nation, leave our
Authority (FLRA), Federal Mediation and Conciliation mark, and nudge history forward. There is
Service (FMCS), and the GSA on their collaborative ef- no greater opportunity to help more people
fort to present a live two day pilot training program to or to make a bigger difference.
labor and management participants about the labor re-
BUDGET CONCEPTS AND BUDGET PROCESS
95
96
9. BUDGET CONCEPTS
The budget system of the United States Government The following section discusses the budget process,
provides the means for the President and the Congress covering formulation of the Presidents Budget, action
to decide how much money to spend, what to spend it by the Congress, and execution of enacted budget laws.
on, and how to raise the money they have decided to The next section provides information on budget cover-
spend. Through the budget system, they determine the age, including a discussion of on-budget and off-budget
allocation of resources among the agencies of the Federal amounts, functional classification, presentation of
Government and between the Federal Government and budget data, types of funds, and full-cost budgeting.
the private sector. The budget system focuses primar- Subsequent sections discuss the concepts of receipts
ily on dollars, but it also allocates other resources, such and collections, budget authority, and outlays. These
as Federal employment. The decisions made in the bud- sections are followed by discussions of Federal credit;
get process affect the Nation as a whole, State and local surpluses, deficits, and means of financing; Federal
governments, and individual Americans. Many budget employment; and the basis for the budget figures. A
decisions have worldwide significance. The Congress and glossary of budget terms appears at the end of the
the President enact budget decisions into law. The budget chapter.
system ensures that these laws are carried out. Various laws, enacted to carry out requirements of
This chapter provides an overview of the budget system the Constitution, govern the budget system. The chap-
and explains some of the more important budget concepts. ter refers to the principal ones by title throughout the
It includes summary dollar amounts to illustrate major context and gives complete citations in the section just
cepts. Other chapters of the budget documents discuss these preceding the glossary.
amounts and more detailed amounts in greater depth.
THE BUDGET PROCESS

The budget process has three main phases, each of and fiscal policy guidelines, usually by the spring of each
which is related to the others: year, at least nine months before the President transmits
the budget to the Congress and at least 18 months before
1. Formulation of the Presidents Budget; the fiscal year begins. (See the Budget Calendar later
in this chapter.) Based on these guidelines, the Office of
2. Action by the Congress; and Management and Budget (OMB) works with the Federal
agencies to establish specific policy directions and plan-
3. Execution of enacted budget laws. ning levels, both for the budget year and for at least the
following four years, and in this case, the following nine
years, to guide the preparation of their budget requests.
Formulation of the Presidents Budget During the formulation of the budget, the President,
the Director of OMB, and other officials in the Executive
The Budget of the United States Government consists Office of the President continually exchange information,
of several volumes that set forth the Presidents fiscal proposals, and evaluations bearing on policy decisions
policy goals and priorities for the allocation of resources with the Secretaries of the departments and the heads
by the Government. The primary focus of the Budget is of the other Government agencies. Decisions reflected in
on the budget yearthe next fiscal year for which the previously enacted budgets, including the one for the fis-
Congress needs to make appropriations, in this case 2017. cal year in progress, reactions to the last proposed budget
(Fiscal year 2017 will begin on October 1, 2016, and end (which the Congress is considering at the same time the
on September 30, 2017.) The Budget also covers the nine process of preparing the forthcoming budget begins), and
years following the budget year in order to reflect the effect evaluations of program performance all influence deci-
of budget decisions over the longer term. It includes the sions concerning the forthcoming budget, as do projections
funding levels provided for the current year, in this case of the economic outlook, prepared jointly by the Council of
2016, which allows the reader to compare the Presidents Economic Advisers, OMB, and the Treasury Department.
Budget proposals with the most recently enacted levels. In early fall, agencies submit their budget requests to
The Budget also includes data on the most recently com- OMB, where analysts review them and identify issues
pleted fiscal year, in this case 2015, so that the reader can that OMB officials need to discuss with the agencies.
compare budget estimates to actual accounting data. OMB and the agencies resolve many issues themselves.
In a normal year, the President begins the process of Others require the involvement of White House policy of-
formulating the budget by establishing general budget ficials and the President. This decision-making process
97
is usually completed by late December. At that time, the programs, and, in some cases, limits the amount that
final stage of developing detailed budget data and the can be appropriated for the programs. Some authorizing
preparation of the budget documents begins. legislation expires after one year, some expires after a
The decision-makers must consider the effects of eco- specified number of years, and some is permanent. The
nomic and technical assumptions on the budget estimates. Congress may enact appropriations for a program even
Interest rates, economic growth, the rate of inflation, the though there is no specific authorization for it or its au-
unemployment rate, and the number of people eligible thorization has expired.
for various benefit programs, among other factors, affect The Congress begins its work on its budget resolution
Government spending and receipts. Small changes in shortly after it receives the Presidents budget. Under
these assumptions can alter budget estimates by many the procedures established by the Congressional Budget
billions of dollars. (Chapter 2 Economic Assumptions and Act of 1974, the Congress decides on budget targets be-
Interactions with the Budget, provides more information fore commencing action on individual appropriations.
on this subject.) The Act requires each standing committee of the House
Thus, the budget formulation process involves the and Senate to recommend budget levels and report leg-
simultaneous consideration of the resource needs of in- islative plans concerning matters within the committees
dividual programs, the allocation of resources among the jurisdiction to the Budget Committee in each body. The
agencies and functions of the Federal Government, and House and Senate Budget Committees then each design
the total outlays and receipts that are appropriate in light and report, and each body then considers, a concurrent
of current and prospective economic conditions. resolution on the budgeta congressional budget plan,
The law governing the Presidents budget requires its or budget resolution. The budget resolution sets targets
transmittal to the Congress on or after the first Monday in for total receipts and for budget authority and outlays,
January but not later than the first Monday in February both in total and by functional category (see Functional
of each year for the following fiscal year, which begins on Classification later in this chapter). It also sets targets
October 1. The budget is routinely sent to the Congress on for the budget deficit or surplus and for Federal debt sub-
the first Monday in February, giving the Congress eight ject to statutory limit.
months to act on the budget before the fiscal year begins. The congressional timetable calls for the House and
Senate to resolve differences between their respective
Congressional Action1 versions of the congressional budget resolution and adopt
a single budget resolution by April 15 of each year.
The Congress considers the Presidents budget pro- In the report on the budget resolution, the Budget
posals and approves, modifies, or disapproves them. It Committees allocate the total on-budget budget au-
can change funding levels, eliminate programs, or add thority and outlays set forth in the resolution to the
programs not requested by the President. It can add or Appropriations Committees and the other committees
eliminate taxes and other sources of receipts or make that have jurisdiction over spending. (See Coverage of
other changes that affect the amount of receipts collected. the Budget, later in this chapter, for more information
The Congress does not enact a budget as such. Through on on-budget and off-budget amounts.) Now that statu-
the process of adopting a planning document called a bud- tory limits on discretionary budget authority have been
get resolution (described below), the Congress agrees on reinstated, as discussed below, the budget resolution allo-
targets for total spending and receipts, the size of the defi- cation to the Appropriations Committees will equal those
cit or surplus, and the debt limit. The budget resolution limits. Once the Congress resolves differences between
provides the framework within which individual congres- the House and Senate and agrees on a budget resolution,
sional committees prepare appropriations bills and other the Appropriations Committees are required to divide
spending and receipts legislation. The Congress provides their allocations of budget authority and outlays among
spending authorityfundingfor specified purposes in their subcommittees. There are procedural hurdles
appropriations acts each year. It also enacts changes each associated with considering appropriations bills (discre-
year in other laws that affect spending and receipts. Both tionary spending) that would breach or further breach an
appropriations acts and these other laws are discussed in Appropriations subcommittees target. Similar procedural
the following paragraphs. hurdles exist for considering legislation that would cause
In making appropriations, the Congress does not vote the overall spending target for any such committee to be
on the level of outlays (spending) directly, but rather on breached or further breached. The Budget Committees
budget authority, or funding, which is the authority pro- reports may discuss assumptions about the level of fund-
vided by law to incur financial obligations that will result ing for major programs. While these assumptions do not
in outlays. In a separate process, prior to making appro- bind the other committees and subcommittees, they may
priations, the Congress usually enacts legislation that influence their decisions.
authorizes an agency to carry out particular programs, The budget resolution may also contain reconciliation
authorizes the appropriation of funds to carry out those directives (discussed below) to the committees respon-
1 For a fuller discussion of the congressional budget process, see Bill
sible for tax laws and for mandatory spendingprograms
Heniff Jr., Introduction to the Federal Budget Process (Congressional not controlled by annual appropriation actsin order to
Research Service Report 98721), and Robert Keith and Allen Schick, conform the level of receipts and this type of spending to
Manual on the Federal Budget Process (Congressional Research Service the targets in the budget resolution.
Report 98720, archived).
9. BUDGET CONCEPTS 99
Since the concurrent resolution on the budget is not a authority for the affected agencies to continue operations
law, it does not require the Presidents approval. However, at some specified level until a specific date or until the
the Congress considers the Presidents views in prepar- regular appropriations are enacted. Occasionally, a CR
ing budget resolutions, because legislation developed to has funded a portion or all of the Government for the en-
meet congressional budget allocations does require the tire year.
Presidents approval. In some years, the President and The Congress must present these CRs to the President
the joint leadership of Congress have formally agreed on for approval or veto. In some cases, Presidents have reject-
plans to reduce the deficit or balance the budget. These ed CRs because they contained unacceptable provisions.
agreements were then reflected in the budget resolution Left without funds, Government agencies were required
and legislation passed for those years. by law to shut down operationswith exceptions for some
Once the Congress approves the budget resolution, it limited activitiesuntil the Congress passed a CR the
turns its attention to enacting appropriations bills and President would approve. Shutdowns have lasted for pe-
authorizing legislation. Appropriations bills are initiated riods of a day to several weeks.
in the House. They provide the budgetary resources for The Congress also provides budget authority in laws
the majority of Federal programs, but only a minority of other than appropriations acts. In fact, while annual ap-
Federal spending. The Appropriations Committee in each propriations acts fund the majority of Federal programs,
body has jurisdiction over annual appropriations. These they account for only about a third of the total spend-
committees are divided into subcommittees that hold ing in a typical year. Authorizing legislation controls the
hearings and review detailed budget justification materi- rest of the spending, which is commonly called manda-
als prepared by the Executive Branch agencies within the tory spending. A distinctive feature of these authorizing
subcommittees jurisdiction. After a bill has been draft- laws is that they provide agencies with the authority or
ed by a subcommittee, the full committee and the whole requirement to spend money without first requiring the
House, in turn, must approve the bill, sometimes with Appropriations Committees to enact funding. This cat-
amendments to the original version. The House then egory of spending includes interest the Government pays
forwards the bill to the Senate, where a similar review on the public debt and the spending of several major
follows. If the Senate disagrees with the House on par- programs, such as Social Security, Medicare, Medicaid, un-
ticular matters in the bill, which is often the case, the two employment insurance, and Federal employee retirement.
bodies form a conference committee (consisting of some This chapter discusses the control of budget authority and
Members of each body) to resolve the differences. The con- outlays in greater detail under Budget Authority and
ference committee revises the bill and returns it to both Other Budgetary Resources, Obligations, and Outlays.
bodies for approval. When the revised bill is agreed to, Almost all taxes and most other receipts also result from
first in the House and then in the Senate, the Congress authorizing laws. Article I, Section 7, of the Constitution
sends it to the President for approval or veto. provides that all bills for raising revenue shall originate
Since 1977, when the start of the fiscal year was estab- in the House of Representatives. In the House, the Ways
lished as October 1, there have been only three fiscal years and Means Committee initiates tax bills; in the Senate,
(1989, 1995, and 1997) for which the Congress agreed to the Finance Committee has jurisdiction over tax laws.
and enacted every regular appropriations bill by that The budget resolution often includes reconciliation
date. When one or more appropriations bills has not been directives, which require authorizing committees to
agreed to by this date, Congress usually enacts a joint recommend changes in laws that affect receipts or man-
resolution called a continuing resolution, (CR) which is datory spending. They direct each designated committee
an interim or stop-gap appropriations bill that provides to report amendments to the laws under the committees
BUDGET CALENDAR
The following timetable highlights the scheduled dates for significant budget events during a normal budget 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 even if the budget resolution has
not been agreed to.
June 10............................................................... House Appropriations Committee to report the last of its annual appropriations bills.
June 15............................................................... Action to be completed on reconciliation bill by the Congress.
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

jurisdiction that would achieve changes in the levels of Budget Control Act of 2011 (BCA), enacted on August
receipts or reductions in mandatory spending controlled 2, 2011, amended the Balanced Budget and Emergency
by those laws. These directives specify the dollar amount Deficit Control Act of 1985 (BBEDCA) by reinstating
of changes that each designated committee is expected to limits (caps) on the amount of discretionary budget
achieve, but do not specify which laws are to be changed or authority that can be provided through the annual ap-
the changes to be made. However, the Budget Committees propriations process. Third, the BCA also created a Joint
reports on the budget resolution frequently discuss as- Select Committee on Deficit Reduction that was instruct-
sumptions about how the laws would be changed. Like ed to develop a bill to reduce the Federal deficit by at least
other assumptions in the report, they do not bind the com- $1.5 trillion over a 10-year period and imposed automatic
mittees of jurisdiction but may influence their decisions. spending cuts to achieve $1.2 trillion of deficit reduction
A reconciliation instruction may also specify the total over 9 years after the Joint Committee process failed to
amount by which the statutory limit on the public debt is achieve its deficit reduction goal.
to be changed. BBEDCA divides spending into two typesdiscre-
The committees subject to reconciliation directives tionary spending and direct or mandatory spending.
draft the implementing legislation. Such legislation may, Discretionary spending is controlled through annual
for example, change the tax code, revise benefit formulas appropriations acts. Funding for salaries and other op-
or eligibility requirements for benefit programs, or autho- erating expenses of government agencies, for example,
rize Government agencies to charge fees to cover some is generally discretionary because it is usually provided
of their costs. Reconciliation bills are typically omnibus by appropriations acts. Direct spending is more common-
legislation, combining the legislation submitted by each ly called mandatory spending. Mandatory spending is
reconciled committee in a single act. controlled by permanent laws. Medicare and Medicaid
Such a large and complicated bill would be difficult payments, unemployment insurance benefits, and farm
to enact under normal legislative procedures because it price supports are examples of mandatory spending,
usually involves changes to tax rates or to popular so- because permanent laws authorize payments for those
cial programs, generally to reduce projected deficits. The purposes. Receipts are included under the same statutory
Senate considers such omnibus reconciliation acts under enforcement rules that apply to mandatory spending be-
expedited procedures that limit total debate on the bill. cause permanent laws generally control receipts.
To offset the procedural advantage gained by expedited Discretionary cap enforcement. BBEDCA speci-
procedures, the Senate places significant restrictions on fies spending limits (caps) on discretionary budget
the substantive content of the reconciliation measure authority for 2012 through 2021. Similar enforcement
itself, as well as on amendments to the measure. Any mechanisms were established by the Budget Enforcement
material in the bill that is extraneous or that contains Act of 1990 and were extended in 1993 and 1997, but ex-
changes to the Federal Old-Age and Survivors Insurance pired at the end of 2002. The caps originally established
and the Federal Disability Insurance programs is not in by the BCA were divided between security and nonsecu-
order under the Senates expedited reconciliation proce- rity categories for 2012 and 2013, with a single cap for
dures. Non-germane amendments are also prohibited. In all discretionary spending established for 2014 through
addition, the Senate does not allow reconciliation bills as 2021. The security category included discretionary bud-
a whole to increase projected deficits or reduce project- get authority for the Departments of Defense, Homeland
ed surpluses. This Senate prohibition complements the Security, and Veterans Affairs, the National Nuclear
Statutory Pay-As-You-Go Act of 2010, discussed below. Security Administration, the Intelligence Community
The House does not allow reconciliation bills to increase Management account, and all budget accounts in the
mandatory spending in net, but does allow such bills to international affairs budget function (budget function
increase deficits by reducing revenues. 150). The nonsecurity category includes all discretionary
Reconciliation acts, together with appropriations acts budget authority not included in the security category.
for the year, are usually used to implement broad agree- As part of the enforcement mechanisms triggered by the
ments between the President and the Congress on those failure of the BCAs Joint Committee process, the security
occasions where the two branches have negotiated a and nonsecurity categories were redefined and estab-
comprehensive budget plan. Reconciliation acts have lished for all years through 2021. The revised security
sometimes included other matters, such as laws providing category included discretionary budget authority in the
the means for enforcing these agreements, as described defense budget function 050, which primarily consists
under Budget Enforcement. of the Department of Defense. The revised nonsecurity
category includes all discretionary budget authority not
Budget Enforcement included in the defense budget function 050. The rede-
fined categories are commonly referred to as the defense
The Federal Government uses three primary enforce- and non-defense categories, respectively, to distinguish
ment mechanisms to control revenues, spending, and them from the original categories.
deficits. First, the Statutory Pay-As-You-Go Act of 2010, Since the Joint Committee sequestration that was or-
enacted on February 12, 2010, reestablished a statutory dered on March 1, 2013, the Congress and the President
procedure to enforce a rule of deficit neutrality on new have enacted two agreements to provide more resources
revenue and mandatory spending legislation. Second, the to discretionary programs than would have been available
under the Joint Committee enforcement mechanisms. programs from sequestration entirely. For example, any
These increases to the caps were paid for largely with sequestration of certain health and medical care accounts
savings in mandatory spending. The Bipartisan Budget is limited to 2 percent. Also, if a continuing resolution is
Act (BBA) of 2013 set new discretionary caps for 2014 at in effect when OMB issues its final sequestration report,
$520.5 billion for the defense category and $491.8 billion the sequestration calculations will be based on the an-
for the non-defense category and for 2015 at $521.3 billion nualized amount provided by that continuing resolution.
for the defense category and $492.4 billion for the non- During the 1990s and so far under the BCA caps, the
defense category. The BBA of 2015 set new discretionary threat of sequestration proved sufficient to ensure com-
caps for 2016 at $548.1 billion for the defense category pliance with the discretionary spending limits. In that
and $518.5 for the non-defense category and for 2017 at respect, discretionary sequestration can be viewed first as
$551.1 billion for the defense category and $518.5 bil- an incentive for compliance and second as a remedy for
lion for the non-defense category. In addition, the BBA noncompliance. This is also true for mandatory sequestra-
of 2013 reaffirmed the defense and non-defense category tion under PAYGO, as discussed below.
limits through 2021 and the BBA of 2015 left these in Supplemental appropriations can also trigger spend-
place after 2017. However, these limits are still subject ing reductions. From the end of a session of the Congress
to Joint Committee reductions if those procedures remain through the following June 30th, a within-session discre-
in place. tionary sequestration of current-year spending is imposed
BBEDCA requires OMB to adjust the caps each year if appropriations for the current year cause a cap to be
for: changes in concepts and definitions; appropriations breached. In contrast, if supplemental appropriations
designated by the Congress and the President as emer- enacted in the last quarter of a fiscal year (i.e., July 1
gency requirements; and appropriations designated by through September 30) cause the caps to be breached, the
the Congress and the President for Overseas Contingency required reduction is instead achieved by reducing the
Operations/Global War on Terrorism. BBEDCA also spec- applicable spending limit for the following fiscal year by
ifies cap adjustments (which are limited to fixed amounts) the amount of the breach, because the size of the potential
for: appropriations for continuing disability reviews and sequestration in relation to the unused funding remain-
redeterminations by the Social Security Administration; ing for the current year could severely disrupt agencies
the health care fraud and abuse control program at the operations.
Department of Health and Human Services; and appro- Direct spending enforcement. The Statutory Pay-
priations designated by Congress as being for disaster As-You-Go Act of 2010 requires that new legislation
relief. changing mandatory spending or revenue must be enact-
BBEDCA requires OMB to provide cost estimates of ed on a pay-as-you-go (PAYGO) basis; that is, that the
each appropriations act in a report to the Congress within cumulative effects of such legislation must not increase
7 business days after enactment of such act and to pub- projected on-budget deficits. Unlike the budget enforce-
lish three discretionary sequestration reports: a preview ment mechanism for discretionary programs, PAYGO is a
report when the President submits the budget; an up- permanent requirement, and it does not impose a cap on
date report in August, and a final report within 15 days spending or a floor on revenues. Instead, PAYGO requires
after the end of a session of the Congress. that legislation reducing revenues must be fully offset
The preview report explains the adjustments that are by cuts in mandatory programs or by revenue increases,
required by law to the discretionary caps, including any and that any bills increasing mandatory spending must
changes in concepts and definitions, and publishes the be fully offset by revenue increases or cuts in mandatory
revised caps. The preview report may also provide a sum- spending.
mary of policy changes, if any, proposed by the President This requirement of deficit neutrality is not enforced
in the Budget to those caps. The update and final reports on a bill-by-bill basis, but is based on two cumulative
revise the preview report estimates to reflect the effects of scorecards that tally the cumulative budgetary effects
newly enacted discretionary laws. In addition, the update of PAYGO legislation as averaged over rolling 5- and 10-
report must contain a preview estimate of the adjustment year periods starting with the budget year. Any impacts of
for disaster funding for the upcoming fiscal year. PAYGO legislation on the current year deficit are counted
If OMBs final sequestration report for a given fiscal as budget year impacts when placed on the scorecard.
year indicates that the amount of discretionary budget Like the discretionary caps, PAYGO is enforced by seques-
authority provided in appropriations acts for that year ex- tration. Within 14 business days after a congressional
ceeds the cap for that category in that year, the President session ends, OMB issues an annual PAYGO report and
must issue a sequestration order canceling budgetary re- determines whether a violation of the PAYGO require-
sources in nonexempt accounts within that category by ment has occurred. If either the 5- or 10-year scorecard
the amount necessary to eliminate the breach. Under se- shows net costs in the budget year column, the President
questration, each nonexempt account within a category is is required to issue a sequestration order implementing
reduced by a dollar amount calculated by multiplying the across-the-board cuts to nonexempt mandatory pro-
enacted level of sequestrable budgetary resources in that grams by an amount sufficient to offset those net costs.
account by the uniform percentage necessary to eliminate The PAYGO effects of legislation may be directed in
a breach within that category. BBEDCA specifies spe- legislation by reference to statements inserted into the
cial rules for reducing some programs and exempts some Congressional Record by the chairmen of the House and
Senate Budget Committees. Any such estimates are de- Relief Act of 2012, the BBA of 2013, and the BBA of 2015.
termined by the Budget Committees and are informed by, Unless the Congress acts, further reductions will be im-
but not required to match, the cost estimates prepared by plemented by pro rata reductions to the discretionary
the Congressional Budget Office (CBO). If this procedure caps from 2018 through 2021, which would be reflected
is not followed, then the PAYGO effects of the legislation in OMBs discretionary sequestration preview report for
are determined by OMB. During the first year of statu- those years, and by a sequestration of non-exempt man-
tory PAYGO, nearly half the bills included congressional datory spending for 2018 onward, which would be ordered
estimates. In the subsequent five years, OMB estimates when the Presidents Budget is transmitted to Congress
were used for all but one of the enacted bills due to the and would take effect beginning October 1 of the upcom-
absence of a congressional estimate. Provisions of manda- ing fiscal year.
tory spending or receipts legislation that are designated OMB is required to calculate the amount of the deficit
in that legislation as an emergency requirement are not reduction required for 2018 onward as follows:
scored as PAYGO budgetary effects. The $1.2 trillion savings target is reduced by 18 per-
The PAYGO rules apply to the outlays resulting from cent to account for debt service.
outyear changes in mandatory programs made in ap-
propriations acts and to all revenue changes made in The resulting net savings of $984 billion is divided
appropriations acts. However, outyear changes to man- by nine to spread the reductions in equal amounts
datory programs as part of provisions that have zero net across the nine years, 2013 through 2021.
outlay effects over the sum of the current year and the
next five fiscal years are not considered PAYGO.
The annual spending reduction of $109.3 billion is
divided equally between the defense and non-de-
The PAYGO rules do not apply to increases in man- fense functions.
datory spending or decreases in receipts that result
automatically under existing law. For example, mandato- The annual reduction of $54.7 billion for each func-
ry spending for benefit programs, such as unemployment tional category of spending is divided proportionally
insurance, rises when the number of beneficiaries rises, between discretionary and direct spending programs,
and many benefit payments are automatically increased using as the base the discretionary cap, redefined as
for inflation under existing laws. Additional information outlined in the discretionary cap enforcement sec-
on the Statutory Pay-As-You-Go Act of 2010 can be found tion above, and the most recent baseline estimate of
on OMBs website at https://www.whitehouse.gov/omb/ non-exempt mandatory outlays.
paygo_description.
The Senate imposes points of order against consider-
The resulting reductions in defense and non-defense
direct spending are implemented through a seques-
ation of tax or mandatory spending legislation that would tration order released with the Presidents Budget
violate the PAYGO principle, although the time periods and taking effect the following October 1st. The re-
covered by the Senates rule and the treatment of previ- ductions in discretionary spending are applied as re-
ously enacted costs or savings may differ in some respects ductions in the discretionary caps, and are enforced
from the requirements of the Statutory Pay-As-You-Go through the discretionary cap enforcement proce-
Act of 2010. dures discussed earlier in this section.
The House, in contrast, imposes points of order on leg-
islation increasing mandatory spending in net, whether Subsequent to the enactment of the BCA, the mandato-
or not those costs are offset by revenue increases, but the ry sequestration provisions were extended beyond 2021 by
House rule does not constrain the size of tax cuts or re- the BBA of 2013, which extended sequestration through
quire them to be offset. 2023, P.L. 113-82, commonly referred to as the Military
For the 114th Congress, House rules require the offi- Retired Pay Restoration Act, which extended sequestra-
cial cost estimates of major legislation that are used for tion through 2024, and the BBA of 2015, which extended
enforcing the budget resolution and other House rules to mandatory sequestration through 2025. Sequestration in
incorporate the budgetary effects of changes in economic these four years is to be applied using the same percent-
output, employment, capital stock and other macroeco- age reductions for defense and nondefense as calculated
nomic variables. This is known as dynamic scoring and for 2021 under the procedures outlined above.2
involves estimating the impact of policy changes on the The BBA of 2013 and the BBA of 2015 took impor-
overall economy as well as secondary feedback effects. tant steps in moving away from manufactured crises
Joint Committee reductions. The failure of the Joint and austerity budgeting by replacing a portion of the
Select Committee on Deficit Reduction to propose, and the Joint Committee reductions with sensible long-term
Congress to enact, legislation to reduce the deficit by at reforms, including a number of reforms proposed in previ-
least $1.2 trillion triggered automatic reductions to dis- ous Presidents Budgets. The 2017 Budget builds on the
cretionary and mandatory spending in fiscal years 2013 achievements secured for 2016 and adheres to the agree-
through 2021. The reductions are implemented through ments funding levels. However, failing to fully replace
a combination of sequestration and reductions in the 2 The BBA of 2015 specified that, notwithstanding the 2 percent limit
discretionary caps. These reductions have already been on Medicare sequestration in the BCA, in extending sequestration into
ordered to take effect for 2013 through 2017, with some 2025 the reduction in the Medicare program should be 4.0 percent for
modifications as provided for in the American Taxpayer the first half of the sequestration period and zero for the second half of
the period.
the Joint Committee reductions has consequences. To fur- the year to accommodate changing circumstances. This
ther the goal of building durable economic growth in the system helps to ensure that funds do not run out before
future, the Budget also includes a series of investments the end of the fiscal year.
using mandatory funding. During the budget execution phase, the Government
The 2017 Budget also recognizes that without further sometimes finds that it needs more funding than the
Congressional action, Joint Committee enforcement will Congress has appropriated for the fiscal year because of
return in full in 2018. Therefore, starting in 2018, the unanticipated circumstances. For example, more might
Budget once again proposes to support a range of invest- be needed to respond to a severe natural disaster. Under
ments to move the Nation forward by ending the Joint such circumstances, the Congress may enact a supple-
Committee reductions and replacing the savings by cut- mental appropriation.
ting inefficient spending and closing tax loopholes, while On the other hand, the President may propose to re-
putting the Nation on a sustainable fiscal path. duce a previously enacted appropriation. The President
may propose to either cancel or rescind the amount.
Budget Execution If the President initiates the withholding of funds while
the Congress considers his request, the amounts are ap-
Government agencies may not spend or obligate more portioned as deferred or withheld pending rescission
than the Congress has appropriated, and they may use on the OMB-approved apportionment form. Agencies are
funds only for purposes specified in law. The Antideficiency instructed not to withhold funds without the prior ap-
Act prohibits them from spending or obligating the proval of OMB. When OMB approves a withholding, the
Government to spend in advance of an appropriation, un- Impoundment Control Act requires that the President
less specific authority to do so has been provided in law. transmit a special message to the Congress. The his-
Additionally, the Act requires the President to apportion torical reason for the special message is to inform the
the budgetary resources available for most executive Congress that the President has unilaterally withheld
branch agencies. The President has delegated this au- funds that were enacted in regular appropriations acts.
thority to OMB. Some apportionments are by time periods The notification allows the Congress to consider the
(usually by quarter of the fiscal year), some are by proj- proposed rescission in a timely way. The last time the
ects or activities, and others are by a combination of both. President initiated the withholding of funds was in fiscal
Agencies may request OMB to reapportion funds during year 2000.
COVERAGE OF THE BUDGET
Federal Government and Budget Totals Benefits Fund, the Federal Financial Institutions
Examination Council, Electric Reliability Organizations
The budget documents provide information on all (EROs) established pursuant to the Energy Policy Act
Federal agencies and programs. However, because the of 2005, the Corporation for Travel Promotion, and the
laws governing Social Security (the Federal Old-Age and National Association of Registered Agents and Brokers.
Survivors Insurance and the Federal Disability Insurance In contrast, the budget excludes tribal trust funds
trust funds) and the Postal Service Fund require that that are owned by Indian tribes and held and man-
the receipts and outlays for those activities be excluded aged by the Government in a fiduciary capacity on
from the budget totals and from the calculation of the the tribes behalf. These funds are not owned by the
deficit or surplus, the budget presents on-budget and off- Government, the Government is not the source of their
budget totals. The off-budget totals include the Federal capital, and the Governments control is limited to the
transactions excluded by law from the budget totals. The exercise of fiduciary duties. Similarly, the transactions of
on-budget and off-budget amounts are added together to Government-sponsored enterprises, such as the Federal
derive the totals for the Federal Government. These are Home Loan Banks, are not included in the on-budget or
sometimes referred to as the unified or consolidated bud- off-budget totals. Federal laws established these enter-
get totals. prises for public policy purposes, but they are privately
It is not always obvious whether a transaction or ac- owned and operated corporations. Nevertheless, because
tivity should be included in the budget. Where there is of their public charters, the budget discusses them and
a question, OMB normally follows the recommendation reports summary financial data in the budget Appendix
of the 1967 Presidents Commission on Budget Concepts and in some detailed tables.
to be comprehensive of the full range of Federal agencies, The budget also excludes the revenues from copyright
programs, and activities. In recent years, for example, the royalties and spending for subsequent payments to copy-
budget has included the transactions of the Affordable right holders where (1) the law allows copyright owners
Housing Program funds, the Universal Service Fund, and users to voluntarily set the rate paid for the use of
the Public Company Accounting Oversight Board, the protected material, and (2) the amount paid by users of
Securities Investor Protection Corporation, Guaranty copyrighted material to copyright owners is related to the
Agencies Reserves, the National Railroad Retirement frequency or quantity of the material used. The budget
Investment Trust, the United Mine Workers Combined excludes license royalties collected and paid out by the
Copyright Office for the retransmission of network broad- The following criteria are used in establishing func-
casts via cable collected under 17 U.S.C. 111 because tional categories and assigning activities to them:
these revenues meet both of these conditions. The budget A function encompasses activities with similar pur-
includes the royalties collected and paid out for license poses, emphasizing what the Federal Government
fees for digital audio recording technology under 17 U.S.C. seeks to accomplish rather than the means of ac-
1004, since the amount of license fees paid is unrelated to complishment, the objects purchased, the clientele
usage of the material. or geographic area served (except in the cases of
The Appendix includes a presentation for the Board functions 450 for Community and Regional Devel-
of Governors of the Federal Reserve System for infor- opment, 570 for Medicare, 650 for Social Security,
mation only. The amounts are not included in either the and 700 for Veterans Benefits and Services), or the
on-budget or off-budget totals because of the independent Federal agency conducting the activity (except in
status of the System within the Government. However, the case of subfunction 051 in the National Defense
the Federal Reserve System transfers its net earnings to function, which is used only for defense activities
the Treasury, and the budget records them as receipts. under the Department of DefenseMilitary).
Chapter 10 of this volume, Coverage of the Budget,
provides more information on this subject. A function must be of continuing national importance,
and the amounts attributable to it must be significant.
Table 91. TOTALS FOR THE BUDGET AND Each basic unit being classified (generally the ap-
THE FEDERAL GOVERNMENT propriation or fund account) usually is classified ac-
(In billions of dollars) cording to its primary purpose and assigned to only
one subfunction. However, some large accounts that
Estimate
2015 serve more than one major purpose are subdivided
Actual 2016 2017 into two or more functions or subfunctions.
Budget authority In consultation with the Congress, the functional clas-
Unified 3,773 3,991 4,235 sification is adjusted from time to time as warranted.
On-budget 3,024 3,198 3,403 Detailed functional tables, which provide information on
Off-budget 749 792 832 Government activities by function and subfunction, are
Receipts: available online at www.budget.gov/budget/Analytical_
Unified 3,250 3,336 3,644 Perspectives and on the Budget CD-ROM.
On-budget 2,480 2,538 2,817
Off-budget 770 798 827
Agencies, Accounts, Programs,
Outlays: Projects, and Activities
Unified 3,688 3,951 4,147
On-budget 2,945 3,162 3,319 Various summary tables in the Analytical Perspectives
Off-budget 743 790 829 volume of the Budget provide information on budget author-
Deficit () / Surplus (+): ity, outlays, and offsetting collections and receipts arrayed
Unified 438 616 503 by Federal agency. A table that lists budget authority and
On-budget 466 624 502 outlays by budget account within each agency and the to-
Off-budget 27 8 2 tals for each agency of budget authority, outlays, and receipts
that offset the agency spending totals is available online at:
www.budget.gov/budget/Analytical_Perspectives and on the
Functional Classification Budget CD-ROM. The Appendix provides budgetary, finan-
cial, and descriptive information about programs, projects,
The functional classification is used to organize bud- and activities by account within each agency.
get authority, outlays, and other budget data according
to the major purpose servedsuch as agriculture, trans- Types of Funds
portation, income security, and national defense. There
are 20 major functions, 17 of which are concerned with Agency activities are financed through Federal funds
broad areas of national need and are further divided and trust funds.
into subfunctions. For example, the Agriculture function Federal funds comprise several types of funds. Receipt
comprises the subfunctions Farm Income Stabilization accounts of the general fund, which is the greater part of
and Agricultural Research and Services. The functional the budget, record receipts not earmarked by law for a spe-
classification meets the Congressional Budget Act re- cific purpose, such as income tax receipts. The general fund
quirement for a presentation in the budget by national also includes the proceeds of general borrowing. General
needs and agency missions and programs. The remaining fund appropriations accounts record general fund expendi-
three functionsNet Interest, Undistributed Offsetting tures. General fund appropriations draw from general fund
Receipts, and Allowancesenable the functional classifi- receipts and borrowing collectively and, therefore, are not
cation system to cover the entire Federal budget. specifically linked to receipt accounts.
Special funds consist of receipt accounts for Federal (Chapter 26 of this volume, Trust Funds and Federal
fund receipts that laws have designated for specific pur- Funds, provides more information on this subject.)
poses and the associated appropriation accounts for the
expenditure of those receipts. Budgeting for Full Costs
Public enterprise funds are revolving funds used for
programs authorized by law to conduct a cycle of busi- A budget is a financial plan for allocating resourc-
ness-type operations, primarily with the public, in which esdeciding how much the Federal Government should
outlays generate collections. spend in total, program by program, and for the parts of
Intragovernmental funds are revolving funds that con- each program and deciding how to finance the spending.
duct business-type operations primarily within and between The budgetary system provides a process for proposing
Government agencies. The collections and the outlays of re- policies, making decisions, implementing them, and re-
volving funds are recorded in the same budget account. porting the results. The budget needs to measure costs
Trust funds account for the receipt and expenditure accurately so that decision makers can compare the cost
of monies by the Government for carrying out specific of a program with its benefits, the cost of one program
purposes and programs in accordance with the terms of with another, and the cost of one method of reaching a
a statute that designates the fund as a trust fund (such specified goal with another. These costs need to be fully
as the Highway Trust Fund) or for carrying out the stip- included in the budget up front, when the spending deci-
ulations of a trust where the Government itself is the sion is made, so that executive and congressional decision
beneficiary (such as any of several trust funds for gifts and makers have the information and the incentive to take
donations for specific purposes). Trust revolving funds the total costs into account when setting priorities.
are trust funds credited with collections earmarked by The budget includes all types of spending, including both
law to carry out a cycle of business-type operations. current operating expenditures and capital investment, and
The Federal budget meaning of the term trust, as ap- to the extent possible, both are measured on the basis of full
plied to trust fund accounts, differs significantly from its cost. Questions are often raised about the measure of capi-
private-sector usage. In the private sector, the beneficiary tal investment. The present budget provides policymakers
of a trust usually owns the trusts assets, which are man- the necessary information regarding investment spending.
aged by a trustee who must follow the stipulations of the It records investment on a cash basis, and it requires the
trust. In contrast, the Federal Government owns the as- Congress to provide budget authority before an agency can
sets of most Federal trust funds, and it can raise or lower obligate the Government to make a cash outlay. However,
future trust fund collections and payments, or change the the budget measures only costs, and the benefits with which
purposes for which the collections are used, by changing these costs are compared, based on policy makers judgment,
existing laws. There is no substantive difference between must be presented in supplementary materials. By these
a trust fund and a special fund or between a trust revolv- means, the budget allows the total cost of capital investment
ing fund and a public enterprise revolving fund. to be compared up front in a rough way with the total expect-
However, in some instances, the Government does ed future net benefits. Such a comparison of total costs with
act as a true trustee of assets that are owned or held for benefits is consistent with the formal method of cost-benefit
the benefit of others. For example, it maintains accounts analysis of capital projects in government, in which the full
on behalf of individual Federal employees in the Thrift cost of a capital asset as the cash is paid out is compared
Savings Fund, investing them as directed by the individ- with the full stream of future benefits (all in terms of present
ual employee. The Government accounts for such funds values). (Chapter 18 of this volume, Federal Investment,
in deposit funds, which are not included in the budget. provides more information on capital investment.)
RECEIPTS, OFFSETTING COLLECTIONS, AND OFFSETTING RECEIPTS
In General Governmental Receipts
The budget records amounts collected by Government Governmental receipts are collections that result from
agencies two different ways. Depending on the nature of the Governments exercise of its sovereign power to tax
the activity generating the collection and the law that es- or otherwise compel payment. Sometimes they are called
tablished the collection, they are recorded as either: receipts, budget receipts, Federal receipts, or Federal
Governmental receipts, which are compared in to- revenues. They consist mostly of individual and corpo-
tal to outlays (net of offsetting collections and offset- ration income taxes and social insurance taxes, but also
ting receipts) in calculating the surplus or deficit; or include excise taxes, compulsory user charges, regulato-
ry fees, customs duties, court fines, certain license fees,
Offsetting collections or offsetting receipts, and deposits of earnings by the Federal Reserve System.
which are deducted from gross outlays to calculate Total receipts for the Federal Government include both
net outlay figures. on-budget and off-budget receipts (see Table 91, Totals
for the Budget and the Federal Government, which ap-
pears earlier in this chapter.) Chapter 12 of this volume,
Governmental Receipts, provides more information on ting governmental collections (for offsetting collec-
governmental receipts. tions) or as offsetting governmental receipts (for off-
setting receipts).
Offsetting Collections and Offsetting Receipts
Offsetting Collections
Offsetting collections and offsetting receipts are re-
corded as offsets to (deductions from) spending, not as Some laws authorize agencies to credit collections di-
additions on the receipt side of the budget. These amounts rectly to the account from which they will be spent and,
are recorded as offsets to outlays so that the budget totals usually, to spend the collections for the purpose of the
represent governmental rather than market activity and account without further action by the Congress. Most re-
reflect the Governments net transactions with the public. volving funds operate with such authority. For example,
They are recorded in one of two ways, based on inter- a permanent law authorizes the Postal Service to use
pretation of laws and longstanding budget concepts and collections from the sale of stamps to finance its opera-
practice. They are offsetting collections when the collections without a requirement for annual appropriations.
tions are authorized by law to be credited to expenditure The budget records these collections in the Postal Service
accounts and are generally available for expenditure Fund (a revolving fund) and records budget authority in
without further legislation. Otherwise, they are deposited an amount equal to the collections. In addition to revolv-
in receipt accounts and called offsetting receipts. ing funds, some agencies are authorized to charge fees to
Offsetting collections and offsetting receipts result defray a portion of costs for a program that are otherwise
from any of the following types of transactions: financed by appropriations from the general fund and
Business-like transactions or market-oriented usually to spend the collections without further action by
activities with the publicthese include vol- the Congress. In such cases, the budget records the off-
untary collections from the public in exchange for setting collections and resulting budget authority in the
goods or services, such as the proceeds from the sale programs general fund expenditure account. Similarly,
of postage stamps, the fees charged for admittance intragovernmental collections authorized by some laws
to recreation areas, and the proceeds from the sale may be recorded as offsetting collections and budget au-
of Government-owned land; and reimbursements thority in revolving funds or in general fund expenditure
for damages. The budget records these amounts as accounts.
offsetting collections from non-Federal sources (for Sometimes appropriations acts or provisions in other
offsetting collections) or as proprietary receipts (for laws limit the obligations that can be financed by offset-
offsetting receipts). ting collections. In those cases, the budget records budget
authority in the amount available to incur obligations, not
Intragovernmentaltransactionscollections in the amount of the collections.
from other Federal Government accounts. The bud- Offsetting collections credited to expenditure accounts
get records collections by one Government account automatically offset the outlays at the expenditure ac-
from another as offsetting collections from Federal count level. Where accounts have offsetting collections,
sources (for offsetting collections) or as intragov- the budget shows the budget authority and outlays of
ernmental receipts (for offsetting receipts). For ex- the account both gross (before deducting offsetting col-
ample, the General Services Administration rents lections) and net (after deducting offsetting collections).
office space to other Government agencies and re- Totals for the agency, subfunction, and overall budget are
cords their rental payments as offsetting collections net of offsetting collections.
from Federal sources in the Federal Buildings Fund.
These transactions are exactly offsetting and do
Offsetting Receipts
not affect the surplus or deficit. However, they are
an important accounting mechanism for allocating Collections that are offset against gross outlays but
costs to the programs and activities that cause the are not authorized to be credited to expenditure accounts
Government to incur the costs. are credited to receipt accounts and are called offsetting
Voluntary gifts and donationsgifts and dona- receipts. Offsetting receipts are deducted from budget
tions of money to the Government, which are treated authority and outlays in arriving at total net budget au-
as offsets to budget authority and outlays. thority and outlays. However, unlike offsetting collections
credited to expenditure accounts, offsetting receipts do
Offsetting governmental transactionscollec- not offset budget authority and outlays at the account
tions from the public that are governmental in na- level. In most cases, they offset budget authority and out-
ture and should conceptually be treated like Federal lays at the agency and subfunction levels.
revenues and compared in total to outlays (e.g., tax Proprietary receipts from a few sources, however, are
receipts, regulatory fees, compulsory user charges, not offset against any specific agency or function and are
custom duties, license fees) but required by law or classified as undistributed offsetting receipts. They are
longstanding practice to be misclassified as offset- deducted from the Government-wide totals for net bud-
ting. The budget records amounts from non-Federal get authority and outlays. For example, the collections of
sources that are governmental in nature as offset- rents and royalties from outer continental shelf lands are
undistributed because the amounts are large and for the ing legislation to those receiving special benefits from, or
most part are not related to the spending of the agency subject to regulation by, the program or activity beyond
that administers the transactions and the subfunction the benefits received by the general public or broad seg-
that records the administrative expenses. ments of the public (such as those who pay income taxes
Similarly, two kinds of intragovernmental transac- or customs duties). Policy regarding user charges is estab-
tionsagencies payments as employers into Federal lished in OMB Circular A25, User Charges. The term
employee retirement trust funds and interest received encompasses proceeds from the sale or use of Government
by trust fundsare classified as undistributed offsetting goods and services, including the sale of natural resources
receipts. They appear instead as special deductions in (such as timber, oil, and minerals) and proceeds from as-
computing total net budget authority and outlays for the set sales (such as property, plant, and equipment). User
Government rather than as offsets at the agency level. charges are not necessarily dedicated to the activity they
This special treatment is necessary because the amounts finance and may be credited to the general fund of the
are so large they would distort measures of the agencys Treasury.
activities if they were attributed to the agency. The term user charge does not refer to a separate bud-
get category for collections. User charges are classified in
User Charges the budget as receipts, offsetting receipts, or offsetting col-
lections according to the principles explained previously.
User charges are fees assessed on individuals or orga- See Chapter 13, Offsetting Collections and Offsetting
nizations for the provision of Government services and Receipts, for more information on the classification of
for the sale or use of Government goods or resources. The user charges.
payers of the user charge must be limited in the authoriz-
BUDGET AUTHORITY, OBLIGATIONS, AND OUTLAYS

Budget authority, obligations, and outlays are the pri- of obligations that can be incurred. A major exception to
mary benchmarks and measures of the budget control this rule is for the highway and mass transit programs
system. The Congress enacts laws that provide agencies financed by the Highway Trust Fund, where budget au-
with spending authority in the form of budget authority. thority is measured as the amount of contract authority
Before agencies can use these resourcesobligate this (described later in this chapter) provided in authorizing
budget authorityOMB must approve their spending statutes, even though the obligation limitations enacted
plans. After the plans are approved, agencies can enter in annual appropriations acts restrict the amount of con-
into binding agreements to purchase items or services tract authority that can be obligated.
or to make grants or other payments. These agreements In deciding the amount of budget authority to request
are recorded as obligations of the United States and de- for a program, project, or activity, agency officials esti-
ducted from the amount of budgetary resources available mate the total amount of obligations they will need to
to the agency. When payments are made, the obligations incur to achieve desired goals and subtract the unobli-
are liquidated and outlays recorded. These concepts are gated balances available for these purposes. The amount
discussed more fully below. of budget authority requested is influenced by the nature
of the programs, projects, or activities being financed. For
Budget Authority and Other Budgetary Resources current operating expenditures, the amount requested
usually covers the needs for the fiscal year. For major pro-
Budget authority is the authority provided in law to curement programs and construction projects, agencies
enter into legal obligations that will result in immediate generally must request sufficient budget authority in the
or future outlays of the Government. In other words, it is first year to fully fund an economically useful segment of
the amount of money that agencies are allowed to commit a procurement or project, even though it may be obligated
to be spent in current or future years. Government offi- over several years. This full funding policy is intended
cials may obligate the Government to make outlays only to ensure that the decision-makers take into account all
to the extent they have been granted budget authority. costs and benefits fully at the time decisions are made
The budget records new budget authority as a dollar to provide resources. It also avoids sinking money into a
amount in the year when it first becomes available for ob- procurement or project without being certain if or when
ligation. When permitted by law, unobligated balances of future funding will be available to complete the procure-
budget authority may be carried over and used in the next ment or project.
year. The budget does not record these balances as budget Budget authority takes several forms:
authority again. They do, however, constitute a budgetary Appropriations, provided in annual appropria-
resource that is available for obligation. In some cases, tions acts or authorizing laws, permit agencies to
a provision of law (such as a limitation on obligations or incur obligations and make payment;
a benefit formula) precludes the obligation of funds that
would otherwise be available for obligation. In such cases, Borrowing authority, usually provided in perma-
the budget records budget authority equal to the amount nent laws, permits agencies to incur obligations but
requires them to borrow funds, usually from the gen- budget authority is initially provided for a limited period
eral fund of the Treasury, to make payment; of availability, an extension of availability would require
enactment of another law (see Reappropriation later in
Contract authority, usually provided in permanent this chapter).
law, permits agencies to incur obligations in advance
Budget authority that is available for more than one
of a separate appropriation of the cash for payment
year and not obligated in the year it becomes available is
or in anticipation of the collection of receipts that
carried forward for obligation in a following year. In some
can be used for payment; and
cases, an account may carry forward unobligated budget
Spending authority from offsetting collections, authority from more than one prior year. The sum of such
usually provided in permanent law, permits agen- amounts constitutes the accounts unobligated balance.
cies to credit offsetting collections to an expenditure Most of these balances had been provided for specific uses
account, incur obligations, and make payment using such as the multi-year construction of a major project and
the offsetting collections. so are not available for new programs. A small part may
never be obligated or spent, primarily amounts provided
Because offsetting collections and offsetting receipts for contingencies that do not occur or reserves that never
are deducted from gross budget authority, they are re- have to be used.
ferred to as negative budget authority for some purposes, Amounts of budget authority that have been obligated
such as Congressional Budget Act provisions that pertain but not yet paid constitute the accounts unpaid obliga-
to budget authority. tions. For example, in the case of salaries and wages, one
Authorizing statutes usually determine the form of to three weeks elapse between the time of obligation and
budget authority for a program. The authorizing statute the time of payment. In the case of major procurement and
may authorize a particular type of budget authority to be construction, payments may occur over a period of several
provided in annual appropriations acts, or it may provide years after the obligation is made. Unpaid obligations
one of the forms of budget authority directly, without the (which are made up of accounts payable and undelivered
need for further appropriations. orders) net of the accounts receivable and unfilled custom-
An appropriation may make funds available from the ers orders are defined by law as the obligated balances.
general fund, special funds, or trust funds, or authorize Obligated balances of budget authority at the end of the
the spending of offsetting collections credited to expen- year are carried forward until the obligations are paid or
diture accounts, including revolving funds. Borrowing the balances are canceled. (A general law provides that
authority is usually authorized for business-like activities the obligated balances of budget authority that was made
where the activity being financed is expected to produce available for a definite period is automatically cancelled
income over time with which to repay the borrowing with five years after the end of the period.) Due to such flows,
interest. The use of contract authority is traditionally lim- a change in the amount of budget authority available in
ited to transportation programs. any one year may change the level of obligations and out-
New budget authority for most Federal programs is nor- lays for several years to come. Conversely, a change in the
mally provided in annual appropriations acts. However, amount of obligations incurred from one year to the next
new budget authority is also made available through per- does not necessarily result from an equal change in the
manent appropriations under existing laws and does not amount of budget authority available for that year and
require current action by the Congress. Much of the per- will not necessarily result in an equal change in the level
manent budget authority is for trust funds, interest on the of outlays in that year.
public debt, and the authority to spend offsetting collec- The Congress usually makes budget authority available
tions 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 appropriated auto- priations act is passed. Occasionally, the appropriations
matically under existing law from the available balance of language specifies a different timing. The language may
the fund and equals the estimated annual obligations of provide an advance appropriationbudget authority
the funds. For interest on the public debt, budget authority that does not become available until one year or more
is provided automatically under a permanent appropria- beyond the fiscal year for which the appropriations act
tion enacted in 1847 and equals interest outlays. is passed. Forward funding is budget authority that is
Annual appropriations acts generally make budget au- made available for obligation beginning in the last quarter
thority available for obligation only during the fiscal year of the fiscal year (beginning on July 1) for the financing of
to which the act applies. However, they frequently allow ongoing grant programs during the next fiscal year. This
budget authority for a particular purpose to remain avail- kind of funding is used mostly for education programs, so
able for obligation for a longer period or indefinitely (that that obligations for education grants can be made prior to
is, until expended or until the program objectives have the beginning of the next school year. For certain benefit
been attained). Typically, budget authority for current op- programs funded by annual appropriations, the appropri-
erations is made available for only one year, and budget ation provides for advance fundingbudget authority
authority for construction and some research projects is that is to be charged to the appropriation in the succeed-
available for a specified number of years or indefinitely. ing year, but which authorizes obligations to be incurred
Most budget authority provided in authorizing statutes, in the last quarter of the current fiscal year if necessary
such as for most trust funds, is available indefinitely. If to meet benefit payments in excess of the specific amount
appropriated for the year. When such authority is used, interest on the public debt, payment of claims and judg-
an adjustment is made to increase the budget authority ments awarded by the courts against the United States,
for the fiscal year in which it is used and to reduce the and many entitlement programs. Many of the laws that
budget authority of the succeeding fiscal year. authorize collections to be credited to revolving, special,
Provisions of law that extend into a new fiscal year the and trust funds make all of the collections available for
availability of unobligated amounts that have expired expenditure for the authorized purposes of the fund, and
or would otherwise expire are called reappropriations. such authority is considered to be indefinite budget au-
Reappropriations of expired balances that are newly thority because the amount of collections is not known in
available for obligation in the current or budget year advance of their collection.
count as new budget authority in the fiscal year in which
the balances become newly available. For example, if a Obligations
2015 appropriations act extends the availability of unob-
ligated budget authority that expired at the end of 2014, Following the enactment of budget authority and the
new budget authority would be recorded for 2015. This completion of required apportionment action, Government
scorekeeping is used because a reappropriation has ex- agencies incur obligations to make payments (see earlier
actly the same effect as allowing the earlier appropriation discussion under Budget Execution). Agencies must re-
to expire at the end of 2014 and enacting a new appro- cord obligations when they enter into binding agreements
priation for 2015. that will result in immediate or future outlays. Such obli-
For purposes of BBEDCA and the Statutory Pay-As- gations include the current liabilities for salaries, wages,
You-Go Act of 2010 (discussed earlier under Budget and interest; and contracts for the purchase of supplies
Enforcement), the budget classifies budget authority and equipment, construction, and the acquisition of office
as discretionary or mandatory. This classification in- space, buildings, and land. For Federal credit programs,
dicates whether an appropriations act or authorizing obligations are recorded in an amount equal to the esti-
legislation controls the amount of budget authority that is mated subsidy cost of direct loans and loan guarantees
available. Generally, budget authority is discretionary if (see Federal Credit later in this chapter).
provided in an annual appropriations act and mandatory
if provided in authorizing legislation. However, the bud- Outlays
get authority provided in annual appropriations acts for
certain specifically identified programs is also classified Outlays are the measure of Government spending.
as mandatory by OMB and the congressional scorekeep- They are payments that liquidate obligations (other than
ers. This is because the authorizing legislation for these most exchanges of financial instruments, of which the
programs entitles beneficiariespersons, households, or repayment of debt is the prime example). The budget re-
other levels of governmentto receive payment, or other- cords outlays when obligations are paid, in the amount
wise legally obligates the Government to make payment that is paid.
and thereby effectively determines the amount of budget Agency, function and subfunction, and Government-
authority required, even though the payments are funded wide outlay totals are stated net of offsetting collections
by a subsequent appropriation. and offsetting receipts for most budget presentations.
Sometimes, budget authority is characterized as current (Offsetting receipts from a few sources do not offset any
or permanent. Current authority requires the Congress to specific function, subfunction, or agency, as explained pre-
act on the request for new budget authority for the year viously, but only offset Government-wide totals.) Outlay
involved. Permanent authority becomes available pursu- totals for accounts with offsetting collections are stated
ant to standing provisions of law without appropriations both gross and net of the offsetting collections credited
action by the Congress for the year involved. Generally, to the account. However, the outlay totals for special and
budget authority is current if an annual appropriations trust funds with offsetting receipts are not stated net of
act provides it and permanent if authorizing legislation the offsetting receipts. In most cases, these receipts off-
provides it. By and large, the current/permanent distinc- set the agency, function, and subfunction totals but do
tion has been replaced by the discretionary/mandatory not offset account-level outlays. However, when general
distinction, which is similar but not identical. Outlays are fund payments are used to finance trust fund outlays to
also classified as discretionary or mandatory according to the public, the associated trust fund receipts are netted
the classification of the budget authority from which they against the bureau totals to prevent double-counting bud-
flow (see Outlays later in this chapter). get authority and outlays at the bureau level
The amount of budget authority recorded in the budget The Government usually makes outlays in the form
depends on whether the law provides a specific amount of cash (currency, checks, or electronic fund transfers).
or employs a variable factor that determines the amount. However, in some cases agencies pay obligations without
It is considered definite if the law specifies a dollar disbursing cash, and the budget nevertheless records out-
amount (which may be stated as an upper limit, for ex- lays for the equivalent method. For example, the budget
ample, shall not exceed ). It is considered indefinite records outlays for the full amount of Federal employees
if, instead of specifying an amount, the law permits the salaries, even though the cash disbursed to employees is
amount to be determined by subsequent circumstances. net of Federal and State income taxes withheld, retire-
For example, indefinite budget authority is provided for ment contributions, life and health insurance premiums,
Chart 9-1. Relationship of Budget Authority

to Outlays for 2017
(Billions of dollars)
New Authority To be spent in 2017 Outlays in 2017

Recommended
for 2017 3,329
To b
e 4,147
4,235 in fu spent
ture
year
s 818
nt 90
pe 5
b e s 17
To in 20 Authority
written off,
Unspent Authority expired, and adjusted
Unspent Authority
Enacted in -6 (net) for Outlays in
Prior Years To be spent in Future Years
Future Years
2,324 1,500 2,406
and other deductions. (The budget also records receipts The budget records refunds of receipts that result from
for the amounts withheld from Federal employee pay- overpayments by the public (such as income taxes with-
checks for Federal income taxes and other payments to held in excess of tax liabilities) as reductions of receipts,
the Government.) When debt instruments (bonds, deben- rather than as outlays. However, the budget records pay-
tures, notes, or monetary credits) are used in place of cash ments to taxpayers for refundable tax credits (such as
to pay obligations, the budget records outlays financed by earned income tax credits) that exceed the taxpayers
an increase in agency debt. For example, the budget re- tax liability as outlays. Similarly, when the Government
cords the acquisition of physical assets through certain makes overpayments that are later returned to the
types of lease-purchase arrangements as though a cash Government, those refunds to the Government are re-
disbursement were made for an outright purchase. The corded as offsetting collections or offsetting receipts, not
transaction creates a Government debt, and the cash as governmental receipts.
lease payments are treated as repayments of principal Not all of the new budget authority for 2017 will be
and interest. obligated or spent in 2017. Outlays during a fiscal year
The budget records outlays for the interest on the may liquidate obligations incurred in the same year or in
public issues of Treasury debt securities as the inter- prior years. Obligations, in turn, may be incurred against
est accrues, not when the cash is paid. A small portion budget authority provided in the same year or against un-
of Treasury debt consists of inflation-indexed securi- obligated balances of budget authority provided in prior
ties, which feature monthly adjustments to principal for years. Outlays, therefore, flow in part from budget author-
inflation and semiannual payments of interest on the in- ity provided for the year in which the money is spent and
flation-adjusted principal. As with fixed-rate securities, in part from budget authority provided for prior years.
the budget records interest outlays as the interest ac- The ratio of a given years outlays resulting from budget
crues. The monthly adjustment to principal is recorded, authority enacted in that or a prior year to the original
simultaneously, as an increase in debt outstanding and amount of that budget authority is referred to as the
an outlay of interest. spendout rate for that year.
Most Treasury debt securities held by trust funds and As shown in the accompanying chart, $3,329 billion
other Government accounts are in the Government ac- of outlays in 2017 (80 percent of the outlay total) will be
count series. The budget normally states the interest on made from that years $4,235 billion total of proposed
these securities on a cash basis. When a Government ac- new budget authority (a first-year spendout rate of 79
count is invested in Federal debt securities, the purchase percent). Thus, the remaining $818 billion of outlays in
price is usually close or identical to the par (face) value of 2017 (20 percent of the outlay total) will be made from
the security. The budget generally records the investment budget authority enacted in previous years. At the same
at par value and adjusts the interest paid by Treasury time, $905 billion of the new budget authority proposed
and collected by the account by the difference between for 2017 (21 percent of the total amount proposed) will not
purchase price and par, if any. lead to outlays until future years.
For Federal credit programs, outlays are equal to the As described earlier, the budget classifies budget au-
subsidy cost of direct loans and loan guarantees and thority and outlays as discretionary or mandatory. This
are recorded as the underlying loans are disbursed (see classification of outlays measures the extent to which actual
Federal Credit later in this chapter). spending is controlled through the annual appropriations
process. About 32 percent of total outlays in 2015 ($1,165 case for discretionary budget authority and outlays. For most
billion) were discretionary and the remaining 68 percent major construction and procurement projects and long-term
($2,524 billion in 2015) were mandatory spending and net contracts, for example, the budget authority covers the entire
interest. Such a large portion of total spending is mandatory cost estimated when the projects are initiated even though
because authorizing rather than appropriations legislation the work will take place and outlays will be made over a
determines net interest ($223 billion in 2015) and the spend- period extending beyond the year for which the budget au-
ing for a few programs with large amounts of spending thority is enacted. Similarly, discretionary budget authority
each year, such as Social Security ($882 billion in 2015) and for most education and job training activities is appropriated
Medicare ($540 billion in 2015). for school or program years that begin in the fourth quarter
The bulk of mandatory outlays flow from budget authority of the fiscal year. Most of these funds result in outlays in the
recorded in the same fiscal year. This is not necessarily the year after the appropriation.
FEDERAL CREDIT
Some Government programs provide assistance subsidy cost to the programs negative subsidy receipt
through direct loans or loan guarantees. A direct loan is account, where it is recorded as an offsetting receipt. In
a disbursement of funds by the Government to a non-Fed- a few cases, the offsetting receipts of credit accounts are
eral borrower under a contract that requires repayment dedicated to a special fund established for the program
of such funds with or without interest and includes eco- and are available for appropriation for the program.
nomically equivalent transactions, such as the sale of The agencies responsible for credit programs must
Federal assets on credit terms. A loan guarantee is any reestimate the subsidy cost of the outstanding portfolio
guarantee, insurance, or other pledge with respect to the of direct loans and loan guarantees each year. If the es-
payment of all or a part of the principal or interest on timated cost increases, the program account makes an
any debt obligation of a non-Federal borrower to a non- additional payment to the financing account equal to
Federal lender. The Federal Credit Reform Act of 1990, as the change in cost. If the estimated cost decreases, the
amended (FCRA), prescribes the budgetary treatment for financing account pays the difference to the programs
Federal credit programs. Under this treatment, the bud- downward reestimate receipt account, where it is record-
get records obligations and outlays up front, for the net ed as an offsetting receipt. The FCRA provides permanent
cost to the Government (subsidy cost), rather than record- indefinite appropriations to pay for upward reestimates.
ing the cash flows year by year over the term of the loan. If the Government modifies the terms of an outstand-
FCRA treatment allows the comparison of direct loans ing direct loan or loan guarantee in a way that increases
and loan guarantees to each other, and to other methods the cost as the result of a law or the exercise of adminis-
of delivering assistance, such as grants. trative discretion under existing law, the program account
The cost of direct loans and loan guarantees, sometimes records obligations for the increased cost and outlays the
called the subsidy cost, is estimated as the present val- amount to the financing account. As with the original sub-
ue of expected payments to and from the public over the sidy cost, agencies may incur modification costs only if the
term of the loan, discounted using appropriate Treasury Congress has appropriated funds to cover them. A modi-
interest rates.3 Similar to most other kinds of programs, fication may also reduce costs, in which case the amounts
agencies can make loans or guarantee loans only if the are generally returned to the general fund, as the financ-
Congress has appropriated funds sufficient to cover the ing account makes a payment to the programs negative
subsidy costs, or provided a limitation in an appropria- subsidy receipt account.
tions act on the amount of direct loans or loan guarantees Credit financing accounts record all cash flows arising
that can be made. from direct loan obligations and loan guarantee commit-
The budget records the subsidy cost to the Government ments. Such cash flows include all cash flows to and from
arising from direct loans and loan guaranteesthe bud- the public, including direct loan disbursements and re-
get authority and outlaysin credit program accounts. payments, loan guarantee default payments, fees, and
When a Federal agency disburses a direct loan or when recoveries on defaults. Financing accounts also record
a non-Federal lender disburses a loan guaranteed by a intragovernmental transactions, such as the receipt of
Federal agency, the program account disburses or outlays subsidy cost payments from program accounts, borrowing
an amount equal to the estimated present value cost, or and repayments of Treasury debt to finance program ac-
subsidy, to a non-budgetary credit financing account. tivities, and interest paid to or received from the Treasury.
The financing accounts record the actual transactions The cash flows of direct loans and of loan guarantees are
with the public. For a few programs, the estimated sub- recorded in separate financing accounts for programs that
sidy cost is negative because the present value of expected provide both types of credit. The budget totals exclude the
Government collections exceeds the present value of ex- transactions of the financing accounts because they are
pected payments to the public over the term of the loan. not a cost to the Government. However, since financing
In such cases, the financing account pays the estimated accounts record all credit cash flows to and from the pub-
3 Present value is a standard financial concept that considers the lic, they affect the means of financing a budget surplus or
time-value of money. That is, it accounts for the fact that a given sum of deficit (see Credit Financing Accounts in the next sec-
money is worth more today than the same sum would be worth in the tion). The budget documents display the transactions of
future because interest can be earned.
the financing accounts, together with the related program the TARP, Treasury has purchased equity interests in fi-
accounts, for information and analytical purposes. nancial institutions. Section 123 of the EESA provides the
The FCRA grandfathered the budgetary treatment of Administration the authority to treat these equity invest-
direct loan obligations and loan guarantee commitments ments on a FCRA basis, recording outlays for the subsidy
made prior to 1992. The budget records these on a cash as is done for direct loans and loan guarantees. The budget
basis in credit liquidating accounts, the same as they reflects the cost to the Government of TARP direct loans,
were recorded before FCRA was enacted. However, this loan guarantees, and equity investments consistent with
exception ceases to apply if the direct loans or loan guar- the FCRA and Section 123 of EESA, which requires an
antees are modified as described above. In that case, the adjustment to the FCRA discount rate for market risks.
budget records the subsidy cost or savings of the modi- Treasury equity purchases under the Small Business
fication, as appropriate, and begins to account for the Lending Fund are treated pursuant to the FCRA, as pro-
associated transactions under FCRA treatment for direct vided by the Small Business Jobs Act of 2010.The 2009
loan obligations and loan guarantee commitments made increases to the International Monetary Fund (IMF) quo-
in 1992 or later. ta and New Arrangements to Borrow (NAB) enacted in
Under the authority provided in various acts, cer- the Supplemental Appropriations Act of 2009 were treat-
tain activities that do not meet the definition in FCRA ed on a FCRA basis through 2015, with a risk adjustment
of a direct loan or loan guarantee are reflected pursu- to the discount rate, as directed in that Act. However,
ant to FCRA. For example, the Emergency Economic pursuant to Title IX of the Department of State, Foreign
Stabilization Act of 2008 (EESA) created the Troubled Operations, and Related Programs Appropriations Act,
Asset Relief Program (TARP) under the Department of 2016, these transactions have been restated on a present
the Treasury, and authorized Treasury to purchase or value basis with a risk adjustment to the discount rate,
guarantee troubled assets until October 3, 2010. Under and the associated FCRA accounts have been closed.
BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING

When outlays exceed receipts, the difference is a deficit, sense understanding that lending or borrowing is just
which the Government finances primarily by borrowing. an exchange of financial assets of equal valuecash for
When receipts exceed outlays, the difference is a surplus, Treasury securitiesand so is fundamentally different
and the Government automatically uses the surplus pri- from, say, paying taxes.
marily to reduce debt. The Federal debt held by the public In 2015, the Government borrowed $337 billion from
is approximately the cumulative amount of borrowing to the public, bringing debt held by the public to $13,117 bil-
finance deficits, less repayments from surpluses, over the lion. This borrowing financed the $438 billion deficit in
Nations history. that year, partly offset by the net impacts of the other
Borrowing is not exactly equal to the deficit, and debt means of financing, such as changes in cash balances and
repayment is not exactly equal to the surplus, because of other accounts discussed below.
the other transactions affecting borrowing from the pub- In addition to selling debt to the public, the Treasury
lic, or other means of financing, such as those discussed in Department issues debt to Government accounts, pri-
this section. The factors included in the other means of fi- marily trust funds that are required by law to invest in
nancing can either increase or decrease the Governments Treasury securities. Issuing and redeeming this debt does
borrowing needs (or decrease or increase its ability to not affect the means of financing, because these transac-
repay debt). For example, the change in the Treasury options occur between one Government account and another
erating cash balance is a factor included in other means and thus do not raise or use any cash for the Government
of financing. Holding receipts and outlays constant, in- as a whole.
creases in the cash balance increase the Governments (See Chapter 4 of this volume, Federal Borrowing and
need to borrow or reduce the Governments ability to re- Debt, for a fuller discussion of this topic.)
pay debt, and decreases in the cash balance decrease the
need to borrow or increase the ability to repay debt. In
some years, the net effect of the other means of financing Exercise of Monetary Power
is minor relative to the borrowing or debt repayment; in
other years, the net effect may be significant. Seigniorage is the profit from coining money. It is the
difference between the value of coins as money and their
Borrowing and Debt Repayment cost of production. Seigniorage reduces the Governments
need to borrow. Unlike the payment of taxes or other re-
The budget treats borrowing and debt repayment as ceipts, it does not involve a transfer of financial assets
a means of financing, not as receipts and outlays. If bor- from the public. Instead, it arises from the exercise of the
rowing were defined as receipts and debt repayment as Governments power to create money and the publics de-
outlays, the budget would always be virtually balanced by sire to hold financial assets in the form of coins. Therefore,
definition. This rule applies both to borrowing in the form the budget excludes seigniorage from receipts and treats
of Treasury securities and to specialized borrowing in the it as a means of financing other than borrowing from the
form of agency securities. The rule reflects the common- public. The budget also treats proceeds from the sale of
gold as a means of financing, since the value of gold is are exchanges of monetary assets.When the IMF draws
determined by its value as a monetary asset rather than dollars from the U.S. quota, the United States simulta-
as a commodity. neously receives an equal, offsetting, interest-bearing,
Special Drawing Right (SDR)-denominated claim in the
Credit Financing Accounts form of an increase in the U.S. reserve position in the
IMF.The U.S. reserve position in the IMF increases when
The budget records the net cash flows of credit programs the United States transfers dollars to the IMF and de-
in credit financing accounts. These accounts include the creases when the United States is repaid and the cash
transactions for direct loan and loan guarantee programs, flows return to the Treasury.
as well as the equity purchase programs under TARP that The budgetary treatment of appropriations for the IMF
are recorded on a credit basis consistent with Section 123 quota has changed over time. Prior to 1981, the transac-
of EESA. Financing accounts also record equity purchas- tions were not included in the budget because they are
es under the Small Business Lending Fund consistent exchanges of cash for monetary assets (SDRs) of the same
with the Small Business Jobs Act of 2010. Credit financ- value. This was consistent with the scoring of other ex-
ing accounts are excluded from the budget because they changes of monetary assets, such as deposits of cash in
are not allocations of resources by the Government (see Treasury accounts at commercial banks.5 As a result of an
Federal Credit earlier in this chapter). However, even agreement reached with the Congress in 1980 to allow ap-
though they do not affect the surplus or deficit, they can propriators to have jurisdiction over changes to the IMF
either increase or decrease the Governments need to bor- quota (and later the NAB), the budget began to record
row. Therefore, they are recorded as a means of financing. budget authority for the quotas, but did not record outlays
Financing account disbursements to the public increase because of the continuing view that the transactions are
the requirement for Treasury borrowing in the same way exchanges of monetary assets of equal value. This scoring
as an increase in budget outlays. Financing account re- convention continued to be applied through 2008.6 The
ceipts from the public can be used to finance the payment 2010 Budget proposed to change the scoring back to the
of the Governments obligations and therefore reduce the pre-1981 practice of showing zero budget authority and
requirement for Treasury borrowing from the public in outlays for proposed increases in the U.S. quota subscrip-
the same way as an increase in budget receipts. tions to the IMF.
In 2009, Congress enacted increases in the U.S. par-
Deposit Fund Account Balances ticipation in the quota and the NAB in the Supplemental
Appropriations Act of 2009 (Public Law 11132, Title XIV,
The Treasury uses non-budgetary accounts, called International Monetary Programs) and directed that the
deposit funds, to record cash held temporarily until increases in this Act be scored under the requirements of
ownership is determined (for example, earnest money the Federal Credit Reform Act of 1990, with an adjust-
paid by bidders for mineral leases) or cash held by the ment to the discount rate for market risk. Accordingly, in
Government as agent for others (for example, State and the budget execution of the quota and the NAB increases
local income taxes withheld from Federal employees sala- provided by the Supplemental Appropriations Act of 2009,
ries and not yet paid to the State or local government or the Budget through 2015 reflected obligations and outlays
amounts held in the Thrift Savings Fund, a defined con- for the estimated present value cost to Government as if
tribution pension fund held and managed in a fiduciary these transactions were direct loans under credit reform,
capacity by the Government). Deposit fund balances may plus an additional risk premium.
be held in the form of either invested or uninvested bal- Pursuant to Title IX of the Department of State, Foreign
ances. To the extent that they are not invested, changes Operations, and Related Programs Appropriations Act,
in the balances are available to finance expenditures and 2016, the estimated cost of the 2009 increases as well as
are recorded as a means of financing other than borrow- the rescission of the NAB and the IMF quota authorized
ing from the public. To the extent that they are invested by the Act are recorded on a present value basis with a
in Federal debt, changes in the balances are reflected as fair value premium added to the discount rate, and the
borrowing from the public (in lieu of borrowing from other credit accounts associated with the 2009 increases have
parts of the public) and are not reflected as a separate been closed.
means of financing. The methods for estimating present value are similar
to the methods used under FCRA, and the adjustment to
United States Quota Subscriptions to the the discount rate for fair value is also similar. The Budget
International Monetary Fund (IMF) records budget authority and outlays equal to the esti-
mated present value, including the fair value adjustment
The United States participates in the IMF through a to the discount rate, in 2016, the year that the quota in-
quota subscription.4Financial transactions with the IMF crease was enacted.
5 The Report of the 1967 Presidents Commission on Budget Concepts
4 Fora more detailed discussion of the history of the budgetary treat- notes that the IMF is more like a bank in which funds are deposited
ment of U.S. participation in the quota and NAB, see pages 139-141 in and from which funds in the form of needed foreign currencies can be
the Analytical Perspectives volume of the 2016 Budget As discussed in withdrawn.
that volume, the budgetary treatment of the U.S. participation in the 6 This budgetary treatment was also proposed again in the 2014 Bud-
NAB is similar to the quota. get, after the Supplemental Appropriations Act of 2009 was enacted.
As a result of this directed change in the budgetary posits as an offsetting receipt in the general fund of the
accounting of the cost, the deficit is affected by the pres- Treasury. Treasury records outlays in the prior year for
ent value estimate of the cost adjusted for the fair value financial transactions with the IMF to the extent there is
discount rate, and the nominal cash flows between the an unrealized loss in dollar terms and offsetting receipts
U.S. Treasury and the IMF are treated as a means of fi- to the extent there is an unrealized gain in dollar terms on
nancing (see Credit Financing Accounts earlier in this the SDR-denominated interest-bearing portion of the U.S.
chapter), and do not affect the deficit. In contrast, for reserve positionthe amount of the quota actually being
increases to the U.S. quota subscriptions made prior to used by the IMF for its lending programs. Changes in the
the Supplemental Appropriations Act of 2009, the 2017 value of the portion of the U.S. quota held at Treasury in
Budget records interest received from the IMF on U.S. de- a letter of credit are recorded as a change in obligations.
FEDERAL EMPLOYMENT
The budget includes information on civilian and mili- ment levels measured in full-time equivalents (FTE).
tary employment. It also includes information on related Agency FTEs are the measure of total hours worked by an
personnel compensation and benefits and on staffing re- agencys Federal employees divided by the total number
quirements at overseas missions. Chapter 8 of this volume, of one persons compensable work hours in a fiscal year.
Strengthening the Federal Workforce, provides employ-
BASIS FOR BUDGET FIGURES
Data for the Past Year In a few cases, this language is transmitted later be-
cause the exact requirements are unknown when the
The past year column (2015) generally presents the budget is transmitted. The Appendix generally does
actual transactions and balances as recorded in agency not include appropriations language for the amounts
accounts and as summarized in the central financial that will be requested under proposed legislation; that
reports prepared by the Treasury Department for language is usually transmitted later, after the legis-
the most recently completed fiscal year. Occasionally, lation is enacted. Some tables in the budget identify
the budget reports corrections to data reported erro- the items for later transmittal and the related outlays
neously to Treasury but not discovered in time to be separately. Estimates of the total requirements for the
reflected in Treasurys published data. In addition, in budget year include both the amounts requested with
certain cases the Budget has a broader scope and in- the transmittal of the budget and the amounts planned
cludes financial transactions that are not reported to for later transmittal.
Treasury (see Chapter 27 of this volume, Comparison
of Actual to Estimated Totals, for a summary of these Data for the Outyears
differences).
The budget presents estimates for each of the nine
Data for the Current Year years beyond the budget year (2018 through 2026) in or-
der to reflect the effect of budget decisions on objectives
The current year column (2016) includes estimates and plans over a longer period.
of transactions and balances based on the amounts of
budgetary resources that were available when the bud- Allowances
get was prepared. In cases where the budget proposes
policy changes effective in the current year, the data The budget may include lump-sum allowances to cover
will also reflect the budgetary effect of those proposed certain transactions that are expected to increase or de-
changes. crease budget authority, outlays, or receipts but are not,
for various reasons, reflected in the program details. For
Data for the Budget Year example, the budget might include an allowance to show
the effect on the budget totals of a proposal that would af-
The budget year column (2017) includes estimates fect many accounts by relatively small amounts, in order
of transactions and balances based on the amounts of to avoid unnecessary detail in the presentations for the
budgetary resources that are estimated to be available, individual accounts.
including new budget authority requested under cur- This years Budget, like last years, includes an allow-
rent authorizing legislation, and amounts estimated to ance for the costs of possible future natural disasters.
result from changes in authorizing legislation and tax
laws. Baseline
The budget Appendix generally includes the ap-
propriations language for the amounts proposed to be The budget baseline is an estimate of the receipts,
appropriated under current authorizing legislation. outlays, and deficits or surpluses that would occur if no
changes were made to current laws and policies during posals can be compared to assess the magnitude of
the period covered by the budget. The baseline assumes proposed changes.
that receipts and mandatory spending, which generally
are authorized on a permanent basis, will continue in A number of significant changes in policies are em-
the future consistent with current law and policy. The bedded in the baseline rules specified in BBEDCA. For
baseline assumes that the future funding for most discre- example, the BBEDCA baseline rules for discretionary
tionary programs, which generally are funded annually, programs would inflate discretionary spending for future
will equal the most recently enacted appropriation, ad- years above the statutory caps that limit such spending.
justed for inflation. Because the inflation of discretionary spending above the
Baseline outlays represent the amount of resources that statutory caps would create significant differences be-
would be used by the Government over the period covered by tween the BBEDCA baseline and policies in effect this
the budget on the basis of laws currently enacted. year, the Administration also issues an adjusted baseline
The baseline serves several useful purposes: that, unlike the BBEDCA baseline, assumes such chang-
It may warn of future problems, either for Govern- es in policy will not occur. (Chapter 25 of this volume,
ment fiscal policy as a whole or for individual tax Current Services Estimates, provides more information
and spending programs. on the baseline, including the differences between the
baseline as calculated under the rules of BBEDCA and
It may provide a starting point for formulating the the adjusted baseline used in this Budget.)
Presidents Budget.
It may provide a policy-neutral benchmark against
which the Presidents Budget and alternative pro-
PRINCIPAL BUDGET LAWS

The following basic laws govern the Federal budget Congressional Budget and Impoundment Control
process: Act of 1974 (Public Law 93344), as amended. This Act
comprises the:
Article 1, section 8, clause 1 of the Constitution, Congressional Budget Act of 1974, as amended,
which empowers the Congress to collect taxes. which prescribes the congressional budget process; and
Article 1, section 9, clause 7 of the Constitution,
which requires appropriations in law before money Impoundment Control Act of 1974, which con-
may be spent from the Treasury and the publication of trols certain aspects of budget execution.
a regular statement of the receipts and expenditures of
all public money.
Federal Credit Reform Act of 1990, as amended
(2 USC 661661f), which the Budget Enforcement
Antideficiency Act (codified in Chapters 13 and Act of 1990 included as an amendment to the Con-
15 of Title 31, United States Code), which prescribes gressional Budget Act to prescribe the budget treat-
rules and procedures for budget execution. ment for Federal credit programs.
Balanced Budget and Emergency Deficit
Control Act of 1985, as amended, which establishes Government Performance and Results Act of 1993
limits on discretionary spending and provides mecha- (Public Law 10362, as amended) which emphasizes man-
nisms for enforcing discretionary spending limits. aging for results. It requires agencies to prepare strategic plans,
Chapter 11 of Title 31, United States Code, which annual performance plans, and annual performance reports.
prescribes procedures for submission of the Presidents Statutory Pay-As-You-Go Act of 2010, which es-
budget and information to be contained in it. tablishes a budget enforcement mechanism generally
requiring that direct spending and revenue legislation
enacted into law not increase the deficit.
GLOSSARY OF BUDGET TERMS

Account refers to a separate financial reporting unit incurred. As applied to Federal employee retirement ben-
used by the Federal Government to record budget author- efits, accrual costs are recorded when the benefits are
ity, outlays and income for budgeting or management earned rather than when they are paid at some time in
information purposes as well as for accounting purposes. the future. The accrual method is used in part to provide
All budget (and off-budget) accounts are classified as be- data that assists in agency policymaking, but not used
ing either expenditure or receipt accounts and by fund in presenting the overall budget of the United States
group. Budget (and off-budget) transactions fall within Government.
either of two fund group: (1) Federal funds and (2) trust Advance appropriation means appropriations of
funds. (Cf. Federal funds group and trust funds group.) new budget authority that become available one or more
Accrual method of measuring cost means an ac- fiscal years beyond the fiscal year for which the appro-
counting method that records cost when the liability is priation act was passed.
Advance funding means appropriations of budget au- on-budget totals from off-budget totals. On-budget totals
thority provided in an appropriations act to be used, if reflect the transactions of all Federal Government enti-
necessary, to cover obligations incurred late in the fiscal ties except those excluded from the budget totals by law.
year for benefit payments in excess of the amount spe- Off-budget totals reflect the transactions of Government
cifically appropriated in the act for that year, where the entities that are excluded from the on-budget totals by
budget authority is charged to the appropriation for the law. Under current law, the off-budget totals include
program for the fiscal year following the fiscal year for the Social Security trust funds (Federal Old-Age and
which the appropriations act is passed. Survivors Insurance and Federal Disability Insurance
Agency means a department or other establishment of Trust Funds) and the Postal Service Fund. The budget
the Government. combines the on- and off-budget totals to derive unified
Allowance means a lump-sum included in the budget (i.e. consolidated) totals for Federal activity.
to represent certain transactions that are expected to in- Budget year refers to the fiscal year for which the bud-
crease or decrease budget authority, outlays, or receipts get is being considered, that is, with respect to a session
but that are not, for various reasons, reflected in the proof Congress, the fiscal year of the government that starts
gram details. on October 1 of the calendar year in which that session of
Balanced Budget and Emergency Deficit Control Congress begins.
Act of 1985 (BBEDCA) refers to legislation that altered Budgetary resources mean amounts available to in-
the budget process, primarily by replacing the earlier fixed cur obligations in a given year. The term comprises new
targets for annual deficits with a Pay-As-You-Go require- budget authority and unobligated balances of budget au-
ment for new tax or mandatory spending legislation and thority provided in previous years.
with caps on annual discretionary funding. The Statutory Cap means the legal limits for each fiscal year under
Pay-As-You-Go Act of 2010, which is a standalone piece of BBEDCA on the budget authority and outlays (only if ap-
legislation that did not directly amend the BBEDCA, re- plicable) provided by discretionary appropriations.
instated a statutory pay-as-you-go rule for revenues and Cap adjustment means either an increase or a de-
mandatory spending legislation, and the Budget Control crease that is permitted to the statutory cap limits for
Act of 2011, which did amend BBEDCA, reinstated dis- each fiscal year under BBEDCA on the budget authority
cretionary caps on budget authority. and outlays (only if applicable) provided by discretion-
Balances of budget authority means the amounts of ary appropriations only if certain conditions are met.
budget authority provided in previous years that have not These conditions may include providing for a base level
been outlayed. of funding, a designation of the increase or decrease by
Baseline means a projection of the estimated receipts, the Congress, (and in some circumstances, the President)
outlays, and deficit or surplus that would result from con- pursuant to a section of the BBEDCA, or a change in con-
tinuing current law or current policies through the period cepts and definitions of funding under the cap.Changes
covered by the budget. in concepts and definitions require consultation with the
Budget means the Budget of the United States Congressional Appropriations and Budget Committees.
Government, which sets forth the Presidents comprehen- Cash equivalent transaction means a transaction
sive financial plan for allocating resources and indicates in which the Government makes outlays or receives col-
the Presidents priorities for the Federal Government. lections in a form other than cash or the cash does not
Budget authority (BA) means the authority provided accurately measure the cost of the transaction. (For exam-
by law to incur financial obligations that will result in ples, see the section on Outlays earlier in this chapter.)
outlays. (For a description of the several forms of budget Collections mean money collected by the Government
authority, see Budget Authority and Other Budgetary that the budget records as a governmental receipt, an off-
Resources earlier in this chapter.) setting collection, or an offsetting receipt.
Budget Control Act of 2011 refers to legislation that, Concurrent resolution on the budget refers to the
among other things, amended BBEDCA to reinstate dis- concurrent resolution adopted by the Congress to set bud-
cretionary spending limits on budget authority through getary targets for appropriations, mandatory spending
2021 and restored the process for enforcing those spend- legislation, and tax legislation. These concurrent reso-
ing limits. The legislation also increased the statutory lutions are required by the Congressional Budget Act of
debt ceiling; created a Joint Select Committee on Deficit 1974, and are generally adopted annually.
Reduction that was instructed to develop a bill to reduce Continuing resolution means an appropriations act
the Federal deficit by at least $1.5 trillion over a 10-year that provides for the ongoing operation of the Government
period. It also provided a process to implement alterna- in the absence of enacted appropriations.
tive spending reductions in the event that legislation Cost refers to legislation or administrative actions that
achieving at least $1.2 trillion of deficit reduction was not increase outlays or decrease receipts. (Cf. savings.)
enacted. Credit program account means a budget account
Budget resolutionsee concurrent resolution on the that receives and obligates appropriations to cover the
budget. subsidy cost of a direct loan or loan guarantee and dis-
Budget totals mean the totals included in the bud- burses the subsidy cost to a financing account.
get for budget authority, outlays, receipts, and the surplus Current services estimatesee Baseline.
or deficit. Some presentations in the budget distinguish
Debt held by the public means the cumulative Emergency requirement means an amount that the
amount of money the Federal Government has borrowed Congress has designated as an emergency requirement.
from the public and not repaid. Such amounts are not included in the estimated budget-
Debt held by the public net of financial assets ary effects of PAYGO legislation under the requirements
means the cumulative amount of money the Federal of the Statutory Pay-As-You-Go Act of 2010, if they are
Government has borrowed from the public and not repaid, mandatory or receipts. Such a discretionary appropria-
minus the current value of financial assets such as loan tion that is subsequently designated by the President as
assets, bank deposits, or private-sector securities or equi- an emergency requirement results in a cap adjustment to
ties held by the Government and plus the current value of the limits on discretionary spending under BBEDCA.
financial liabilities other than debt. Entitlement refers to a program in which the Federal
Debt held by Government accounts means the debt Government is legally obligated to make payments or pro-
the Treasury Department owes to accounts within the vide aid to any person who, or State or local government
Federal Government. Most of it results from the surplus- that, meets the legal criteria for eligibility. Examples
es of the Social Security and other trust funds, which are include Social Security, Medicare, Medicaid, and Food
required by law to be invested in Federal securities. Stamps.
Debt limit means the maximum amount of Federal Federal funds group refers to the moneys col-
debt that may legally be outstanding at any time. It in- lected and spent by the Government through accounts
cludes both the debt held by the public and the debt held other than those designated as trust funds. Federal funds
by Government accounts, but without accounting for off- include general, special, public enterprise, and intragov-
setting financial assets. When the debt limit is reached, ernmental funds. (Cf. trust funds group.)
the Government cannot borrow more money until the Financing account means a non-budgetary account
Congress has enacted a law to increase the limit. (an account whose transactions are excluded from the
Deficit means the amount by which outlays exceed budget totals) that records all of the cash flows resulting
receipts in a fiscal year. It may refer to the on-budget, off- from post-1991 direct loan obligations or loan guarantee
budget, or unified budget deficit. commitments. At least one financing account is associ-
Direct loan means a disbursement of funds by the ated with each credit program account. For programs
Government to a non-Federal borrower under a con- that make both direct loans and loan guarantees, sepa-
tract that requires the repayment of such funds with or rate financing accounts are required for direct loan cash
without interest. The term includes the purchase of, or flows and for loan guarantee cash flows. (Cf. liquidating
participation in, a loan made by another lender. The term account.)
also includes the sale of a Government asset on credit Fiscal year means the Governments accounting peri-
terms of more than 90 days duration as well as financing od. It begins on October 1st and ends on September 30th,
arrangements for other transactions that defer payment and is designated by the calendar year in which it ends.
for more than 90 days. It also includes loans financed by Forward funding means appropriations of budget
the Federal Financing Bank (FFB) pursuant to agency authority that are made for obligation starting in the
loan guarantee authority. The term does not include the last quarter of the fiscal year for the financing of ongoing
acquisition of a federally guaranteed loan in satisfaction grant programs during the next fiscal year.
of default or other guarantee claims or the price support General fund means the accounts in which are re-
loans of the Commodity Credit Corporation. (Cf. loan corded governmental receipts not earmarked by law for
guarantee.) a specific purpose, the proceeds of general borrowing, and
Direct spendingsee mandatory spending. the expenditure of these moneys.
Disaster funding means a discretionary appropria- Government sponsored enterprises mean private
tion that is enacted that the Congress designates as being enterprises that were established and chartered by the
for disaster relief. Such amounts are a cap adjustment to Federal Government for public policy purposes. They
the limits on discretionary spending under BBEDCA. The are classified as non-budgetary and not included in the
total adjustment for this purpose cannot exceed a ceiling Federal budget because they are private companies, and
for a particular year that is defined as the total of the their securities are not backed by the full faith and credit
average funding provided for disaster relief over the pre- of the Federal Government. However, the budget presents
vious 10 years (excluding the highest and lowest years) statements of financial condition for certain Government
and the unused amount of the prior years ceiling (exclud- sponsored enterprises such as the Federal National
ing the portion of the prior years ceiling that was itself Mortgage Association. (Cf. off-budget.)
due to any unused amount from the year before). Disaster Intragovernmental fund see Revolving fund.
relief is defined as activities carried out pursuant to a de- Liquidating account means a budget account that re-
termination under section 102(2) of the Robert T. Stafford cords all cash flows to and from the Government resulting
Disaster Relief and Emergency Assistance Act. from pre-1992 direct loan obligations or loan guarantee
Discretionary spending means budgetary resources commitments. (Cf. financing account.)
(except those provided to fund mandatory spending pro- Loan guarantee means any guarantee, insurance,
grams) provided in appropriations acts. (Cf. mandatory or other pledge with respect to the payment of all or a
spending.) part of the principal or interest on any debt obligation
of a non-Federal borrower to a non-Federal lender. The
term does not include the insurance of deposits, shares, or money to the Government and from intragovernmental
other withdrawable accounts in financial institutions. (Cf. transactions with other Government accounts. (Cf. re-
direct loan.) ceipts, undistributed offsetting receipts, and offsetting
Mandatory spending means spending controlled by collections.)
laws other than appropriations acts (including spend- On-budget refers to all budgetary transactions other
ing for entitlement programs) and spending for the food than those designated by statute as off-budget (Cf. bud-
stamp program. Although the Statutory Pay-As-You-Go get totals.)
Act of 2010 uses the term direct spending to mean this, Outlay means a payment to liquidate an obligation
mandatory spending is commonly used instead. (Cf. dis- (other than the repayment of debt principal or other dis-
cretionary spending.) bursements that are means of financing transactions).
Means of financing refers to borrowing, the change Outlays generally are equal to cash disbursements, but
in cash balances, and certain other transactions involved also are recorded for cash-equivalent transactions, such
in financing a deficit. The term is also used to refer to the as the issuance of debentures to pay insurance claims,
debt repayment, the change in cash balances, and certain and in a few cases are recorded on an accrual basis such
other transactions involved in using a surplus. By defini- as interest on public issues of the public debt. Outlays are
tion, the means of financing are not treated as receipts or the measure of Government spending.
outlays and so are non-budgetary. Outyear estimates mean estimates presented in the
Obligated balance means the cumulative amount of budget for the years beyond the budget year of budget au-
budget authority that has been obligated but not yet out- thority, outlays, receipts, and other items (such as debt).
layed. (Cf. unobligated balance.) Overseas Contingency Operations/Global War
Obligation means a binding agreement that will re- on Terrorism (OCO/GWOT) means a discretionary
sult in outlays, immediately or in the future. Budgetary appropriation that is enacted that the Congress and, sub-
resources must be available before obligations can be in- sequently, the President have so designated on an account
curred legally. by account basis. Such a discretionary appropriation that
Off-budget refers to transactions of the Federal is designated as OCO/GWOT results in a cap adjustment
Government that would be treated as budgetary had the to the limits on discretionary spending under BBEDCA.
Congress not designated them by statute as off-budget. Funding for these purposes has most recently been asso-
Currently, transactions of the Social Security trust funds ciated with the wars in Iraq and Afghanistan.
and the Postal Service are the only sets of transactions Pay-as-you-go (PAYGO) refers to requirements of
that are so designated. The term is sometimes used more the Statutory Pay-As-You-Go Act of 2010 that result in
broadly to refer to the transactions of private enterprises a sequestration if the estimated combined result of new
that were established and sponsored by the Government, legislation affecting direct spending or revenue increases
most especially Government sponsored enterprises such the on-budget deficit relative to the baseline, as of the end
as the Federal Home Loan Banks. (Cf. budget totals.) of a congressional session.
Offsetting collections mean collections that, by law, Public enterprise fund see Revolving fund.
are credited directly to expenditure accounts and deducted Reappropriation means a provision of law that ex-
from gross budget authority and outlays of the expendi- tends into a new fiscal year the availability of unobligated
ture account, rather than added to receipts. Usually, they amounts that have expired or would otherwise expire.
are authorized to be spent for the purposes of the account Receipts mean collections that result from the
without further action by the Congress. They result from Governments exercise of its sovereign power to tax or
business-like transactions with the public, including pay- otherwise compel payment. They are compared to outlays
ments from the public in exchange for goods and services, in calculating a surplus or deficit. (Cf. offsetting collec-
reimbursements for damages, and gifts or donations of tions and offsetting receipts.)
money to the Government and from intragovernmental Revolving fund means a fund that conducts continu-
transactions with other Government accounts. The au- ing cycles of business-like activity, in which the fund
thority to spend offsetting collections is a form of budget charges for the sale of products or services and uses the
authority. (Cf. receipts and offsetting receipts.) proceeds to finance its spending, usually without require-
Offsetting receipts mean collections that are cred- ment for annual appropriations. There are two types of
ited to offsetting receipt accounts and deducted from revolving funds: Public enterprise funds, which con-
gross budget authority and outlays, rather than added duct business-like operations mainly with the public,
to receipts. They are not authorized to be credited to ex- and intragovernmental revolving funds, which conduct
penditure accounts. The legislation that authorizes the business-like operations mainly within and between
offsetting receipts may earmark them for a specific pur- Government agencies. (Cf. special fund and trust fund.)
pose and either appropriate them for expenditure for that Savings refers to legislation or administrative actions
purpose or require them to be appropriated in annual ap- that decrease outlays or increase receipts. (Cf. cost.)
propriation acts before they can be spent. Like offsetting Scorekeeping means measuring the budget effects
collections, they result from business-like transactions or of legislation, generally in terms of budget authority,
market-oriented activities with the public, including pay- receipts, and outlays, for purposes of measuring adher-
ments from the public in exchange for goods and services, ence to the Budget or to budget targets established by the
reimbursements for damages, and gifts or donations of Congress, as through agreement to a Budget Resolution.
Sequestration means the cancellation of budgetary Trust fund refers to a type of account, designated by
resources. The Statutory Pay-As-You-Go Act of 2010 re- law as a trust fund, for receipts or offsetting receipts dedi-
quires such cancellations if revenue or direct spending cated to specific purposes and the expenditure of these
legislation is enacted that, in total, increases projected receipts. Some revolving funds are designated as trust
deficits or reduces projected surpluses relative to the funds, and these are called trust revolving funds. (Cf. spe-
baseline. The Balanced Budget and Emergency Deficit cial fund and revolving fund.)
Control Act of 1985, as amended, requires such cancella- Trust funds group refers to the moneys collected and
tions if discretionary appropriations exceed the statutory spent by the Government through trust fund accounts.
limits on discretionary spending. (Cf. Federal funds group.)
Special fund means a Federal fund account for Undistributed offsetting receipts mean offsetting re-
receipts or offsetting receipts earmarked for specific pur- ceipts that are deducted from the Government-wide totals for
poses and the expenditure of these receipts. (Cf. revolving budget authority and outlays instead of being offset against
fund and trust fund.) a specific agency and function. (Cf. offsetting receipts.)
Statutory Pay-As-You-Go Act of 2010 refers to Unified budget includes receipts from all sources and
legislation that reinstated a statutory pay-as-you-go re- outlays for all programs of the Federal Government, in-
quirement for new tax or mandatory spending legislation. cluding both on- and off-budget programs. It is the most
The law is a standalone piece of legislation that cross- comprehensive measure of the Governments annual
references BBEDCA but does not directly amend that finances.
legislation. This is a permanent law and does not expire. Unobligated balance means the cumulative amount
Subsidy means the estimated long-term cost to the of budget authority that remains available for obligation
Government of a direct loan or loan guarantee, calculated under law in unexpired accounts. The term expired bal-
on a net present value basis, excluding administrative ances available for adjustment only refers to unobligated
costs and any incidental effects on governmental receipts amounts in expired accounts.
or outlays. User charges are charges assessed for the provi-
Surplus means the amount by which receipts exceed sion of Government services and for the sale or use of
outlays in a fiscal year. It may refer to the on-budget, off- Government goods or resources. The payers of the user
budget, or unified budget surplus. charge must be limited in the authorizing legislation
Supplemental appropriation means an ap- to those receiving special benefits from, or subject to
propriation enacted subsequent to a regular annual regulation by, the program or activity beyond the ben-
appropriations act, when the need for additional funds is efits received by the general public or broad segments
too urgent to be postponed until the next regular annual of the public (such as those who pay income taxes or
appropriations act. custom duties).
10. COVERAGE OF THE BUDGET
Budgetary Activities
The Federal budget is the central instrument of nation-
al policy making. It is the Governments financial plan The Federal Government has used the unified budget
for proposing and deciding the allocation of resources to conceptwhich consolidates outlays and receipts from
serve national objectives. The budget provides informa- federal funds and trust funds, including the Social Security
tion on the cost and scope of Federal activities to inform trust fundssince 1968, starting with the 1969 Budget.
decisions and to serve as a means to control the allocation This change was based on a recommendation made by the
of resources. When enacted it establishes the level of pub- 1967 Presidents Commission on Budget Concepts (the
lic goods and services provided by the Government. Commission) to include the financial transactions of all of
Federal Government activities can be characterized the Federal Governments programs and agencies. Thus,
as either budgetary or non-budgetary. Those Federal the budget includes information on the financial trans-
Government activities that involve direct and measur- actions of all 15 Executive departments, all independent
able allocation of Federal resources are characterized as agencies (from all three branches of Government), and all
budgetary. The payments to and from the public resulting Government corporations.3
from budgetary activities are included in the budgets ac- The budget reflects the legal distinction between on-
counting of outlays and receipts. Federal activities that budget activities and off-budget activities by showing
do not involve direct and measurable allocation of Federal outlays and receipts for both types of activities separately.
resources are characterized as non-budgetary and are not Although there is a legal distinction between on-budget
included in the budgets accounting of outlays and re- and off-budget activities, conceptually there is no differ-
ceipts. For more detailed information about outlays and ence between the two. Off-budget Federal activities reflect
receipts, see Chapter 9 Budget Concepts, in this volume. the same kinds of governmental roles as on-budget ac-
The budget documents include information on some tivities and result in outlays and receipts. Like on-budget
non-budgetary activities because they can be important activities, off-budget activities are funded and controlled
instruments of Federal policy and provide insight into by the Government. The unified budget reflects the
the scope and nature of Federal activities. For example, conceptual similarity between on-budget and off-budget
as discussed in more detail later, the budget documents activities by showing combined totals of outlays and re-
show the transactions of the Thrift Savings Fund (TSP), ceipts for both.
a collection of investment funds managed by the Federal Many Government corporations are entities with busi-
Retirement Thrift Investment Board. Despite the fact ness-type operations that charge the public for services
that one of the TSP investment funds is invested entirely at prices intended to allow the entity to be self-sustain-
in Federal securities, the transactions of these funds are ing although some operate at a loss in order to provide
non-budgetary because the funds are owned by current subsidies to specific recipients. Often these entities are
and retired Federal employees. The Government manages more independent than other agencies and have limited
these funds only in a fiduciary capacity. exemptions from certain Federal personnel requirements
The budget also includes information on cash flows to allow for flexibility.
that are a means of financing Federal activity, such as for All accounts in Table 29-1, Federal Budget by Agency
credit financing accounts. However, means of financing and Account, in the supplemental materials to this vol-
amounts are not included in the estimates of outlays or ume are budgetary.4 The majority of budgetary accounts
receipts to avoid double-counting; the costs of the underly- are associated with the departments or other entities
ing Federal activities are already reflected in the deficit.1 that are clearly Federal agencies. Some budgetary ac-
Similarly, while budget totals of outlays and receipts do counts reflect Government payments to entities that
not include non-Federal costs resulting from Federal were created or chartered by the Government as private
regulation, the Office of Management and Budget (OMB) or non-Federal entities. Some of these entities receive
annually reports on the costs and benefits of Federal reg-
3 Government corporations are Government entities that are de-
ulation to non-Federal entities.2 This chapter provides
fined as corporations pursuant to the Government Corporation Control
details about the budgetary and non-budgetary activities Act, as amended (31 U.S.C. 9101), or elsewhere in law. Examples in-
of the Federal Government clude the Commodity Credit Corporation, the Export-Import Bank of
the United States, the Federal Crop Insurance Corporation, the Federal
Deposit Insurance Corporation, the Millennium Challenge Corpora-
1 For more information on means of financing, see the Budget Defi- tion, the Overseas Private Investment Corporation, the Pension Benefit
cit or Surplus and Means of Financing section of Chapter 9, Budget Guaranty Corporation, the Tennessee Valley Authority, the African De-
Concepts, in this volume. velopment Foundation (22 U.S.C. 290h-6), the Inter-American Founda-
2 For the 2015 draft of the Report to Congress on the Benefits and tion (22 U.S.C. 290f), the Presidio Trust (16 U.S.C. 460bb note), and the
Costs of Federal Regulation and Unfunded Mandates on State, Local Valles Caldera Trust (16 U.S.C. 698v-4).
and Tribal Entities, see https://www.whitehouse.gov/sites/default/ 4 Table 29-1 can be found at: http://www.budget.gov/budget/
files/omb/inforeg/2015_cb/draft_2015_cost_benefit_report.pdf. analytical_perspectives.
121
Table 101. COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS1

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 666.4 500.4 166.1 851.8 685.6 166.2 185.4 185.3 0.1
1985 734.0 547.9 186.2 946.3 769.4 176.9 212.3 221.5 9.2
1986 769.2 568.9 200.2 990.4 806.8 183.5 221.2 237.9 16.7
1987 854.3 640.9 213.4 1,004.0 809.2 194.8 149.7 168.4 18.6
1988 909.2 667.7 241.5 1,064.4 860.0 204.4 155.2 192.3 37.1
1989 991.1 727.4 263.7 1,143.7 932.8 210.9 152.6 205.4 52.8
1990 1,032.0 750.3 281.7 1,253.0 1,027.9 225.1 221.0 277.6 56.6
1991 1,055.0 761.1 293.9 1,324.2 1,082.5 241.7 269.2 321.4 52.2
1992 1,091.2 788.8 302.4 1,381.5 1,129.2 252.3 290.3 340.4 50.1
1993 1,154.3 842.4 311.9 1,409.4 1,142.8 266.6 255.1 300.4 45.3
1994 1,258.6 923.5 335.0 1,461.8 1,182.4 279.4 203.2 258.8 55.7
1995 1,351.8 1,000.7 351.1 1,515.7 1,227.1 288.7 164.0 226.4 62.4
1996 1,453.1 1,085.6 367.5 1,560.5 1,259.6 300.9 107.4 174.0 66.6
1997 1,579.2 1,187.2 392.0 1,601.1 1,290.5 310.6 21.9 103.2 81.4
1998 1,721.7 1,305.9 415.8 1,652.5 1,335.9 316.6 69.3 29.9 99.2
1999 1,827.5 1,383.0 444.5 1,701.8 1,381.1 320.8 125.6 1.9 123.7
2000 2,025.2 1,544.6 480.6 1,789.0 1,458.2 330.8 236.2 86.4 149.8
2001 1,991.1 1,483.6 507.5 1,862.8 1,516.0 346.8 128.2 32.4 160.7
2002 1,853.1 1,337.8 515.3 2,010.9 1,655.2 355.7 157.8 317.4 159.7
2003 1,782.3 1,258.5 523.8 2,159.9 1,796.9 363.0 377.6 538.4 160.8
2004 1,880.1 1,345.4 534.7 2,292.8 1,913.3 379.5 412.7 568.0 155.2
2005 2,153.6 1,576.1 577.5 2,472.0 2,069.7 402.2 318.3 493.6 175.3
2006 2,406.9 1,798.5 608.4 2,655.0 2,233.0 422.1 248.2 434.5 186.3
2007 2,568.0 1,932.9 635.1 2,728.7 2,275.0 453.6 160.7 342.2 181.5
2008 2,524.0 1,865.9 658.0 2,982.5 2,507.8 474.8 458.6 641.8 183.3
2009 2,105.0 1,451.0 654.0 3,517.7 3,000.7 517.0 1,412.7 1,549.7 137.0
2010 2,162.7 1,531.0 631.7 3,457.1 2,902.4 554.7 1,294.4 1,371.4 77.0
2011 2,303.5 1,737.7 565.8 3,603.1 3,104.4 498.6 1,299.6 1,366.8 67.2
2012 2,450.0 1,880.5 569.5 3,537.0 3,029.4 507.6 1,087.0 1,148.9 61.9
2013 2,775.1 2,101.8 673.3 3,454.6 2,820.8 633.8 679.5 719.0 39.5
2014 3,021.5 2,285.9 735.6 3,506.1 2,800.1 706.1 484.6 514.1 29.5
2015 3,249.9 2,479.5 770.4 3,688.3 2,945.2 743.1 438.4 465.7 27.3
2016 estimate 3,335.5 2,537.8 797.7 3,951.3 3,161.6 789.7 615.8 623.8 8.0
2017 estimate 3,643.7 2,816.9 826.9 4,147.2 3,318.6 828.6 503.5 501.8 1.7
2018 estimate 3,898.6 3,035.4 863.3 4,352.2 3,467.9 884.3 453.6 432.5 21.1
2019 estimate 4,095.1 3,196.8 898.2 4,644.3 3,702.4 941.9 549.3 505.5 43.7
2020 estimate 4,345.7 3,413.8 931.9 4,879.8 3,871.7 1,008.2 534.1 457.8 76.3
2021 estimate 4,572.0 3,591.8 980.2 5,124.2 4,052.1 1,072.2 552.3 460.3 91.9
1 Off-budget transactions consist of the Social Security trust funds and the Postal Service fund.
all or a majority of their funding from the Government. which is not a Federally-created entity but since 2003
These include the Corporation for Public Broadcasting, has received a majority of funding through a Federally-
Gallaudet University, Howard University, the Legal mandated assessment on public companies under the
Services Corporation, the National Railroad Passenger Sarbanes-Oxley Act. Although the Federal payments to
Corporation (Amtrak), the Smithsonian Institution, the these entities are budgetary, the entities themselves are
State Justice Institute, and the United States Institute of non-budgetary.
Peace. A related example is the Standard Setting Board,
10. COVERAGE OF THE BUDGET 123
Whether an entity was created or chartered by the have been classified as on-budget by law since at least
Government does not alone determine its budgetary sta- 1985 as a result of the Balanced Budget and Emergency
tus. The Commission recommended that the budget be Deficit Control Act of 1985 (Public Law 99177). Activities
comprehensive but it also recognized that proper budget- that were off-budget at one time but that are now on-bud-
ary classification required weighing all relevant factors get are classified as on-budget for all years in historical
regarding establishment, ownership, and control of an en- budget data.
tity while erring on the side of inclusiveness. Generally, Social Security is the largest single program in the uni-
entities that are primarily owned or controlled by the fied budget and it is classified by law as off-budget; as
Government are classified as budgetary. Determinations a result, the off-budget accounts constitute a significant
regarding the budgetary classification of entities are made part of total Federal spending and receipts. Table 101
by consultation between the OMB, the Congressional divides total Federal Government outlays, receipts, and
Budget Office (CBO), and the Budget Committees of the the surplus or deficit between on-budget and off-budget
Congress. amounts. Within this table, the Social Security and Postal
One example of a recent budgetary classification in- Service transactions are classified as off-budget for all
volved the National Association of Registered Agents and years to provide a consistent comparison over time.
Brokers (NARAB). NARAB allows insurance licensing,
continuing education, and other nonresident producer Non-Budgetary Activities
qualification requirements to be adopted and applied on
a multi-state basis. In other words, NARAB streamlines Some important Government activities are charac-
the ability of a nonresident insurer to become a licensed terized as non-budgetary because they do not involve
agent in another State. In exchange for providing en- the direct allocation of resources by the Government.7
hanced market access NARAB will collect fees from its These activities can affect budget outlays or receipts even
members beginning in 2017. The association was estab- though they have components that are non-budgetary.
lished by the Terrorism Risk Insurance Reauthorization Federal credit programs: budgetary and non-
Act of 2015. In addition to being established by statute, budgetary transactions.Federal credit programs
which in itself is an indication that the entity is govern- make direct loans or guarantee private loans to non-Fed-
mental, NARAB has a board of directors appointed by the eral borrowers. The Federal Credit Reform Act of 1990
President and confirmed by the Senate. It must also sub- (FCRA), as amended by the Balanced Budget Act of 1997,
mit bylaws and an annual report to the Department of established the current budgetary treatment for credit
the Treasury and its primary function involves exercising programs. Under FCRA, the budgetary cost of a credit
a regulatory function.For these reasons, it is classified as program is known as the subsidy cost. The subsidy cost
budgetary. is the estimated lifetime cost to the Government of a loan
Off-budget Federal activities.Despite the or a loan guarantee on a net present value basis, exclud-
Commissions recommendation that the budget be coming administrative costs.
prehensive, every year since 1971 at least one Federal Outlays equal to the subsidy cost are recorded in the
program or agency has been presented as off-budget be- budget up front as they are incurredfor example, when
cause of a legal requirement.5 Such off-budget Federal a loan is made or guaranteed. Credit program cash flows
activities are funded by the Government and adminis- to and from the public are recorded in non-budgetary
tered according to Federal legal requirements but their financing accounts and the information is included in
net costs are excluded, by law, from the rest of the budget budget documents to provide insight into the program
totals, which are also known as the on-budget totals. size and costs. For more information, the mechanisms of
Off-budget Federal activities currently consist of the credit programs are discussed in more detail in Chapter
U.S. Postal Service and the two Social Security trust 9 of this volume, Budget Concepts, and credit programs
funds: Old-Age and Survivors Insurance and Disability are discussed in more detail in Chapter 20 of this volume,
Insurance. Social Security has been classified as off-bud- Credit and Insurance.
get since 1986 and the Postal Service has been classified as Deposit funds.Deposit funds are non-budgetary
off-budget since 1990.6 Other activities that had been des- accounts that record amounts held by the Government
ignated in law as off-budget at various times before 1986 temporarily until ownership is determined (such as ear-
nest money paid by bidders for mineral leases) or held
5 While the term off-budget is sometimes used colloquially to mean
by the Government as an agent for others (such as State
non-budgetary, the term has a meaning distinct from non-budgetary. income taxes withheld from Federal employees salaries
Off-budget activities would be considered budgetary, absent legal re-
quirement to exclude these activities from the budget totals.
and not yet paid to the States). The largest deposit fund
6 See 42 U.S.C. 911, and 39 U.S.C. 2009a, respectively. The off-budget 7 Tax expenditures, which are discussed in Chapter 14 of this vol-
Postal Service accounts consist of the Postal Service Fund, which is clas- ume, are an example of Government activities that could be character-
sified as a mandatory account, and the Office of the Inspector General ized as either budgetary or non-budgetary. Tax expenditures refer to the
and the Postal Regulatory Commission, both of which are classified as reduction in tax receipts resulting from the special tax treatment ac-
discretionary accounts. The Postal Service Retiree Health Benefits Fund corded certain private activities. Because tax expenditures reduce tax
is an on-budget mandatory account with the Office of Personnel Man- receipts and receipts are budgetary, tax expenditures clearly have bud-
agement. The off-budget Social Security accounts consist of the Federal getary effects. However, the size and composition of tax expenditures are
Old-Age and Survivors Insurance trust fund and the Federal Disability not explicitly recorded in the budget as outlays or as negative receipts
Insurance trust fund, both of which have mandatory and discretionary and, for this reason, tax expenditures might be considered a special case
funding. of non-budgetary transactions.
is the Government Securities Investment Fund, which and the public apart from the subsidy costs are treated
is also known as the G-Fund. It is one of several invest- as non-budgetary by CBO, and Treasury payments to the
ment funds managed by the Federal Retirement Thrift GSEs are intragovernmental transfers (from Treasury to
Investment Board for Federal employees who participate the GSEs) that net to zero in CBOs budget estimates.
in the Governments defined contribution retirement plan, Overall, both the Budgets accounting and CBOs ac-
the TSP (which is similar to private-sector 401(k) plans). counting present Fannie Maes and Freddie Macs losses
The G-Fund assets, which are held by the Department of as Government outlayswhich increase Government
the Treasury, are the property of Federal employees and deficits. The two approaches, however, reflect the losses as
are held by the Government only in a fiduciary capacity; budgetary costs at different times.
the transactions of the Fund are not resource allocations Other federally-created non-budgetary entities.
by the Government and are therefore non-budgetary.8 For In addition to the GSEs, the Federal Government has
similar reasons, the budget excludes funds that are owned created a number of other entities that are classified as
by Native American Indians but held and managed by the non-budgetary. These include federally-funded research
Government in a fiduciary capacity. and development centers (FFRDCs), non-appropriated
Government-Sponsored Enterprises (GSEs). fund instrumentalities (NAFIs), and other entities; some
Government-Sponsored Enterprises are privately owned of these are incorporated as non-profit entities and some
and therefore distinct from government corporations. The are incorporated as for-profit entities.10
Federal Government has chartered GSEs such as the FFRDCs are entities that conduct agency-specific re-
Federal National Mortgage Association (Fannie Mae), the search under contract or cooperative agreement. Some
Federal Home Loan Mortgage Corporation (Freddie Mac), FFRDCs were created by and conduct research for the
the Federal Home Loan Banks, the Farm Credit System, Department of Defense and are administered by colleges,
and the Federal Agricultural Mortgage Corporation to universities, or other non-profit entities. Despite being
provide financial intermediation for specified public pur- classified as non-budgetary, many FFRDCs do receive
poses. Although federally-chartered to serve public-policy direct resource allocation from the Government and are
purposes, the GSEs are classified as non-budgetary. This included as budget lines in various agencies. Examples of
is because they are intended to be privately owned and FFRDCs include the Center for Naval Analysis and the
controlled, with any public benefits accruing indirectly Jet Propulsion Laboratory.11 Even though FFRDCs are
from the GSEs business transactions. Estimates of the non-budgetary, Federal payments to the FFRDC are re-
GSEs activities are reported in a separate chapter of the corded as budget outlays. In addition to Federal funding,
Budget Appendix, and their activities are discussed in FFRDCs may receive funding from non-Federal sources.
Chapter 20 of this volume, Credit and Insurance. Non-appropriated fund instrumentalities (NAFIs)
In September 2008, in response to the financial market are entities that support an agencys current and re-
crisis, the director of the Federal Housing Finance Agency tired personnel. Nearly all NAFIs are associated with
(FHFA)9 placed Fannie Mae and Freddie Mac into con- the Departments of Defense, Homeland Security (Coast
servatorship for the purpose of preserving the assets and Guard), and Veterans Affairs. Most NAFIs are located on
restoring the solvency of these two GSEs. As conserva-
10Although most entities created by the Federal Government are
tor, FHFA has broad authority to direct the operations of
these GSEs. However, these GSEs remain private compa- budgetary, as discussed in this section, the GSEs and the Federal Re-
serve System were created by the Federal Government, but are clas-
nies with board of directors and management responsible sified as non-budgetary. In addition, Congress and the President have
for their day-to-day operations. This Budget continues to chartered, but not necessarily created, approximately 100 non-profit
treat these two GSEs as non-budgetary private entities entities that are non-budgetary. These include patriotic, charitable, and
in conservatorship rather than as Government agencies. educational organizations under Title 36 of the U.S. Code and founda-
tions and trusts chartered under other titles of the Code. Title 36 corpo-
By contrast, CBO treats these GSEs as budgetary Federal rations include the American Legion, the American National Red Cross,
agencies. Both treatments include budgetary and non- Big BrothersBig Sisters of America, Boy Scouts of America, Future
budgetary amounts. Farmers of America, Girl Scouts of the United States of America, the
While all of the GSEs transactions with the public National Academy of Public Administration, the National Academy of
are reflected as non-budgetary, the payments from the Sciences, and Veterans of Foreign Wars of the United States. Virtually
all of the non-profit entities chartered by the Government existed un-
Treasury to the GSEs are recorded as budgetary outlays der State law prior to the granting of a Government charter, making
and dividends received by the Treasury are recorded as the Government charter an honorary rather than governing charter. A
budgetary receipts. Under CBOs approach, the subsidy major exception to this is the American National Red Cross. Its Govern-
costsor expected losses over timeof Fannie Maes and ment charter requires it to provide disaster relief and to ensure compli-
ance with treaty obligations under the Geneva Convention. Although
Freddie Macs past credit activities have already been re- any Government payments (whether made as direct appropriations or
corded in the budget estimates; the subsidy costs of future through agency appropriations) to these chartered non-profits, includ-
credit activities will be recorded when the activities oc- ing the Red Cross, would be budgetary, the non-profits themselves are
cur. Lending and borrowing activities between the GSEs classified as non-budgetary. On April 29, 2015, the Subcommittee on Im-
migration and Border Security of the Committee on the Judiciary in
the U.S. House of Representatives adopted a policy prohibiting Congress
8 The administrative functions of the Federal Retirement Thrift In- from granting new Federal charters to private, non-profit organizations.
vestment Board are carried out by Government employees and included This policy has been adopted by every subcommittee with jurisdiction
in the budget totals. over charters since the 101st Congress.
9 FHFA is the regulator of Fannie Mae, Freddie Mac, and the Fed- 11 The National Science Foundation maintains a list of FFRDCs at
eral Home Loans Banks. www.nsf.gov/statistics/ffrdc.

10. COVERAGE OF THE BUDGET 125
military bases and include the armed forces exchanges erate long-term interest rates.15 The dual goals of full
(which sell goods to military personnel and their fami- employment and price stability were reaffirmed by the
lies), recreational facilities, and child care centers. NAFIs Full Employment and Balanced Growth Act of 1978, also
are financed by proceeds from the sale of goods or services known as the Humphrey-Hawkins Act.16
and do not receive direct appropriations. As a result they By law, the Federal Reserve System is a self-financ-
have been characterized as non-budgetary but any agency ing entity that is independent of the Executive Branch
payments to the NAFIs are recorded as budget outlays. and subject only to broad oversight by the Congress.
A number of entities created by the Government re- Consistent with the recommendations of the Commission,
ceive a significant amount of non-Federal funding. the effects of monetary policy and the actions of the
Certain of these entities are significantly controlled by Federal Reserve System are non-budgetary, with excep-
non-Federal individuals or organizations. These entities tions for the transfer to the Treasury of excess income
include Gallaudet University, Howard University, and generated through its operations. The Federal Reserve
the Universal Services Administrative Company, among System earns income from a variety of sources including
others.12 Most of these entities receive direct appropria- interest on Government securities, foreign currency in-
tions or other recurring payments from the Government. vestments and loans to depository institutions, and fees
The appropriations or other payments are budgetary and for services (e.g., check clearing services) provided to de-
included in Table 29-1. However, many of these entities pository institutions. The Federal Reserve System remits
are themselves non-budgetary. Generally, entities that to Treasury any excess income over expenses annually. For
receive a significant portion of funding from non-Federal the fiscal year ending September 2015, Treasury recorded
sources and that are not controlled by the Government $96.4 billion in receipts from the Federal Reserve System.
are treated as non-budgetary. In addition to remitting excess income to Treasury, the
Regulation.Federal Government regulations often Federal Reserve is required by law to transfer a portion of
require the private sector or other levels of government its excess earnings to the Consumer Financial Protection
to make expenditures for specified purposes that are in- Bureau (CFPB).17
tended to have public benefits, such as workplace safety The Board of Governors of the Federal Reserve is a
and pollution control. Although the budget reflects the Federal Government agency, but because of its indepen-
Governments cost of conducting regulatory activities, the dent status, its budget is not subject to Executive Branch
costs imposed on the private sector as a result of regu- review and is included in the Budget Appendix for in-
lation are treated as non-budgetary and not included in formational purposes only. The Federal Reserve Banks
the budget. The Governments regulatory priorities and are subject to Board oversight and managed by boards
plans are described in the annual Regulatory Plan and of directors chosen by the Board of Governors and mem-
the semi-annual Unified Agenda of Federal Regulatory ber banks, which include all national banks and State
and Deregulatory Actions.13 The estimated costs and ben- banks that choose to become members. The budgets of the
efits of Federal regulation have been published annually regional Banks are subject to approval by the Board of
by OMB since 1997.14 Governors and are not included in the Budget Appendix.
Monetary policy. As a fiscal policy tool, the budget
is used by elected Government officials to promote eco- 15 See 12 U.S.C. 225a.
nomic growth and achieve other public policy objectives. 16 See 15 U.S.C. 3101 et seq.
Monetary policy is another tool that governments use to 17 See section 1011 of Public Law 111-203 (12 U.S.C. 5491), (2010).
promote economic policy objectives. In the United States, The CFPB is an executive agency, led by a director appointed by the
monetary policy is conducted by the Federal Reserve President and reliant on Federal funding, that serves the governmental
System, which is composed of a Board of Governors and 12 function of regulating Federal consumer financial laws. Accordingly, it is
regional Federal Reserve Banks. The Federal Reserve Act included in the Budget.
provides that the goal of monetary policy is to maintain
long-run growth of the monetary and credit aggregates
commensurate with the economys long run potential
to increase production, so as to promote effectively the
goals of maximum employment, stable prices, and mod-
12 Under section 415(b) of the Amtrak Reform and Accountability
Act of 1997, (49 U.S.C. 24304 and note), Amtrak was required to redeem
all of its outstanding common stock. Once all outstanding common stock
is redeemed, Amtrak will be wholly-owned by the Government and, at
that point, its non-budgetary status may need to be reassessed.
13 The most recent Regulatory Plan and introduction to the Unified
Agenda issued by the General Services Administrations Regulatory In-

formation Service Center are available at www.reginfo.gov and at www.
gpoaccess.gov.
14 In the most recent report, OMB indicates that the estimated an-
nual benefits of Federal regulations it reviewed from October 1, 2004, to

September 30, 2014, range from $216 billion to $812 billion, while the
estimated annual costs range from $57 billion to $85 billion.
11. BUDGET PROCESS
Since taking office, the Administration has sought to Postal Service reforms; reclassification for contract sup-
present budget figures that accurately reflect the present port costs; and a fast-track procedure for the Congress to
and future course of the Nations finances, and to make consider certain rescission requests. Second, the chapter
improvements in budget process and enforcement. An describes the system under the Statutory Pay-As-You-
honest and transparent accounting of the Nations financ- Go Act of 2010 (PAYGO) of scoring legislation affecting
es is critical to making decisions about key fiscal policies, receipts and mandatory spending, and it summarizes
and effective budget enforcement mechanisms are neces- the Administrations commitment to applying a PAYGO
sary to promote budget discipline. requirement to administrative actions affecting manda-
This chapter begins with a description of three broad tory spending. Finally, the chapter presents proposals
categories of budget reform. First, the chapter discusses to revise the budget baseline and to improve budget pre-
proposals to improve budgeting and fiscal sustainabil- sentation, for example, by including an allowance for the
ity with respect to individual programs as well as across costs of potential future natural disasters. This revised
Government. These proposals include: legislation that baseline better captures the likely future costs of operat-
exceeds the remaining savings required for the Joint ing the Federal Government. This section also discusses
Select Committee on Deficit Reduction, repeals the the use of debt net of financial assets, instead of debt held
Joint Committee reductions, and restores amounts that by the public, as a better measure of the Governments
would be reduced by the 2017 mandatory sequestration demand on private credit markets.
order; various initiatives to reduce improper payments; Taken together, these reforms generate a Budget that
funding requested for disaster relief; a proposed cap is more transparent, comprehensive, accurate, and real-
adjustment for the decennial census; limits on advance istic, and is thus a better guidepost for citizens and their
appropriations; structural reforms for surface transpor- representatives in making decisions about the key fiscal
tation programs; proposals for the Pell Grant program; policy issues that face the Nation.
I. BUDGET REFORM PROPOSALS
Joint Committee Enforcement

decreased the reductions otherwise required to the 2014
In August 2011, as part of the Budget Control Act of discretionary caps by $44.8 billion and set new discretion-
2011 (BCA), bipartisan majorities in both the House and ary caps in 2015 that were approximately $18.5 billion more
Senate voted to establish the Joint Select Committee for than the Congressional Budget Offices (CBO) estimate of
Deficit Reduction to recommend legislation to achieve at the post-reduction discretionary spending limits in that year.
least $1.2 trillion of deficit reduction over the period of fis- The Bipartisan Budget Act of 2015 (BBA of 2015) (P.L. 114-
cal years 2012 through 2021. The BCA included automatic 74) decreased the reductions to the 2016 discretionary caps
reductions as a mechanism to encourage the Congress to by $50 billion and replaced the reductions for the 2017 dis-
enact legislation to achieve this goal. On multiple occa- cretionary caps that would have been required with smaller
sions, the President has presented comprehensive plans reductions of $61.4 billion from the original caps agreed to
to replace these reductions with a mix of specific spending in the BCA. The smaller reduction for 2017 was approxi-
cuts and revenue proposals. The failure of the Congress mately $30 billion more than the March 2015 CBO estimate
to enact such comprehensive deficit reduction legislation of the post-reduction discretionary spending limits. All of
to achieve the $1.2 trillion goal has already triggered a se- these revisions were paid for by enacting alternative deficit
questration of discretionary and mandatory spending in reduction.
2013, led to reductions in the discretionary caps for 2014 In addition to the mandatory sequestration for 2017
through 2017, and forced additional sequestrations of noted above, damaging annual reductions of $109 bil-
mandatory spending in each of fiscal years 2014 through lion will continue to be required for each of fiscal years
2016. A further sequestration of mandatory spending is 2018 through 2021, unless the Congress enacts balanced
scheduled to take effect beginning on October 1 based on deficit reduction legislation that replaces and repeals the
the order released with the 2017 Budget. Joint Committee reductions. Further, legislation enacted
To date, legislation has been enacted to partially address subsequent to the BCA has extended the sequestration
the annual reductions required to the discretionary spending of mandatory spending through 2025 at the percentage
limits set in the BCA through 2017. The American Taxpayer reduction required for 2021.1 The reductions to discre-
Relief Act of 2012 reduced the sequestration required of 2013
discretionary and mandatory spending by $24 billion. The 1 The BBA of 2015, which extended sequestration into 2025, required
Bipartisan Budget Act of 2013 (BBA of 2013) (P.L. 113-67) that the reduction in the Medicare program be 4.0 percent for the first
half of the sequestration period and zero for the second half of the period.
127
tionary spending for fiscal years 2018 through 2021 are Administrative Funding for Program Integrity.
to be implemented in the sequestration preview report for There is compelling evidence that investments in
each year by reducing the discretionary caps. The reduc- administrative resources can significantly decrease the
tions to mandatory programs are to be implemented by rate of improper payments and recoup many times their
a sequestration of non-exempt mandatory budgetary re- initial investment. The Social Security Administration
sources in each of fiscal years 2017 through 2025, which (SSA) estimates that medical continuing disability re-
is triggered by the transmittal of the Presidents Budget views conducted in 2017 will yield net Federal program
for each year and takes effect on the first day of the fiscal savings over the next 10 years of roughly $8 on average
year. per $1 budgeted for dedicated program integrity funding,
The budget agreements of 2013 and 2015 took im- including the Old Age, Survivors, and Disability Insurance
portant steps in moving away from manufactured crises Program (OASDI), Supplemental Security Income (SSI),
and austerity budgeting by replacing a portion of the Medicare and Medicaid program effects. Similarly, for
Joint Committee reductions with sensible long-term Health Care Fraud and Abuse Control (HCFAC) program
reforms, including a number of reforms proposed in pre- integrity efforts, CMS actuaries conservatively estimate
vious Presidents Budgets. The 2017 Budget builds on approximately $2 is saved or payments averted for ev-
the achievements secured for 2016 and adheres to the ery additional $1 spent. The Internal Revenue Service
agreements funding levels. However, failing to fully re- (IRS) enforcement activities recoup roughly $6 for every
place sequestration has consequences. To further the goal $1 spent.
of building durable economic growth in the future, the Enacted Adjustments Pursuant to BBEDCA.The
Budget also includes a series of investments using man- Balanced Budget and Emergency Deficit Control Act of
datory funding. 1985, as amended (BBEDCA) recognized that a multi-year
The 2017 Budget also recognizes that without further strategy of agencies focusing attention and resources on
Congressional action, sequestration will re-turn in full in reducing the rate of improper payments, commensurate
2018. Therefore, starting in 2018, the Budget once again with the large and growing costs of the programs admin-
proposes to support a range of investments to move the istered by that agency, is a laudable goal. To support that
Nation forward by ending sequestration and replacing goal, BBEDCA provided for adjustments to the discre-
the savings by cutting inefficient spending and closing tionary spending limits to allow for additional funding for
tax loopholes, while putting the Nation on a sustainable specific program integrity activities to reduce improper
fiscal path. payments in the Social Security programs and in the
Program Integrity Funding Medicare and Medicaid programs. These adjustments are
increases in the discretionary caps on budget authority
Critical programs such as Social Security, through 2021 and are made only if appropriations bills
Unemployment Insurance, Medicare, and Medicaid, increase funding for the specified program integrity pur-
should be run efficiently and effectively. Therefore, the poses above specified minimum, or base levels. Recently,
Administration proposes to make significant invest- recognizing the significant benefits to program integrity
ments in activities to ensure that taxpayer dollars are activities, the BBA of 2015 increased such adjustments
spent correctly, by expanding oversight activities in the for Social Security programs by a net $484 million over
largest benefit programs and increasing investments in the 2017-2021 period. The BBA of 2015 also expanded the
tax compliance and enforcement activities. In addition, uses of cap adjustment funds to include cooperative dis-
the Administration supports a number of legislative ability investigation units, and special attorneys for fraud
and administrative reforms in order to reduce improper prosecutions. This budget mechanism was intended to en-
payments and improve debt collection. Many of these sure that the additional funding did not supplant other
proposals will provide savings for the Government and Federal spending on these activities and that such spend-
taxpayers, and will support Government-wide efforts ing was not diverted to other purposes.
to improve the management and oversight of Federal The Consolidated Appropriations Act, 2016 (P.L. 114-
resources. 113) did not provide full funding of the adjustment to
The Administration supports efforts to provide Federal the discretionary spending limit for HCFAC and SSA.
agencies with the necessary resources and incentives to Although the final levels in 2016 increased from 2015 in
prevent, reduce, or recover improper payments. With the nominal terms for both SSA and HCFAC, the final lev-
enactment of the Improper Payments Elimination and els for both accounts were less than the Administrations
Recovery Act of 2010 (P.L. 111-204) and the Improper request for the full allowable cap adjustments by $13 mil-
Payments Elimination and Recovery Improvement lion and $25 million, respectively. Both were fully funded
Act of 2012 (P.L. 112-248), and the release of three at the levels specified in BBEDCA for 2015. Tens of bil-
Presidential directives on improper payments under this lions of dollars in deficit savings over the next 10 years
Administration, agencies are well positioned to utilize from curtailing improper payments will be realized if the
these new tools and techniques to prevent, reduce, and levels of administrative expenses for program integrity
recover improper payments. The Administration will con- envisioned by BBEDCA continue to be provided. To en-
tinue to identify areasin addition to those outlined in sure these important program integrity investments are
the Budgetwhere it can work with the Congress to fur- made, the Budget proposes to continue the full discretion-
ther improve agency efforts. ary cap adjustment for SSA and for HCFAC through 2026.
11. BUDGET PROCESS 129
These proposals will produce new net deficit savings of of net Federal program savings over 10 years per $1 bud-
$38.6 billion over 10 years. geted for dedicated program integrity funding, including
Social Security Administration Medical SSI and Medicaid program effects. The Budget assumes
Continuing Disability Reviews and Non-Medical the full cost of performing CDRs in 2017 and beyond to
Redeterminations of SSI Eligibility.For the Social ensure that sufficient resources are available to account
Security Administration, the Budgets proposed $1,819 for spending on these activities. The savings from one
million in discretionary funding in 2017 ($273 million in year of program integrity activities are realized over mul-
base funding and $1,546 million in cap adjustment fund- tiple years because some results find that beneficiaries
ing) will allow SSA to conduct 1.1 million full medical are no longer eligible to receive OASDI or SSI benefits.
CDRs and approximately 2.8 million SSI non-medical re- Redeterminations are periodic reviews of non-medical
determinations of eligibility. Medical CDRs are periodic eligibility factors, such as income and resources, for the
reevaluations to determine whether disabled OASDI or means-tested SSI program and can result in a revision
SSI beneficiaries continue to meet SSAs standards for of the individuals benefit level. However, the schedule
disability. The funding provided will enable the agency of savings resulting from redeterminations will be differ-
to work down a backlog of medical CDRs. As a result ent for the base funding and the cap adjustment funding
of the discretionary funding requested in 2017, as well in 2017 through 2026. This is because redeterminations
as the fully funded base and cap adjustment amounts of eligibility can uncover underpayment errors as well as
in 2018 through 2026, the OASDI, SSI, Medicare and overpayment errors. SSI recipients are more likely to ini-
Medicaid programs would recoup almost $48 billion in tiate a redetermination of eligibility if they believe there
gross Federal savings with additional savings after the are underpayments, and these recipient-initiated redeter-
10-year period, according to estimates from SSAs Office minations are included in the base. The estimated savings
of the Chief Actuary. Access to increased cap adjustment per dollar spent on medical CDRs and non-medical re-
amounts and SSAs commitment to fund the fully loaded determinations reflects an interaction with a provision
costs of performing the requested CDR and redetermina- in the Affordable Care Act (ACA) that allows States to
tion volumes would produce new net deficit savings of $34 expand Medicaid coverage beginning January 2014 for in-
billion in the 10-year window, and additional savings in dividuals under age 65 with income less than 133 percent
the out-years. These costs and savings are reflected in of poverty. As a result of this provision, some SSI benefi-
Table 11-1. ciaries, who would otherwise lose Medicaid coverage due
SSA is required by law to conduct medical CDRs for to a medical CDR or non-medical redetermination, would
all beneficiaries who are receiving disability benefits un- continue to be covered. In addition, some of the coverage
der the OASDI program, as well as all children under age costs for these individuals will be eligible for the Medicaid
18 who are receiving SSI. SSI redeterminations are also ACA enhanced Federal matching rate, resulting in higher
required by law. However, the frequency of CDRs and re- Federal Medicaid costs in those states.
determinations is constrained by the availability of funds Health Care Fraud and Abuse Program.The
to support these activities. As noted above, for 2016, the 2017 Budget proposes base and cap adjustment funding
base amounts, as well as an additional $1,153 million in levels over the next 10 years and continues the program
discretionary cap adjustment funding pursuant to section integrity cap adjustment through 2026.
251(b)(2)(B) of BBEDCA were enacted in the annual ap- The discretionary base funding of $311 million and
propriations bill. The mandatory savings from the base cap adjustment of $414 million for HCFAC activities in
funding in every year and the enacted discretionary cap 2017 are designed to reduce the Medicare improper pay-
adjustment funding in 2016 are included in the BBEDCA ment rate, support the Health Care Fraud Prevention
baseline, consistent with the levels amended by the BBA & Enforcement Action Team (HEAT) initiative, reduce
of 2015, because the baseline assumes the continued fund- Medicaid improper payment rates, and monitor and
ing of program integrity activities. The Budget shows prevent fraud, waste, and abuse in the private health
the savings that would result from the increase in CDRs insurance market including the Health Insurance
and redeterminations made possible by the discretionary Marketplace. The investment will also allow CMS to
funding requested in 2017 through 2026. With enactment deploy innovative efforts that focus on improving the
of the new cap adjustment amounts in the BBA of 2015 analysis and application of data, including state-of-the-
and full funding of the cap adjustment amounts through art predictive modeling capabilities, in order to prevent
2026, SSA should eliminate the backlog of CDRs by the potentially wasteful, abusive, or fraudulent payments
end of 2019 and prevent a new backlog from developing before they occur. The funding is to be allocated among
during the budget window. CMS, the Health and Human Services Office of Inspector
As stated above, current estimates indicate that General, and the Department of Justice (DOJ). Over 2017
medical CDRs conducted in 2017 will yield a return on through 2026, as reflected in Table 11-1, this $5.1 billion
investment (ROI) of about $8 on average in net Federal investment in HCFAC cap adjustment funding will gen-
program savings over 10 years per $1 budgeted for dedi- erate approximately $10.2 billion in savings to Medicare
cated program integrity funding, including OASDI, SSI, and Medicaid, for new net deficit reduction of $5.1 billion
Medicare and Medicaid program effects. Similarly, SSA over the 10-year period, reflecting prevention and recoup-
estimates indicate that non-medical redeterminations ment of improper payments made to providers, as well
conducted in 2017 will yield a ROI of about $3 on average as recoveries related to civil and criminal penalties. The
Table 111. ENACTED CAP ADJUSTMENTS, INCLUDING MANDATORY SAVINGS

(Outlays in millions of dollars)
2017-2026
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total
SSA Program Integrity
Discretionary Costs1 1,546 1,462 1,410 1,309 1,302 1,341 1,382 1,423 1,466 1,509 14,150
Mandatory Savings2 106 2,140 3,331 4,100 4,825 5,756 6,105 6,350 7,218 7,779 47,710
Net Savings 1,440 678 1,921 2,791 3,523 4,415 4,723 4,927 5,752 6,270 33,560
Health Care Fraud and Abuse Control Program
Discretionary Costs 414 434 454 475 496 518 541 565 590 616 5,103
Mandatory Savings3 795 844 894 947 991 1,036 1,085 1,135 1,187 1,241 10,155
Net Savings 381 410 440 472 495 518 544 570 597 625 5,052
1The annual discretionary cost includes the amounts newly enacted in the Bipartisan Budget Act of 2015 for 2017 through 2021, pursuant to section 251(b)(2)(B) of BBEDCA.
Amounts from 2022 through 2026 are the requested adjustment to the Administrations proposed caps. For 2016 the base amount was enacted in the annual appropriations bill and an
additional $1,153 million was provided as a discretionary cap adjustment pursuant to section 251(b)(2)(B) of BBEDCA. The mandatory savings from the base funding in every year and
the 2016 enacted discretionary cap adjustment funding continues to be included in the BBEDCA baseline.
2This is based on SSAs Office of the Actuary estimates of savings.
3These savings are based on estimates from the HHS Office of the Actuary for return on investment (ROI) from program integrity activities.
mandatory savings from base funding, assuming that direct enforcement revenue. The IRS estimates that the
amount is to continue in future years, are included in the proposed new 2017 enforcement initiatives will yield an
BBEDCA baseline, as are the savings from the 2016 en- additional $278 million in revenue from the work done in
acted cap adjustment funding of $370 million. 2017. Furthermore, once the new staff are trained and
Proposed Adjustments to BBEDCA Discretionary become fully operational in 2019, the additional annual
Spending Limits.The Administration also proposes revenue generated by these initiatives is expected to be
to amend BBEDCA to enact adjustments to the discre- $2.6 billion, or roughly $6 in additional revenue for ev-
tionary spending limits for tax code enforcement at the ery $1 in IRS expenses. The activities through 2026 will
IRS and Treasurys Alcohol and Tobacco Tax and Trade generate $63.6 billion in additional revenue over 10 years
Bureau (TTB) over the 2017 to 2026 period and for the and will cost $17.4 billion for an estimated net savings of
Department of Labor (DOL) to reduce improper pay- $46.2 billion. Notably, the ROI is likely understated be-
ments in the Unemployment Insurance (UI) program in cause it only includes amounts received; it does not reflect
2017. Beginning in 2018, the Administration proposes to the effect enhanced enforcement has on deterring non-
fund these activities with mandatory funding. As shown compliance. This indirect deterrence helps to ensure the
in Table 11-2, the new spending is estimated to result in continued payment of over $3 trillion in taxes paid each
more than $64 billion in lower spending and additional year without direct enforcement measures.
tax revenue over the next 10 years, with further savings Unemployment Insurance.The Budget proposes
after the ten-year period. The base level of funding and a cap adjustment in 2017, which would be a transition
the additional funding that would trigger cap adjust- year to dedicated mandatory funding in 2018 and beyond
ments, as well as mandatory funding requests for UI are for the Department of Labors (DOL) Unemployment
also listed in Table 11-2. Insurance (UI) State administrative grants program to
Internal Revenue Service and Treasurys Alcohol reduce UI improper payments, a top management chal-
and Tobacco Tax and Trade Bureau.For the IRS lenge identified by GAO and DOLs Inspector General.
and TTB, the base funds current tax administration ac- The proposal would expand what is now a $115 mil-
tivities, including all tax enforcement and compliance lion initiative to conduct Reemployment Services and
program activities, in the Enforcement and Operations Eligibility Assessments (RESEA).
Support accounts at IRS and the Salaries and Expenses The REA initiative was begun in 2005 to finance in-
account at TTB. The additional $514 million cap adjust- person interviews at American Job Centers (also known
ment funds new and continuing investments in expanding as One-Stop Career Centers), to assess UI beneficiaries
and improving the effectiveness and efficiency of the IRSs need for job finding services and their continued eligibili-
and TTBs overall tax enforcement program. As a result ty for benefits. Research, including a random-assignment
of base tax enforcement and compliance activities, the evaluation, shows that a combination of eligibility re-
Government will collect roughly $54 billion in 2017 in views and reemployment services reduces the time on
UI, increases earnings, and reduces improper payments Because most unemployment claims are now filed by
to claimants who are not eligible for benefits. Based on telephone or online, in-person assessments conducted in
this research, the Budget proposes to expand funding for the Centers can help determine the continued eligibility
the RESEA initiative to allow States to conduct robust for benefits and the adequacy of work search, verify the
reemployment services along with REAs. These reem- identity of beneficiaries where there is suspicion of possi-
ployment services, which may include the development of ble identity theft, and provide a referral to reemployment
reemployment and work search plans, provision of skills assistance for those who need additional help. The bene-
assessments, career counseling, job matching and refer- fit savings from this initiative are short-term because the
rals, and referrals to training as appropriate. maximum UI benefit period is limited, typically 26 weeks
The funding proposed in the Budget would allow States for regular State UI programs. The proposed amount to be
to provide RESEA services to focus on UI claimants iden- spent in 2017 would be $35 million through a cap adjust-
tified as most likely to exhaust their UI benefits and on ment, while the out years would request total funding of
newly separated veterans claiming unemployment com- $1.7 billion on the mandatory side of the Budget through
pensation for ex-service members (UCX). The proposed 2026. Of that amount, $228 million is requested as new
mandatory program would result in savings in UI benefit funding. Overall, the new mandatory funding would re-
payments of an estimated $5.1 billion. These benefit sav- sult in total deficit savings estimated at $669 million. The
ings would allow States to reduce their UI taxes by $1.5 2017 cap adjustment would result in total outlay savings
billion, reducing the burden on employers. of $134 million. These deficit savings from the cap adjust-
Table 112. PROPOSALS FOR DISCRETIONARY PROGRAM INTEGRITY BASE FUNDING AND
CAP ADJUSTMENTS, INCLUDING MANDATORY AND RECEIPTS SAVINGS
(Budget authority/outlays in millions of dollars)
2017-2026
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total
IRS Tax Enforcement

Proposed Adjustments Pursuant to the
Control Act of 1985, as Amended:
Enforcement Base 8,854 9,057 9,265 9,477 9,696 9,918 10,145 10,379 12,846 13,118 102,755
Cap Adjustments:
BA 514 938 1,300 1,667 2,042 2,141 2,160 2,185 2,211 2,237 17,395
Outlays 458 890 1,255 1,622 1,996 2,124 2,153 2,180 2,206 2,231 17,115
Receipt Savings from Discretionary
Program Integrity Base Funding and Cap
Adjustments:1
Enforcement Base2 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 540,000
Cap Adjustment3 278 1,585 3,263 5,008 6,763 8,327 9,264 9,590 9,737 9,814 63,629
Unemployment Insurance Improper Payments
Proposed Adjustments Pursuant to the
Control Act of 1985, as Amended/Proposed
Increase in Mandatory Funding:
Discretionary Costs (BA)4 35 0 0 0 0 0 0 0 0 0 35
Mandatory Costs 0 23 24 24 25 26 25 27 26 28 228
Mandatory Savings from Program Integrity Cap
Adjustment, and UI Mandatory Proposal:5
Cap Adjustment 76 58 0 0 0 0 0 0 0 0 134
UI Mandatory Funding Increase 0 27 67 70 75 80 79 88 87 96 669
1 Savings for IRS are revenue increases rather than spending reductions. They are shown as negatives for consistency in presentation.
2 No official estimate for 2017 enforcement revenue has been produced, so this figure is an approximation and included only for illustrative purposes.
3 The Internal Revenue Service (IRS) cap adjustment funds increasesfor existing enforcement initiatives and activitiesand new initiatives. The IRS enforcement program helps
maintain the more than $2 trillion in taxes paid each year without direct enforcement measures. The cost increases will help maintain the base revenue while generating additional
revenue through targeted program investments. The activities and new initiatives funded out of the cap adjustment will yield more than $46 billion in savings over ten years. Aside from
direct enforcement revenue, the deterrence impact of these activities suggests the potential for even greater savings.
4 The cost of shifting the current UI base funding ($151 million in 2017, adjusted annually for inflation) from discretionary to mandatory is not reflected above in 2018 through 2026
because it is offset with and annual reduction to the discretionary spending limits in section 251(c) of the Balanced Budget and Emergency Deficit Control Act of 1985. For 2017, the
Budget requests base UI program integrity funding of $151 million through discretionary appropriations, as well as $35 million through an adjustment to the 2017 discretionary cap. The
mandatory savings from the base funding every year continue to be included in the BBEDCA baseline. The mandatory cost is the increse requested above the inflation adjusted baseline.
5 The maximum UI benefit period is typically 26 weeks unless temporary extended benefits programs are in effect. As a result, preventing an ineligible individual from collecting UI
benefits would save at most a half year of benefits in the absence of extended benefits. The savings estimates are based on regular UI benefits and spread over two years, reflecting the
fact that reemployment and eligibility assessments conducted late in the year affect individuals whose benefits would have continued into the subsequent fiscal year. As a result of the
benefit savings, many States will be able to reduce their unemployment taxes. The reduction in State UI taxes from the cap adjustment is $85 million. The estimated reduction in State UI
taxes from mandatory funding is $204 million.
ment and additional mandatory spending would result in In 2016, early results are expected for the Identifying
some States reducing their UI taxes, which would result State Innovations for Improving Temporary Assistance
in an estimated revenue loss of $289 million. Net savings for Needy Families (TANF) Program Administration pi-
for the proposal, including the cost of the cap adjustment, lot. ACF is working with States to develop cost-effective
the mandatory outlay savings, and the revenue declines, approaches and best practices to maximize TANF block
totals $251 million. The cost of shifting UI base funding grants by reducing improper payments and directing cash
from discretionary to mandatory in 2018 through 2026 is assistance payments to eligible families not participating.
not reflected in the new net deficit savings because it is In 2017, the DOJs Juvenile Justice Reinvestment and
being offset with an annual reduction to the discretionary Realignment Initiative (JJRRI) pilot is expected to pro-
spending limits in section 251(c) of BBEDCA, if the man- duce preliminary results. Under JJRRI, DOJ is working
datory funding proposal is enacted. with State and local youth-serving agencies as well as
Partnership Fund for Program Integrity community service providers to develop and implement an
Innovation.Funded from 2010 through 2013, the integrated set of evidence-based and cost-measurement
Partnership Fund invested over $29 million in eleven tools that will enable them to make informed decisions
pilot projects estimated to lead to total savings of $200 about resources and services for justice-involved youth.
million or more annually if the pilots are taken to scale. Pilot partners are collecting and analyzing local data on
The Partnership Funds focus on program integrity ex- recidivism, cost, and other factors to implement a prac-
panded to include increased cost-effectiveness in the tical ground up solution to the challenges of local and
delivery of federally funded services with State and local State service quality.
partners. As evaluations are completed and results final- Mandatory Program Integrity Initiatives.Table
ized, OMB will work with Federal agencies, States and 11-3 presents the mandatory and receipt savings from
local governments, and other stakeholders to disseminate other program integrity initiatives that are included in
lessons learned and apply the tools and methods tested the 2017 Budget, beyond the expansion in resources re-
more broadly across programs and levels of government. sulting from the increases in administrative funding
In the past year, the Administration for Children and discussed above. These savings total almost $15.8 billion
Families at HHS awarded $3.6 million to scale the suc- over 10 years. These mandatory proposals to reduce im-
cessful pilot National Electronic Interstate Compact proper payments and ensure agencies recover debt owed
Enterprise (NEICE) System to a national level. Formerly to the Federal Government reflect the importance of these
known as Supporting Permanent Placements of Foster issues to the Administration. Through these and other
Care Children through Electronic Records Exchange, this initiatives outlined in the Budget, the Administration
effort has helped States implement a real-time, on-line can improve management efforts across the Federal
data exchange to share records and other information to Government.
support permanent placements of children and youth in Cut Waste, Fraud, and Abuse in Medicare and
foster care when they are placed in homes across State Medicaid.The Budget includes a robust package of
lines. By increasing efficiency, NEICE helps to reduce the Medicare and Medicaid program integrity proposals to
time that youth in foster care spend waiting for an in- help prevent fraud and abuse before they occur; detect
terstate placement. The award will support efforts over fraud and abuse as early as possible; more compre-
the next three years by the Association of Administrators hensively enforce penalties and other sanctions when
of the Interstate Compact on the Placement of Children fraud and abuse occur; provide greater flexibility to the
(AAICPC), which governs the placement of children Secretary of Health and Human Services to implement
across State lines for purposes of foster care, adoption and program integrity activities that allow for efficient use
residential placements, to improve the administrative ef- of resources and achieve high returns-on-investment;
ficiency of interstate placements. and promote integrity in Federal-State financing. For
Additionally, some pilots are close to having re- example, the Budget proposes to authorize civil mon-
sults. The Food and Nutrition Service (FNS) at the etary penalties or other intermediate sanctions for
Department of Agriculture completed the National providers who do not update enrollment records, per-
Accuracy Clearinghouse pilot. FNS worked with States mit exclusion of individuals affiliated with entities
to test an interstate database of program information sanctioned for fraudulent or other prohibited action
to support the Supplemental Nutrition Assistance from Federal health care programs, and strengthens
Program (SNAP) and Disaster SNAP (D-SNAP) eligi- Medicaid and the Childrens Health Insurance Program
bility determinations by allowing States to determine (CHIP) by providing tools to States, Territories, and the
whether an applicant is already receiving benefits in a Federal Government to fight fraud, waste, and abuse.
different participating State. A pilot evaluation is be- Together, the CMS program integrity authority would
ing finalized. The Trusted On-Line Credentials pilot, net approximately $3.4 billion over 10 years PAYGO
in which Commerce is working with States to develop and non-PAYGO savings.
effective and secure identity verification solutions to Unemployment Insurance Integrity.The Budget
support convenient customer access and program in- includes a package aimed at improving integrity in the
tegrity across different services and agencies, has Unemployment Insurance program. The package would
completed implementation and is producing its evalu- result in $79 million in PAYGO outlay costs over 10 years,
ation for one of the two participating States. but would result in $2 billion in non-PAYGO outlay sav-
Table 113. MANDATORY AND RECEIPT SAVINGS FROM OTHER PROGRAM INTEGRITY INITIATIVES
(Receipts and outlays in millions of dollars)
10-year
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 total
Department of Health and Human Services:

Cut Waste, Fraud, and Abuse in Medicare and Medicaid 1 104 79 93 88 98 123 132 152 172 192 1,233
Cut Waste, Fraud, and Abuse in Medicare and Medicaid
(non-PAYGO)1 111 156 256 362 482 552 608 658 703 759 4,647
Department of Labor:
Unemployment Insurance Integrity Package 12 25 6 22 24 27 30 36 31 39 166
Unemployment Insurance Integrity Package (non-PAYGO) 57 83 134 202 194 186 182 147 194 168 1,547
Department of the Treasury:
Authorize Treasury to locate and recover assets of the United States
and to retain a portion of amounts collected to pay for the cost of
recovery 8 8 8 8 8 9 9 9 9 9 85
Increase delinquent Federal non-tax debt collection 32 32 32 32 32 32 32 32 32 32 320
Social Security Administration:
Windfall Elimination Provision/Government Pension Offset
Enforcement Provision (non-PAYGO) 18 28 24 433 1002 1350 1421 1318 1246 1142 7,842
Hold Fraud Facilitators Liable for Overpayments3 (non-PAYGO) ......... ......... 1 1 1 1 1 1 1 1 8
Government Wide Use of CBP Entry/Exit Data to Prevent Improper
Payment ......... ......... 1 4 9 18 24 28 36 39 159
Government Wide Use of CBP Entry/Exit Data to Prevent Improper
Payment (non-PAYGO) ......... ......... ......... 1 2 2 2 3 3 5 18
Allow SSA to Use Commercial Databases to Verify Real Property Data
in the SSI Program 12 28 44 53 60 69 70 68 76 79 559
Increase the Minimum Monthly OASDI Overpayment Collection from
$10 a Month to 10% (non-PAYGO) 8 26 43 59 77 93 107 135 144 156 848
Authorize SSA to Use All Collection Tools to Recover Funds in Certain
Scenarios (non-PAYGO) 2 2 3 4 4 5 5 5 5 35
Move from Annual to Quarterly Wage Reporting 20 30 90 119 125 136 149 172 201 253 1,015
Move from Annual to Quarterly Wage Reporting (non-PAYGO) ......... ......... ......... ......... 1 12 29 31 24 17 114
Total, Mandatory and Receipt Savings 98 223 320 1,167 1,875 2,314 2,477 2,419 2,471 2,434 15,798
PAYGO Savings 60 16 92 106 112 114 122 121 151 181 739
Non-PAYGO Savings 158 239 412 1,061 1,763 2,200 2,355 2,298 2,320 2,253 15,059
1Savings estimates may not include all interactions.
Authorize Treasury to locate and recover assets

ings. In addition, these proposals would allow States to of the United States and to retain a portion of
reduce their unemployment taxes by $516 million. The to- amounts collected to pay for the cost of recov-
tal package would result in $1.4 billion in deficit reduction. ery.States and other entities hold assets in the
Included in this package are proposals to: allow name of the United States or in the name of depart-
for data disclosure to contractors for the Treasury ments, agencies and other subdivisions of the Fed-
Offset Program; expand State use of the Separation eral Government. Many agencies are not recovering
Information Data Exchange System (SIDES), which these assets due to lack of expertise and funding.
already improves program integrity by allowing States Under current authority, Treasury collects delin-
and employers to exchange information on reasons for quent debts owed to the United States and retains
a claimants separation from employment and thereby a portion of collections, which is the sole source of
helping States to determine UI eligibility; mandate the funding for its debt collection operations. While un-
use of the National Directory of New Hires to conduct claimed Federal assets are generally not considered
cross-matches for program integrity purposes; allow to be delinquent debts, Treasurys debt collection
the Secretary to set corrective action measures for poor operations personnel have the skills and training to
State performance; require States to cross-match claim- recover these assets. The Budget proposes to autho-
ants against the Prisoner Update Processing System rize Treasury to use its resources to recover assets
(PUPS), which is currently used by some States; and of the United States. This proposal would result in
allow States to retain five percent of overpayment and PAYGO savings of $85 million over 10 years.
tax investigation recoveries to fund program integrity
activities. Increase delinquent Federal non-tax debt col-
Improve Treasury Debt Collection.The Budget lections. Authorize administrative bank gar-
includes two proposals that would increase collections of nishment for non-tax debts of commercial en-
delinquent debt: tities.Allow Federal agencies to collect non-tax
debt by garnishing the bank and other financial
institution accounts of delinquent commercial debt- billion over 10 years, which would be scored as
ors without a court order and after providing full non-PAYGO savings because the program is off-
administrative due process. The Budget proposes budget. In addition, the Budget proposes to tran-
to direct the Secretary of the Treasury to issue Gov- sition after 10 years to an alternative approach,
ernment-wide regulations implementing the author- which would adjust Social Security benefits based
ity of bank garnishment for non-tax debts of com- on the extent to which workers have non-covered
mercial entities. Bank garnishment orders under earnings. SSA now collects data on non-covered
this authority would be subject to Treasurys rule employment and could calculate the offset with-
(31 CFR 212) protecting exempt benefit payments out any disclosure from the individual.
from garnishment. To reach income of commercial
entities and other non-wage income and funds avail- Hold Fraud Facilitators Liable for Overpay-
ments.The Budget proposes to hold fraud facili-
able to commercial debtors owing delinquent non-
tators liable for overpayments by allowing SSA to
tax obligations to the United States, this proposal
recover the overpayment from a third party if the
would authorize agencies to issue garnishment or-
third party was responsible for making fraudu-
ders to financial institutions without a court order.
lent statements or providing false evidence that
Agencies would be required to provide debtors with
allowed the beneficiary to receive payments that
appropriate administrative due process and other
should not have been paid. This proposal would
protections to ensure that debtors have had the full
result in an estimated $8 million in savings over
opportunity to contest the debts and/or enter into re-
10 years.
payment agreements to avoid issuance of an order.
The Internal Revenue Service currently has similar Government-wide Use of Custom and Bor-
authority to collect Federal tax debts. The Debt Col- der Patrol (CBP) Entry/Exit Data to Prevent
lection Improvement Act of 1996 (DCIA) authorized Improper Payments.The Budget will provide
Federal agencies to collect delinquent non-tax debt for the use of CBP Entry/Exit data to prevent
by garnishing the wages of debtors without the need improper OASDI and Supplemental Security In-
to first obtain a court order. Since July 2001, the surance (SSI) payments. Generally, U.S. citizens
U.S. Department of the Treasurys Bureau of the Fis- can receive benefits regardless of residence. Non-
cal Service has collected $279.3 million in garnished citizens may be subject to additional residence re-
wages (as of November 30, 2015) on behalf of Federal quirements depending on the country of residence
agencies. This proposal would result in estimated and benefit type. However, an SSI beneficiary
savings of $320 million over 10 years in commercial who is outside the United States for 30 consecu-
non-tax debts. tive days is not eligible for benefits for that month.
These data have the potential to be useful across
Preventing Improper Payments in Social the Government to prevent improper payments.
Security.Overall, the Budget proposes legislation that This proposal would result in an estimated $178
would avert close to $9 billion in improper payments in million in savings over 10 years.
Social Security over 10 years. While much of this sav-
ings is considered off-budget and would be non-PAYGO, Allow SSA to Use Commercial Databases to
about $2 billion from various proposals would be PAYGO Verify Real Property Data in the SSI Pro-
savings. gram.The Budget proposes to reduce improper
payments and lessen recipients reporting burden
Improve Collection of Pension Information by authorizing SSA to use private commercial da-
and Transition after 10 Years to an Alterna- tabases to check for ownership of real property
tive Approach based on Years of Non-Covered (i.e. land and buildings), which could affect SSI
Earnings.The Budget proposes legislation that eligibility. Consent to allow SSA to access these
would improve reporting for non-covered pensions databases would be a condition of benefit receipt
by including up to $70 million for administrative for new beneficiaries and current beneficiaries
expenses, $50 million of which would be available who complete a determination. All other current
to the States, to develop a mechanism so that the due process and appeal rights would be preserved.
Social Security Administration could enforce the This proposal would result in savings of $559 mil-
offsets for the Windfall Elimination Provision lion over 10 years.
(WEP), and Government Pension Offset (GPO).
The proposal would require State and local gov- Increase the Minimum Monthly OASDI Over-
ernments to provide information on their non-cov- payment Collection from $10 a Month to
ered pension payments to SSA so that the agency 10%.The Budget would change the minimum
can apply the WEP and GPO adjustments. Un- monthly withholding amount for recovery of So-
der current law, the WEP and GPO adjustments cial Security benefit overpayments to reflect the
are dependent on self-reported pension data and increase in the average monthly benefit since the
cannot be independently verified. This proposal Agency established the current minimum of $10
would result in savings in the Old-Age, Survivors, in 1960. By changing this amount from $10 to
and Disability Insurance program of almost $7.9 10% of the monthly benefit payable, SSA would
recover overpayments more quickly and better 1. Expand the number of databases and infrastructure
fulfill its stewardship obligations to the combined of the Do Not Pay list;
Social Security Trust Funds. The SSI program al-
ready utilizes the 10% rule. This proposal would 2. Procure the detection technology and staff an op-
result in savings of $848 million over 10 years. erations center to analyze fraud patterns using
available public and private sector information; and
Authorize SSA to Use All Collection Tools to
Recover Funds in Certain Scenarios.The
3. Refer potential improper payment issues to the rel-
Budget also proposes to allow SSA a broader
evant agency management and Inspector General.
range of collection tools when someone improperly
receives a benefit after the beneficiary has died.
The Improper Payments and Elimination and Recovery
Currently, if a spouse cashes a benefit payment (or
Improvement Act of 2012 (IPERIA; P.L. 112-248) rein-
does not return a directly deposited benefit) for an
forced the Administrations Do Not Pay initiative, by
individual who has died and the spouse is also not
codifying the efforts underway to improve payment accu-
receiving benefits on that individuals record, SSA
racy. Through OMB Memorandum M-13-20, Protecting
has more limited collection tools available than
Privacy while Reducing Improper Payments with the Do
would be the case if the spouse also receives ben-
Not Pay Initiative, OMB designated the Department of
efits on the deceased individuals earning record.
the Treasury to spearhead the Do Not Pay working sys-
The Budget proposal would end this disparate
tem with the five databases specified by IPERIA, enabled
treatment of similar types of improper payments
Treasury to publish a System of Records Notification in
and results in an estimated $35 million in savings
accordance with the Privacy Act of 1974, and provided
over 10 years.
substantial guidance for Federal agencies to ensure that
Move from Annual to Quarterly Wage Report- individual privacy is fully protected in the program.
ing.The Budget re-proposes moving from annu- Given the increasing range of sensitive information
al to quarterly employer reporting of wages to the available about individuals through commercial sources,
Social Security Administration. This would pro- this guidance was a significant step to ensure privacy
vide more accurate and timely wage data which protections when data is used to inform government deci-
would further program integrity efforts and fa- sion-making. The Treasury Do Not Pay Business Center
cilitate tax administration. This proposal would has established a working system that enables agencies
result in savings of $1.129 billion over 10 years. to identify, prevent, capture, and recover payments at dif-
ferent phases of the payments life cycle using available
Other Program Integrity Initiatives. databases, and Do Not Pay analytics specialists work one-
on-one with agencies to review payment data to identify
Data Analytics to Reduce Improper Payments. and address internal control weaknesses that resulted in
Under this Administration, the Federal Government has improper payments. Treasurys team also provides busi-
focused on increased use of technology to address improp- ness process review services to support this work.
er payments. Pursuant to Executive Order 13520 (issued Treasury initiated the system in a phased approach to
November 20, 2009), work groups were created to analyze meet IPERIAs requirement for agencies to begin review-
the role that cutting-edge forensic technologies could play ing all payments and awards with Do Not Pay by June
in identifying and preventing fraud and other improper 1, 2013. The effective use of data analytics has provided
payments, as well as efforts that could be undertaken to insight into methods of reducing costs and improving per-
improve data sharing between agencies. formance and decision-making capabilities. Collectively,
On June 18, 2010, a Presidential Memorandum on agency reports indicated to OMB after the first year of re-
Enhancing Payment Accuracy Through a Do Not Pay viewing payments under the Initiative resulted in over $2
List required Federal agencies to review current pre- billion of stopped payments with additional operational
payment and pre-award procedures and ensure that a efficiencies identified.
thorough review of available databases with relevant in- The Do Not Pay initiative has continued to expand and
formation on eligibility occurs before the release of any incorporate other agency best practices and activities that
Federal funds. The Do Not Pay list established a single further promote program integrity and benefits to the tax-
portal, the Department of the Treasurys (Treasury) Do payer. The Bipartisan Budget Act of 2013 expanded the
Not Pay Business Center, through which agencies could Do Not Pay initiative to include additional information
check multiple eligibility databases before making an collected by the Social Security Administrations Prisoner
award or payment. The 2012 Budget requested (and the Updates Processing System (PUPS) to prevent the improp-
Consolidated Appropriations Act, 2012 appropriated) $10 er payment of Federal funds to incarcerated individuals,
million to the Treasury Department to support expansion and in 2015, the Do Not Pay Business Center began facili-
of the Do Not Pay list and to add forensic fraud detec- tating the Internal Revenue Service use of these data to
tion capabilities to the basic Do Not Pay Business Center. prevent fraud committed by prisoners. Additional exam-
Specifically, the funding helped to: ples of agencies using data to improve payment accuracy
include the Centers for Medicare & Medicaid Services
(CMS) Fraud Prevention System (FPS), a state-of-the-
art predictive analytics technology used to identify and (For example, effects on Medicaid spending that are due to
prevent fraud in the program; the Department of Defense statutory linkages in eligibility for Supplemental Security
Business Activity Monitoring tool; and the Department of Income benefits must be scored.) In addition, even when
Labors Unemployment Insurance (UI) Integrity Center programs are not linked by statute, agencies may score
for Excellence, a Federal-State partnership which facili- effects on other programs if those effects are significant
tates the development and implementation of integrity and well documented. Specifically, the guidance states:
tools that help detect and reduce improper payments in Under certain circumstances, estimates may also include
state run programs. effects in programs not linked by statute where such ef-
Agencies need available data to be timely, accurate, fects are significant and well documented. For example,
and relevant to their programs to improve their payment such effects may be estimated where rigorous experimen-
accuracy, and additional authorities will enhance data tal research or past program experience has established
sharing on death, prisoners, and employment for payment a high probability that changes in eligibility or terms of
accuracy, while maintaining privacy. one program will have significant effects on participation
Use of the Death Master File to Prevent Federal in another program.
Improper Payments.The Administration is continuing Rigorous evidence can help policy makers identify poli-
to pursue opportunities to improve information sharing cies that reduce Government spending overall. Because
by developing or enhancing policy guidance, ensuring PAYGO accounts for long-term mandatory savings, it
privacy protection, and developing legislative proposals creates an incentive to invest in relatively cost-effective
to leverage available information and technology in de- programs. Discretionary programs can save money too,
termining benefit eligibility and other opportunities to but discretionary scoring typically does not capture these
prevent improper payments. savings. For example, research shows investments in
The Budget proposes to improve payment accuracy fur- the Special Supplemental Nutrition Program for Women,
ther by sharing available death data across Government Infants, and Children (WIC) reduce Medicaid costs for
agencies to prevent improper payments. This proposal the mother and child. Although the interventions can
would amend the Social Security Act to provide the Do reduce Federal costs, the appropriations bills are scored
Not Pay system at Treasury and agencies that use the with the discretionary costs but are not credited with the
system access to the full death data at SSA to prevent, savings in mandatory spending. As discussed earlier in
identify, or recover improper payments. This proposal this chapter, one exception to this is the program integ-
would include information received from a State, or any rity cap adjustments, which allow the appropriators to
other source, about the deceased. provide money above the discretionary caps for activi-
Efficient use of Employment Data to Streamline ties that have been shown to generate cost savings. OMB
Processes.The Budget also proposes to allow programs would like to work with the Congress and CBO to develop
that are statutorily authorized to access HHSs National options to provide similar incentives to use rigorous evi-
Directory of New Hires data the option to do so via the Do dence to reward discretionary program investments in
Not Pay system at Treasury, providing them a centralized interventions that reduce government spending in other
portal of information. This proposal will increase effi- areas. In addition to promoting better use of limited dis-
ciency and effectiveness of data matching, while ensuring cretionary funding, such incentives would also stimulate
robust privacy protections are maintained. better data collection and evaluation about the impacts of
Social Security Workers Compensation Federal spending.
Enforcement Provision.The Budget proposes the im-
Disaster Relief Funding
provement of data collection on the receipt of Workers
Compensation benefits. Similar to non-covered pension Section 251(b)(2)(D) of BBEDCA includes a provision to
information (see description in the mandatory program adjust the discretionary caps for appropriations that the
integrity initiatives section above), this information Congress designates as being for disaster relief in statute.
is self-reported to SSA and is used to offset benefit The law allows for the discretionary cap to be increased
amounts in the Social Security Disability Insurance and by no more than the average funding provided for disas-
Supplemental Security Income programs. This proposal ter relief over the previous 10 years, excluding the highest
would develop a process to collect this information in a and lowest years. The ceiling for each years adjustment
timely manner from States and private insurers to cor- (as determined by the 10 year average) is then increased
rectly offset Disability Insurance benefits and reduce SSI by the unused amount of the prior years ceiling (exclud-
payments. The proposal includes $10 million to help fund ing the portion of the prior years ceiling that was itself
States implementation costs and would reduce program due to any unused amount from the year before). Disaster
overpayments and underpayments. relief is defined as activities carried out pursuant to a de-
Using Rigorous Evidence to Develop Cost termination under section 102(2) of the Robert T. Stafford
Estimates.OMB works with Federal agencies and Disaster Relief and Emergency Assistance Act (42 U.S.C.
CBO to develop PAYGO estimates for mandatory pro- 5122(2)) for major disasters declared by the President.
grams. OMB has issued guidance to agencies for scoring The request amends BBEDCA to extend the discretionary
legislation under the PAYGO. This guidance states that cap adjustment for disaster funding through 2026.
agencies must score the effects of program legislation on As required by law, OMB included in its Sequestration
other programs if the programs are linked by statute. Update Report for FY 2016 a preview estimate of the 2016
adjustment for disaster relief. The ceiling for the disaster Under the principles outlined above, since the
relief adjustment in 2016 was calculated to be $14,125 mil- Administration does not have the adequate information
lion. In the Consolidated Appropriations Act, 2016 (P.L. about known or estimated needs that is necessary to state
114-113), the Congress provided $6,713 million designated the total amount that will be requested in future years
for disaster relief in the Federal Emergency Management to be designated by the Congress for disaster relief, the
Agencys Disaster Relief Fund (DRF); $300 million in Budget does not explicitly request to use the BBEDCA
the Department of Housing and Urban Developments disaster designation in any year after the budget year.
Community Development Fund; $91 million in the Farm Instead, a placeholder for disaster relief is included in
Service Agencys Emergency Conservation Program and the current year, the budget year, and each of the out-
$2 million in its Emergency Forest Restorations Program; years. See the discussion of this placeholder allowance
and $37 million in the Natural Resources Conservation later in this chapter in Section III (Improved Definition
Services Watershed and Flood Prevention Operations ac- of Baseline) under the heading titled Adjustments for
count, for a total of $7,143 million. Emergency and Disaster Costs.
OMB must include in its Sequestration Update Report
Proposed Adjustment to the Discretionary
for FY 2017 a preview estimate of the ceiling on the
Spending Limits for Wildfire Suppression
adjustment for disaster relief funding for 2017. This es-
Operations at the Departments of
timate will contain an average funding calculation that
Agriculture and the Interior
incorporates five years (2007 through 2011) using the def-
inition of disaster relief from OMBs September 1, 2011 On December 19, 2013, Senator Ron Wyden and Senator
report and five years using the funding the Congress des- Mike Crapo introduced the Wildfire Disaster Funding Act
ignated in 2012 through 2016 for disaster relief pursuant of 2013 (S. 1875). On February 5, 2014, Representative
to BBEDCA excluding the highest and lowest years. The Mike Simpson and Representative Kurt Schrader intro-
amounts enacted as appropriations for disaster relief in duced a companion bill in the House (H.R. 3992), with
2016 are $6,982 million below the preview adjustment Representative Peter DeFazio and Representative Raul
estimate of $14,125 million. However, pursuant to sec- Labrador as cosponsors. This legislation would have
tion 251(b)(2)(D)(i)(II) of BBEDCA, any unused carryover amended section 251(b)(2) of BBEDCA to add an adjust-
from 2015 cannot carry forward into the calculation of the ment to the discretionary spending limits for wildfire
2017 preview estimate. As a result, only $1,598 million of suppression operations. The adjustment allowed for an
this total underage will carry forward into the calculation increase in the discretionary caps for each of fiscal years
of the 2017 preview adjustment in OMBs August 2016 2014 through 2021 of up to $2.7 billion if appropriations
Sequestration Update Report for Fiscal Year 2017 if no bills provide funding for wildfire suppression operations
further appropriations are enacted in 2016 that are des- at specified base levels. The $2.7 billion permissible ad-
ignated for disaster relief. justment is a ceiling, rather than a target. It is intended to
At this time, the Administration is requesting $6,868 give flexibility to respond to severe, complex, and threat-
million in funding in two accounts to be designated for ening fires or a severe fire season that is not captured by
disaster relief by the Congress: more than $6.7 billion in the historical averages. In addition, it does not increase
FEMAs DRF to cover the costs of Presidentially declared overall discretionary spending, since it would reduce the
major disasters, including identified costs for previously ceiling for the existing disaster relief cap adjustment by
declared catastrophic events (defined by FEMA as events an equivalent amount as is provided for wildfire suppres-
with expected costs that total more than $500 million) and sion operations.
the predictable annual cost of non-catastrophic events ex- The base levels are defined in the legislation as 70
pected to obligate in 2017, and $159 million in the Small percent of the average costs for wildfire suppression op-
Business Administrations Disaster Loans Program erations over the previous 10 years. These base levels
Account for administrative expenses. For these two pro- ensure that the cap adjustment would only be used for
grams, the Budget requests funding for both known needs the most severe fire activity, since it is 1 percent of fires
based on expected costs of prior declared disasters and that cause 30 percent of costs. Only extreme fires that
the typical average expenditures in these programs. This require emergency response or are near urban areas or
is consistent with past practice of requesting and fund- activities during abnormally active fire seasons including
ing these as part of regular appropriations bills. Also large fires that require emergency response, which right-
consistent with past practice, the 2017 request level does ly should be considered disasters, would be permitted to
not seek to pre-fund anticipated needs in other programs be funded through the adjustment to the discretionary
arising out of disasters that have yet to occur, nor does spending limits.
the Budget seek funding for potential catastrophic needs. Wildfire suppression operations are defined by the
As additional information about the need to fund prior or legislation as the emergency and unpredictable aspects
future disasters becomes available, additional requests, of wildland firefighting including support, response, and
in the form of either 2016 supplemental appropriations emergency stabilization activities, other emergency man-
(designated as either disaster relief or emergency require- agement activities, and funds necessary to repay any
ments pursuant to BBEDCA) or budget amendments to transfers needed for those costs. This means that related
the Budget, may be transmitted. activities, such as fire preparedness, must continue to be
funded from base appropriations and are not considered the cost of the decennial census per household in each
when determining if the cap adjustment is triggered. decade since 1980. The Administration is committed to
As described above, the legislation does not allow for working with the Congress toward a 2020 Census that:
an increase in total discretionary spending. Rather, by Keeps pace with significant technological advance-
its design, total funding for disasters is not expected to ments since the last decennial census;
increase above currently estimated levels because the bill
allocates funding for wildfire suppression operations from Maintains focus on the core mission to count every-
within the existing disaster relief funding cap adjustment one in the U.S. once, and only once; and
described under the previous heading. Specifically, the
ceiling for the disaster relief adjustment would be re-
Keeps costs at or below the per-household cost of the
2010 decennial census, adjusted for inflation, allow-
duced by the amount provided for wildfire suppression ing for lifecycle cost savings of at least $5.2 billion
operations under the cap adjustment for the preceding relative to the costs of repeating 2010 methodologies.
fiscal year.
The two introduced Wildfire Disaster Funding Acts and To meet those goals, the Budget proposes to amend
the two most recent Senate Appropriations committee BBEDCA to allow an adjustment to the discretionary
markups of the Department of the Interior, Environment, spending limits for the cyclical increase in decennial cen-
and Related Agencies Appropriations Act, which included sus operations. An adjustment to the caps would:
similar language, attempt to create a more responsible Provide the Census Bureau the funding certainty to
way to budget for wildfire suppression operations that confidently invest in cost saving technology that will
allows for improved agency planning and management. lower the life cycle cost of the 2020 Census and fu-
The reality is that the Government has historically fully ture decennial censuses;
funded wildfire suppression operations and will continue
to do so in the future. It is inefficient and ineffective to Avoid either a large emergency appropriation for
provide those resources on an ad hoc basis and to raid a predictable funding need in 2020 or unnecessary
other critical land management operations to pay for sup- trade-offs in other discretionary programs as Cen-
pression operation needs. The practice of doing so in prior sus needs squeeze out other spending;
years led to destabilizing transfers from other accounts, Comply with the 2020 Census operational plan pro-
and ultimately to underinvesting in other areas that are vided to Congress in October 2015 for the rest of the
critical to long-term forest health and resilience. cycle;
The Budget assumes that the cap adjustment will begin
in 2017 and will remain in effect through 2026. The only In future decades, when applicable, provide suf-
significant departure from the two introduced Wildfire ficient funding to implement and test innovations
Disaster Funding Acts is that the Budget proposes to early enough to allow for successful implementa-
phase in the size of the cap adjustment, beginning with a tion with lower risk of cost overrun or degradation
maximum permissible adjustment of $1.4 billion in 2017 of data accuracy; and
that increases slowly to $2.7 billion by 2023 and remains
at that level thereafter. At this time, the Administration
Avoid inefficient and possibly wasteful spending
due to a starvation/gluttony cycle, which would be
is requesting to fund only $1.2 billion through the wildfire caused by cutting other programs in order to afford
suppression operations cap adjustment in 2017 ($864 mil- peak decennial census funding under the discretion-
lion in the Department of Agriculture and $290 million in ary caps in 2020, followed by $5.5 billion in surplus
the Department of the Interior). If the cap adjustment funds to spread around in 2021.
were to be enacted, additional requests, in the form of
amendments to the Budget, might be transmitted as ad- The discretionary spending limits enacted in the
ditional information about the severity of the fire season Budget Control Act of 2011 and put into place through
becomes known. 2021 did not incorporate an increase for the cyclical de-
cennial census spending that occurs in the second half of
Proposed Adjustment to the Discretionary
every decade. Without adequate funding in the decades
Spending Limits for Decennial Census
middle years, the Census Bureau is less able to test and
at the Department of Commerce
implement cost-saving innovations; the result is an in-
The decennial census is one of the oldest, most influ- crease in any potential costs that might occur in later
ential programs in the history of the U.S. government. years from operational failures due to lack of sufficient
Its mission is simple while its execution is complex: to testing. Adequate funding in the later years of the decade
count everyone in the U.S. once, and only once, and in is imperative, where shortfalls would destroy the quality,
the right place. Its impacts are fundamental and far- accuracy, and efficiency of the 2020 Census. This predict-
reaching: drawing official local geographical boundaries, able and cyclical spike in decennial census funding should
determining each states allocation in the U.S. House of not crowd out baseline levels of ongoing domestic discre-
Representatives and drawing congressional districts, tionary budget priorities. Nor should the cyclical spikes
and providing the bedrock data that forms the frame- be considered part of the baseline domestic discretionary
work for government and private sector decision-making. spending. In 2000, when discretionary caps were last in
Demographic and technological changes have increased place and decennial census funding competed with other
Table 114. SIZE OF PROPOSED DISCRETIONARY

CAP ADJUSTMENT FOR 2020 CENSUS
Start in 2018 (Base: 2015) 1
Fiscal Adjustment as % of
Year 2020 Census non-def. disc.
Funding Needs Base Spending Size of cap adjustment cap growth
2012 67 67 ......... .........

2013 94 94 ......... .........
2014 233 233 ......... .........
2015 345 345 ......... .........
2016 600 600 ......... .........
2017 781 781 ......... .........
2018 912 365 548 5%
2019 2,054 373 1,682 13%
2020 6,154 381 5,772 48%
2021 650 390 260 2%

Total 11,891 3,629 8,262
1 If this cap adjustment is employed in future applicable decades, the adjustment would begin in Year 6 rather than
in Year 8, as shown above for the 2020 Census.
programs, the Congress provided emergency funding to for the decennial census begin, the proposal assumes for
avoid both of these problems. this decade that the cap adjustment would begin no lat-
A discretionary cap adjustment for the decennial cen- er than 2018, as costs begin to rise to their peak levels.
sus establishes a permanent and cyclical adjustment that Enacting and utilizing the adjustment as early as Year
would accommodate prudent, cost efficient spending and 6 of future applicable decades would allow the Census
reduce total lifecycle costs in any decade in which caps Bureau even greater cost certainty in the critical testing
are in law. It establishes a funding base sufficient to cover and implementation years prior to the final end-to-end
the early research years of the decade, and a cap adjust- test of all systems and process interoperability in Year 8
ment that allows additional funding during the years of of each decade. Doing so will strengthen the quality and
significant implementation, scale-up, and operationaliza- efficiency and significantly reduce the risk of cost over-
tion in the second half of the decade. Using this method, runs of future decennial censuses, without burdening the
base spending levels for the decennial census for each rest of the domestic priorities.
years cap adjustment will be established using the ap- This proposal is not included as an adjustment to the
propriation received in Year 5 (i.e., 2015) of the decade, proposed 2017 Budget caps at this time in order to present
adjusted for inflation measured by the CPI-U. The size of its merits first; Table 11-4 shows how the discretionary
the cap adjustments will be determined early in Year 5 cap adjustments would be structured using the param-
of the decade when the Census Bureau releases its ini- eters delineated above for the 2020 Census using the
tial operational plan and funding needs for each year of decennial census cost baseline submitted to the Congress
the next six years of the cycle as was done in 2015. The in October 2015. The first cap adjustment estimate is $548
size of each years cap adjustment, starting in Year 6, will million in 2018, in addition to $365 million in base fund-
be derived from this estimate less the base spending for ing (the inflation-adjusted pre-operational funding need),
that year. This structure will provide the Census Bureau to meet the anticipated total funding need of $912 million.
an incentive to innovate and keep costs down while pro- This shifts some cyclical funding that was funded in the
viding funding certainty to allow for a low risk and high base in 2016 and 2017 to the cap adjustment, as these
quality decennial census. It allows for the execution of amounts would have been funded through this mecha-
multi-year plans from a lifecycle rather than annual per- nism in those years if it had been enacted then. The cap
spective, which will bring down life-cycle costs. A cyclical adjustment expands to its peak level in 2020, represent-
cap adjustment also allows Congressional appropriators ing the magnitude of other core discretionary program
funding flexibility late in the decade without having to spending enabled by this proposal, totaling $8.2 billion.
sacrifice key priorities or a streamlined, effective, and cost The last column of Table 11-4 shows the amount the pro-
efficient decennial census. posed cap adjustment would take up as a percentage of
Since the opportunity has passed to enact the cap ad- annual growth in the original non-defense discretionary
justment at the ideal point in 2016 when the major costs caps passed in the Budget Control Act of 2011, reach-
for implementing and refining technology and methods ing 48 percent, or almost half, of the increase that would
have occurred in 2020. While total discretionary spend- 3202 and 3304 for the Senate and the House, respective-
ing would rise, paired with a full regular appropriation ly, of the Concurrent Resolution on the Budget for Fiscal
in 2017 this more stable and predictable funding mecha- Year 2016 (S. Con. Res. 11). Those limits apply only to
nism for 2018-2021 would also support the full realization the accounts explicitly specified in the joint explanatory
of $5.2 billion in lifecycle cost savings for the 2020 Census statement of managers accompanying S. Con. Res. 11.
relative to repeating 2010 methods. In addition, the Administration would allow ad-
Limit on Discretionary Advance Appropriations vance appropriations for the Corporation for Public
Broadcasting, which is typically enacted two years in ad-
An advance appropriation first becomes available for vance, and for Veterans Medical Care, as is required by the
obligation one or more fiscal years beyond the year for Veterans Health Care Budget Reform and Transparency
which the appropriations act is passed. Budget author- Act (P.L. 111-81). The veterans medical care accounts
ity is recorded in the year the funds become available for currently comprise Medical Services, Medical Support
obligation, not in the year the appropriation is enacted. and Compliance, and Medical Facilities. Consistent with
There are legitimate policy reasons to use advance ap- section 4003 of the Surface Transportation and Veterans
propriations to fund programs. For example, funding for Health Care Choice Improvement Act of 2015 (P.L. 114-
the Corporation for Public Broadcasting is customarily 41), the Administration is also including the new Medical
appropriated two years in advance. This gives the ben- Community Care account in its advance appropriations
eficiaries of this funding time to plan their broadcasting request for veterans medical care for 2018. The level of ad-
budgets before the broadcast season starts. vance appropriation funding for veterans medical care is
However, advance appropriations can also be used in largely determined by the Enrollee Health Care Projection
situations that lack a programmatic justification, as a Model of the Department of Veterans Affairs (VA). This
gimmick to make room for expanded funding within the actuarial model projects the funding requirement for over
discretionary spending limits on budget authority for a 80 types of health care services, including primary care,
given year under BBEDCA. For example, some educa- specialty care, and mental health. The remaining fund-
tion grants are forward funded (available beginning July ing requirement is estimated based on other models and
1 of the fiscal year) to provide certainty of funding for an assumptions for services such as readjustment counseling
entire school year, since school years straddle Federal fis- and special activities. VA has included detailed informa-
cal years. This funding is recorded in the budget year tion in its Congressional Budget Justifications about the
because the funding is first legally available in that fiscal overall 2018 veterans medical care funding request.
year. However, $22.6 billion of this funding is advance The Administration also proposes to allow advance
appropriated (available beginning three months later, on appropriations for the spending and collections of the
October 1) rather than forward funded. Prior Congresses payments in the General Services Administration (GSA)
increased advance appropriations and decreased the Federal Buildings Fund. This net zero proposal supports
amounts of forward funding as a gimmick to free up room capital requirements as well as operating expenses. This
in the budget year without affecting the total amount would provide greater certainty to support capital proj-
available for a coming school year. This gimmick works ects and ensure that the funds that agencies pay to GSA
because the advance appropriation is not recorded in the are used promptly to construct, maintain, and operate
budget year but rather the following fiscal year. But it GSA facilities.
works only in the year in which funds are switched from For a detailed table of accounts that have received dis-
forward funding to advance appropriations; that is, it cretionary and mandatory advance appropriations since
works only in years in which the amounts of advance ap- 2015 or for which the Budget requests advance appropria-
propriations for such straddle programs are increased. tions for 2018 and beyond, please refer to the Advance
To curtail this gimmick, which allows over-budget Appropriations chapter in the Appendix.
funding in the budget year and exerts pressure for in-
Budgetary Treatment of Surface
creased funding in future years by committing upfront
Transportation Infrastructure Funding
a portion of the total budget authority limits under the
discretionary caps in BBEDCA, in those years, congres- Overview.Currently, surface transportation pro-
sional budget resolutions since 2001 have set limits on grams financed from the Highway Trust Fund (HTF)
the amount of advance appropriations. When the con- are treated as hybrids: contract authority is classified as
gressional limit equals the amount that had been advance mandatory, while outlays are classified as discretionary.
appropriated in the most recent appropriations bill, there Broadly speaking, this framework evolved as a mecha-
is no additional room to switch forward funding to ad- nism to ensure that collections into the HTF (e.g., motor
vance appropriations, and so no room for this particular fuel taxes) were used to pay only for programs that benefit
gimmick to operate in that years budget. surface transportation users, and that funding for those
The Budget includes $28,768 million in advance ap- programs would generally be commensurate with col-
propriations for 2018 and freezes them at this level in lections. Recent passage of the Fixing Americas Surface
subsequent years. In this way, the Budget does not employ Transportation Act, or the FAST Act, shored up the
this potential gimmick. Moreover, the Administration Highway Trust Fund and maintained this hybrid funding
supports limiting advance appropriations to the proposed structure through 2020. The Administration reflects this
level for 2018, similar to the limits included in sections bipartisan agreement in the Budget.
Table 115. BUDGETARY RESOURCES AND REVENUE FOR

THE 21ST CENTURY CLEAN TRANSPORTATION PLAN
Budgetary Resources
Department of Transportation 303
Clean Transportation Plan Funding - Other Agencies (DOE, NASA, EPA) 16
Family Emergency Assistance Fund 65
Total, Proposed Resources, New Programs 385
Projected Trust Fund Gap, 20212026 110
Total, Proposed Resources 495
Revenue
Gross Oil Fee Receipts 436
Impact on Other Receipts 117
Total, Net Impact of Oil Fee 319
Business Tax Reform Transition Revenue 176
Total, Proposed Revenues 495
The Administrations 21st Century Clean As proposed by the Administration, this unified scor-
Transportation Initiative provides resources for DOT ing framework for clean transportation funding does not
programs over and above those included in the FAST Act. radically alter traditional roles and jurisdictional rela-
To encourage movement toward a more unified and con- tionships as they are conceived of under current law and
sistent scorekeeping regime, the Budget presents those scorekeeping practice.
programs as exclusively mandatory rather than as hy- The budget process reform associated with the Clean
brids. Furthermore, the Administrations proposal would Transportation Initiative is only one element of the
broaden the scope of programs included under the Trust Administrations comprehensive plan to make invest-
Fund umbrella: the HTF is renamed the Transportation ments in a transportation initiative that is geared toward
Trust Fund (TTF), and supports additional highway the Nations 21st Century demands. The Budget and
safety and transit programs, as well as passenger rail Appendix volumes discuss the broader policy in more
programs and multimodal programs administered by the detail.
Department of Transportation, all of which are focused Account-by-Account Budgetary Treatment.As
on investing in surface transportation infrastructure and part of the Clean Transportation Plan, the Budget pro-
aimed at reducing emissions from the transportation poses the enactment of mandatory contract authority for
sector. The initiative also includes funding for select pro- the Transportation Trust Fund for each year, 2017-2026,
grams outside of DOT, though not through a trust fund. totaling $303 billion over ten years.
The mechanics of the 2017 Clean Transportation Under the Budget, outlays flowing from contract au-
Initiative are described in greater detail below. Generally thority for the clean transportation initiative will also be
speaking, within DOT: treated as mandatory. The same treatment is applied to
FAST Act accounts remain at authorized levels outlays flowing from previous accounts funded from the
through the Budget window. General Fund of the Treasury, which will now be attribut-
ed to the Transportation Trust Fund; this is a departure
New TTF accounts supporting transportation-relat- from current law. As is the case for other mandatory
ed clean infrastructure activities receive mandatory programs, this aligns outlays with budget authority. By
contract authority and mandatory outlays, with dis- placing outlays on the mandatory side of the Budget, in-
cretionary obligation limitations. creases above the baseline go on the PAYGO scorecard,
$4.4 billion of surface transportation spending from giving real scoring effect to funding increases for these
the general fund is reclassified from discretionary programs. Accounts funded through the FAST Act contin-
budget authority and outlays to mandatory contract ue the hybrid treatment of mandatory contract authority
authority and outlays, with annual obligation limi- and discretionary outlays.
tations continuing to be established by the Appro- For all of the resources in the 21st Century Clean
priations Committee and funded through the TTF. Transportation Initiative proposal, the Budget proposes
that the reauthorization contain annual obligation lim-
For the sake of comparability, the current law gen- its at the same level as the contract authority, and that
eral fund accounts reclassified in the Budget are annual appropriations bills include obligation limits at
presented as reclassified to mandatory spending those levels. The obligation limits enacted by the ap-
in 2015 and 2016. This is intended to allow policy propriators enable the Administration and the Congress
makers to transparently calculate the difference be- to review TTF policies and resource levels on an annual
tween baseline levels and the Presidents proposal. basis, but under a framework that will continue to give
external stakeholders a high level of certainty regarding
the multi-year resource trajectory for highways, transit, account. In those instances, the PAYGO impact of the
passenger rail, and multimodal activities. Administrations proposal must be calculated at the ag-
The Budget modifies individual accounts to con- gregate level rather than the individual account level (i.e.,
form to the proposed budgetary treatment in all years. the change between the reclassified baseline amounts in
Specifically: the existing general fund accounts and the proposed lev-
For accounts that are presently classified as having els in the successor account).
discretionary budget authority and outlays, but that Transportation Trust Fund Mechanics.As dis-
the Administration proposes to incorporate into the cussed earlier, the Budget proposes a successor to the
TTF (for example, the Federal Transit Administra- Highway Trust Fund, the Transportation Trust Fund,
tions Capital Investment Grants account), the Bud- which continues all activities currently supported in the
get includes separate schedules that: FAST Act. Additionally, it includes funding to support the
21st Century Clean Transportation proposal, which in-
Show baseline budget authority and outlays as cludes each of the accounts formerly funded through the
discretionary, consistent with current classifica- general fund.
tions. The goal of a broader Trust Fund is to allow policy-
Reclassify baseline budget authority and outlays makers to review and consider surface transportation
as mandatory in all years, including 2015 and policy and spending in a more comprehensive way.
2016, for comparability purposes (i.e., to enable a Offsets.The 21st Century Clean Transportation
comparison of funding levels across years in an Plan (the Plan) is fully paid for by two sources:
account). A new fee of $10.25 per barrel on oil paid by oil com-
panies, which would be phased in over five years,
Show adjustments (subject to PAYGO) to the re- and
classified mandatory amounts so that the pro-
posal properly accounts for requested program One-time transition revenues from business tax re-
growth in the five new trust fund accounts. form that ensure that:
For the proposed new account supported by the TTF, Transportation Trust Fund solvency is not im-
the 21st Century Clean Transportation Plan Invest- pacted as the Plans investments ramp up and the
ment Initiative, the Budget includes a schedule that oil fee is phased in;
includes new mandatory contract authority and out- The proposal is fully paid for over time (i.e., oil
lays requested to support those programs. fees plus business tax reform revenue covers the
The discretionary accounts that are incorporated into total outlays from the proposal over the full life
the TTF construct are: of the initiative, including outlays outside the ten
year window); and
Office of the Secretary: National Infrastructure In-
vestments. The Transportation Trust Fund solvency gap in
years 5-10 of the budget window is eliminated and
Federal Railroad Administration (FRA): Operating
the Plan generates a sustainable revenue level for
Subsidy Grants to the National Railroad Passenger
Corporation; Capital and Debt Service Grants to the TTF going forward.
the National Railroad Passenger Corporation; and The Plan is envisioned as a surge in transportation
Northeast Corridor Improvement Program. investment that would not only improve infrastructure
condition and performance, but catalyze a broad shift in
National Highway Traffic Safety Administration
the way Americans use the transportation system. Also,
(NHTSA): Operations and Research.
the Plan dedicates 15 percent of gross oil fee revenues
Federal Transit Administration (FTA): Administra- over ten years to assist families with burdensome energy
tive Expenses; Capital Investment Grants; and Job costs, including a focus on supporting households in the
Access and Reverse Commute Grants. Northeast as they transition from fuel oil for heating to
cleaner forms of energy. At the end of the ten-year window,
Amounts in these accounts total $4.3 billion in dis- Transportation Trust Fund revenue sourcescurrent law
cretionary budget authority for 2016. The 2017 baseline and the proposed oil fee (which is indexed to inflation)
levels for these amounts are what constitute the discre- are estimated to raise just over $100 billion per year.
tionary cap adjustment noted in the OMB Sequestration Current law receipts account for around 40 percent of
Preview Report to the President and Congress for Fiscal that total. The Plan is therefore designed to support sur-
Year 2017. Note that in a number of cases, activities face transportation spending over the long-term at levels
captured in these accounts are requested under a new well above current law spending.
account supported by the TTF in the Administrations Table 11-5 illustrates the financing structure of the ini-
21st Century Clean Transportation Plan proposal. For tiative in broad terms. All DOT budgetary resources run
example, activities under the two existing Amtrak ac- through the Transportation Trust Fund; spending outside
counts are requested as part of the Federal Railroad DOT runs through separate special funds.
Administrations new Current Passenger Rail Service
Table 116. 10-YEAR PAYGO ANALYSIS

21ST CENTURY CLEAN TRANSPORTATION PLAN
Outlays
Department of Transportation 231
Family Emergency Assistance Fund 65
Other Agencies (DOE, NASA, EPA) 16
Total, New Program Outlays 312
New General Fund Transfers to Offset Current Law Trust Fund Revenue Gap 59
Total New Outlays, 21st Century Clean Transportation Plan 371
Revenue
Net Oil Receipts 319
Business Tax Reform Transition Revenue 176
Total, Proposed Revenues 495
Net PAYGO Cost/Savings (+/) 124
Table 11-5 does not depict the proposals PAYGO im- Pell Grants
pact, however. The differences are:
The PAYGO scorecard only counts new outlays and The Pell Grant program includes features that make it
receipts inside the 10-year window. unlike other discretionary programs including that Pell
Grants are awarded to all applicants who meet income
PAYGO scorekeeping must accommodate the initial and other eligibility criteria. From the start of the Great
shift of general fund accounts from discretionary Recession through 2011, when many Americans returned
budget authority and outlays to the mandatory side to school to improve their skills while their own job pros-
of the Budget. The activities that the Administra- pects were not strong, the number of students receiving
tion proposes to incorporate in the TTF as manda- Pell Grants increased by 3.8 million. This increase in par-
tory outlays would generate discretionary outlays ticipation, coupled with greater average financial need,
under current law totaling an estimated $41 billion resulted in a significant rise in Pell program costs. Since
over 10 years. If those amounts are reclassified, they this peak, the economy improved significantly, the num-
should not be added to the PAYGO cost of any leg- ber of Pell recipients has slowly decreased, and program
islation by virtue of the fact that they are new to costs that were once growing have declined. This section
the mandatory side of the Budget. Rather, the man- provides some background on the unique nature of the
datory baseline should be adjusted to include those Pell Grant program and explains how the Budget accom-
outlays that would occur under current lawas the modates these changes in discretionary costs.
2017 Budget doesand calculate any changes from Under current law, the Pell program has several no-
that baseline. Without this initial accommodation, table features:
scorekeeping rules would overstate the cost of leg-
islation. An adjustment to the discretionary caps is The Pell Grant program acts like an entitlement
program, such as the Supplemental Nutrition As-
shown in the preview report to comply with section sistance Program or Supplemental Security Income,
251(b) of BBEDCA that requires an adjustment for in which everyone who meets specific eligibility re-
these types of shifts in the baseline. quirements and applies for the program receives a
Under the proposal, revenue raised from oil fees and benefit. Specifically, Pell Grant costs in a given year
business tax reform is sufficient to cover both the are determined by the maximum award set in stat-
new outlays associated with the proposal and the ute, the number of eligible applicants, and the award
gap between current law spending and current law for which those applicants are eligible based on their
receipts. Under current law, that gap is estimated needs and costs of attendance. The maximum Pell
to begin in 2021 and total $110 billion over the re- award for the academic year 2016-2017 is $5,815,
mainder of the ten-year window. Because of the tim- of which $4,860 was established in the annual ap-
ing associated with the new spending and revenues propriations act and the remaining $955 is provided
under the 21st Century Transportation Plan, within automatically by the College Cost Reduction and Ac-
the 10-year window, $59 billion is transferred from cess Act (CCRAA), as amended. Under the CCRAA
the general fund to TTF, rather than the full $110 as amended, the amount needed to index the Pell
billion. Grant for inflation is provided through the manda-
tory funds through the 2017-18 award year.
Table 11-6 reflects those adjustments and depicts the
PAYGO cost of the proposal. The cost of each Pell Grant is funded by discretion-
ary budget authority provided in annual appropria-
tions acts, along with mandatory budget authority
provided not only by the CCRAA, as amended, and which include the discretionary level, carried forward
the BCA, but also by amendments to the Higher Ed- budget authority, and extra mandatory funds, until 2025.
ucation Act of 1965 contained in the 2011 and 2012 While the 2016 Budget expected these resources to run
appropriations acts. There is no programmatic dif- out before 2018, Pell program costs and student enroll-
ference between the mandatory and discretionary ment have continued to decline since a 2010 peak, and
funding. the funding has lasted longer than anticipated. Under
current law, the Budget now projects a ten year fund-
If valid applicants are more numerous than expected, ing shortfall of $4.1 billion, $25.6 billion less than the
or if these applicants are eligible for higher awards
10-year forecast from the 2016 Budget (see Table 11-7).
than anticipated, the Pell Grant program will cost
These estimates have changed significantly from year to
more than the appropriations provided. If the costs
year, which illustrates continuing uncertainty about the
during one academic year are higher than provided
amount of the Pell shortfall, and the year in which the
for in that years appropriation, the Department of
shortfall will reemerge.
Education funds the extra costs with the subsequent
Administration policy is to ensure that students have
years appropriation.2
access to the maximum Pell award, and that the Pell Grant
To prevent deliberate underfunding of Pell costs, in keeps up with inflation. As in prior years, the Budget pro-
2006 the congressional and Executive Branch score- vides sufficient resources to fully fund Pell Grants in the
keepers agreed to a special scorekeeping rule for award years covered by the budget year, and subsequent
Pell. Under this rule, the annual appropriations bill years. The Budget provides $22.5 billion in discretionary
is charged with the full Congressional Budget Of- budget authority in 2017, the same level of discretionary
fice estimated cost of the Pell Grant program for the budget authority provided in 2016. Level-funding Pell in
budget year, plus or minus any cumulative shortfalls 2017, combined with carried forward budget authority
or surpluses from prior years. This scorekeeping and mandatory funding provided in previous legislation,
rule was adopted by the Congress as 406(b) of the provides $8.5 billion more than is needed to fully fund the
Concurrent Resolution on the Budget for Fiscal Year program in the 2017-18 award year. Ensuring that car-
2006 (H. Con. Res. 95, 109th Congress). ried forward budget authority remains available in the
Pell Grant program will help guarantee that sufficient
Given the nature of the program, it is reasonable to resources are available to support the program in future
consider Pell Grants an individual entitlement for pur- years. Cutting the budget authority in Pell to only the
poses of budget analysis and enforcement, and in the level needed to fund the program in 2017 would have a
2010 and 2011 Budgets, the Administration requested doubly detrimental impact on the future cliff; it would
that Pell Grants be converted into a mandatory program. reduce the budget authority carried forward from 2017,
The Congress has chosen to continue treating the portion while simultaneously reducing the discretionary base
funded in annual appropriations acts as discretionary, funding level in the program.
counting that budget authority for Pell Grants against Since 2013, the Pell maximum award has increased an-
the discretionary spending caps pursuant to section 251 nually to account for inflation. Under current law, these
of BBEDCA and appropriations allocations established adjustments are set to expire in 2017, and students will no
annually under 302 of the Congressional Budget Act. longer benefit from annual aid increases designed to off-
The 2017 Budget maintains this discretionary treatment. set rises in student costs. The Budget proposes to provide
The total cost of Pell Grants can fluctuate from year mandatory funding to continue indexing Pell for inflation
to year, even with no change in the maximum Pell Grant beyond 2017. It also proposes to expand and reform the
award, because of changes in enrollment, college costs, Perkins loan program and to make legislative changes to
and family resources. In addition, since 2009 the pro- the Pay As You Earn plan for student loan borrowers that
gram has relied on temporary mandatory or emergency would complement administrative actions announced last
appropriations to fund the program well above the level year that extend Pay As You Earn to all borrowers.
that could have been provided as a practical matter by With significant budget authority expected to be car-
the regular discretionary appropriation. The 2017 Budget ried forward into 2017, the Budget proposes several new
expects program costs to stay within available resources, student aid policies to help make college more affordable
2 This ability to borrow from a subsequent appropriation is unique for students. In addition, the Budget continues to propose
to the Pell program. It comes about for two reasons. First, like many student aid reforms proposed in the 2016 Budget that im-
education programs, Pell is forward-fundedthe budget authority pact Pell Grant program costs:
enacted in the fall of one year is intended for the subsequent academ-
ic year, which begins in the following July. Second, even though the First, the Budget proposes to support Pell for Ac-
amount of funding is predicated on the expected cost of Pell during one celerated Completion, allowing students to earn a
academic year, the money is made legally available for the full 24-month third semester of Pell Grants in an academic year so
period covering the current fiscal year and the subsequent fiscal year. they can take courses continuously throughout the
This means that, if the funding for an academic year proves inadequate,
the following years appropriation will legally be available to cover the
year, accumulate credits, and graduate more quickly.
funding shortage for the first academic year. The 2017 appropriation, Students will now be eligible for a third semester of
for instance, will support the 2017-2018 academic year beginning in July Pell during a year if they have already completed
2017 but will become available in October 2016 and can therefore help 24 credits; this policy is an effort to ensure that the
cover any shortages that may arise in funding for the 2016-2017 aca- third semester eligibility is assisting students who
demic year.
Table 117. EFFECT OF STUDENT AID PROPOSALS ON DISCRETIONARY PELL FUNDING NEEDS
Discretionary Pell Funding Needs (Baseline)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Full Funding, Discretionary Pell 15.6 23.4 24.0 24.3 24.7 25.0 25.5 26.0 26.5 26.7
Previously Provided Mandatory Funding (1.6) (1.4) (1.4) (1.4) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1)
Discretionary Need 22.5 14.0 22.0 22.5 22.8 23.5 23.9 24.4 24.9 25.4 25.6
Fund Pell at 2017 Full Funding Estimate 22.5 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0
Surplus/Funding Gap from Prior Year ......... (8.0) (16.5) (25.3) (34.9) (44.8) (55.1) (66.0) (77.3)
Cumulative Surplus/Discretionary Funding Gap ......... (8.0) (16.5) (25.3) (34.9) (44.8) (55.1) (66.0) (77.3) (88.9)
Fund Pell at 2016 Enacted Level 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5
Surplus/Funding Gap from Prior Year 8.5 9.0 8.9 8.6 7.5 6.1 4.2 1.8 (1.0)
Cumulative Surplus/Discretionary Funding Gap 8.5 9.0 8.9 8.6 7.5 6.1 4.2 1.8 (1.0) (4.1)
Effect of 2017 Student Aid Proposals
Enact 2017 Student Aid Proposals (1.7) (1.7) (1.7) (1.8) (1.8) (2.0) (2.0) (2.1) (2.1) (2.2)
Mandatory Funding Shift* (0.3) (0.2) (0.2) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.4)
Surplus/Funding Gap from Prior Year 6.6 5.1 3.1 0.7 (2.5) (6.1) (10.4) (15.1) (20.5)
Cumulative Surplus/Discretionary Funding Gap 6.6 5.1 3.1 0.7 (2.5) (6.1) (10.4) (15.1) (20.5) (26.1)
* Some budget authority, provided in previous legislation and classified as mandatory, but used to meet discretionary Pell Grant program funding needs, will be shifted to instead fund
new outlays for the mandatory add-on.
are utilizing the additional semester to help ensure Eighth, the Administration also supports the sim-
on-time completion. plification of the Free Application for Federal Stu-
dent Aid (FAFSA). The Budget proposes eliminating
Second, to further incentivize students to enroll in questions related to assets, non-IRS untaxed in-
enough credits to complete degree programs on time, come, non-IRS income exclusions, and other income
the Budget proposes to increase the Pell Grant by adjustments, which have been shown to confuse stu-
$300 for students taking at least 15 credit hours per dents. To prevent resulting decreases in Pell Grant
semester in an academic year, the number of cred- awards, the Budget also proposes slight adjustments
its typically required for on-time completion. This to Expected Family Contributions.
feature will be treated as discretionary and funded
through annual appropriations and carry-over fund- Together, these student aid reforms increase future dis-
ing. cretionary Pell program costs by $22 billion over 10 years
(see Table 11-7). However, even with these increases, the
Third, the Budget will lift the restriction on provid- shortfall will not be expected to arrive until 2021.
ing Pell Grants to individuals incarcerated in Fed-
eral or State penal institutions. Postal Service Reforms
Fourth, the Budget will strengthen academic prog- The Administration proposes reform of the Postal
ress requirements in the Pell Grant program to en- Service, necessitated by the serious financial condition
courage students to complete their studies on time. of the Postal Service Fund. The policy proposals are
discussed in the Postal Service and Office of Personnel
Fifth, the Budget will limit the receipt of additional Management sections of the Appendix.
Pell disbursements by recipients who are not ad- As a matter of law, the Postal Service is designated as
vancing academically. an off-budget independent establishment of the Executive
Sixth, the Budget proposes to reduce the share of a Branch. This designation and budgetary treatment was
colleges or universitys revenue that can come from most recently mandated in 1989, in part to reflect the
Federal student aid programs from 90 percent to 85 policy agreement that the Postal Service should pay for
percent and to include Federal student aid programs its own costs through its own revenues and should oper-
outside of the Department of Education, such as the ate more like an independent business entity. Statutory
Department of Defense Tuition Assistance and GI requirements on Postal Service expenses and restrictions
Bill Benefits, in the 85 percent portion of the 85/15 that impede the Postal Services ability to adapt to the
calculation. ongoing evolution to paperless written communications
have made this goal increasingly difficult to achieve. To
Seventh, the Budget would move Iraq Afghanistan address its current financial and structural challenges,
Service Grants to the Pell Grant program to ensure the Administration proposes specific financial relief and
our veterans children receive a full, non-sequestered reform measures to ensure that the Postal Service can
Pell award. continue to operate in the short term and work toward
viability in the long run. The Administration also pro- spending limits in section 251(c) of BBEDCA beginning
poses PAYGO scoring of Postal legislation on a unified in 2018, to offset the cost of shifting the base funding
budget basis to better reflect how and when such legisla- from discretionary to mandatory. In addition, the man-
tion will affect overall deficits and debt. That is, for the datory appropriation includes a three-year program
purposes of entering amounts on the statutory PAYGO expansion to fully fund Contract Support Costs as well as
scorecards, the applicable estimates should include both a new investment to ensure program integrity. Through
the off-budget and the on-budget costs and savings pro- a reauthorization process for 2021 and beyond, updated
duced by the legislation. This scorekeeping change would Contract Support Costs estimates will be provided to set
be accomplished by a provision contained within Postal funding levels every three years.
reform legislation. Expedited Rescission
In addition to scoring Postal reform on a unified ba-
sis, the Administrations baseline now reflects probable The Administration continues to support enactment of
defaults to on-budget accounts at the Office of Personnel the Presidents proposal for expedited rescission, trans-
Management. This treatment allows for a clearer presen- mitted May 24, 2010. That legislation would create an
tation of the Postal Services likely actions in the absence important tool for reducing unneeded funding. In short,
of reform and more realistic scoring of reform proposals the bill would provide the President with additional au-
with improvements in the Postal Services finances re- thority to propose a package of rescissions that would
flected through lower defaults and added costs for the then receive expedited consideration in the Congress and
Postal Service reflected as higher defaults. a guaranteed up-or-down vote. The proposal is crafted in
Contract Support Costs Reclassification a way that preserves the constitutional balance of power
between the President and the Congress while providing
The Budget proposes a reclassification of the Bureau the President with important, but limited, powers that
of Indian Affairs (BIA) and Indian Health Services (IHS) would allow the President and the Congress to work to-
Contract Support Costs from a discretionary to a man- gether more effectively to eliminate unnecessary funding
datory appropriation beginning in 2018. The Contract that could be deployed more effectively in other areas.
Support Costs proposal would reduce the discretionary
II. STATUTORY PAYGO

The Statutory Pay-As-You-Go Act of 2010 (PAYGO, or effects of all or part of the law be held off of the PAYGO
the Act) was enacted on February 12, 2010. The Act scorecards. In the most recently completed Congressional
strengthens the rules of budget discipline, which is a key session, four pieces of legislation were enacted with such
priority for the Administration. provisions. For more information, see the 2015 Annual
Drawing upon the PAYGO provisions enacted as part PAYGO Report on the OMB web site (http://www.white-
of the Budget Enforcement Act, the Act requires that, sub- house.gov/omb/paygo_default).
ject to specific exceptions, all legislation enacted during The requirement of budget neutrality is enforced by an
each session of the Congress changing taxes or manda- accompanying requirement of automatic across-the-board
tory expenditures and collections not increase projected cuts in selected mandatory programs if enacted legisla-
deficits. Mandatory spending encompasses any spend- tion, taken as a whole, does not meet that standard. If
ing except that controlled by the annual appropriations the Congress adjourns at the end of a session with net
process.3 coststhat is, more costs than savingsin the budget-
The Act established 5- and 10-year scorecards to record year column of either the 5- or 10-year scorecard, OMB is
the budgetary effects of legislation; these scorecards are required to prepare, and the President is required to is-
maintained by OMB and are published on the OMB web sue, a sequestration order implementing across-the-board
site (http://www.whitehouse.gov/omb/paygo_default). cuts to non-exempt mandatory programs in an amount
The Act also established special scorekeeping rules that sufficient to offset the net costs on the PAYGO scorecards.
affect whether all estimated budgetary effects of PAYGO Exemptions from a PAYGO sequestration order gener-
bills are entered on the scorecards. Off-budget pro- ally include Social Security; most unemployment benefits;
grams do not have budgetary effects for the purposes of veterans benefits; interest on the debt; Federal retire-
PAYGO and are not counted. Provisions designated by ment; and the low-income entitlements such as Medicaid,
the Congress in law as emergencies appear on the score- the Supplemental Nutrition Assistance Program (SNAP,
cards, but the effects are subtracted before computing the formerly known as food stamps), and SSI.4 The major
scorecard totals. remaining mandatory programs, which are subject to
In addition to the exemptions in the PAYGO Act itself, sequestration, include most Medicare payments (limited
the Congress has enacted laws affecting revenues or direct to a maximum sequestration of 4 percent), farm price
spending with a provision directing that the budgetary supports, vocational rehabilitation basic State grants,
3 Mandatory spending is termed direct spending in the PAYGO Act.
mineral leasing payments to States, the Social Services
The term mandatory encompasses entitlement programs, e.g., Medicare 4 Although many programs are exempt from sequestration, those
and Medicaid, and any funding not controlled by annual appropriations programs are rarely exempt from PAYGO. For example, a bill to increase
bills, such as the automatic availability of immigration examination fees veterans disability benefits or Medicaid benefits must be offset, even
to the Department of Homeland Security. though a sequestration, if it is required, will not reduce those benefits.
Block Grant, and many smaller programs. The list of ex- the first session of the 114th Congress, the most recent
empt programs and the special sequestration rules for session, enacted legislation added net savings of $3,456
certain programs are contained in sections 255 and 256 of million in each year of the 5-year scorecard and $5,718
BBEDCA, and the exemptions and special rules generally million in each year of the 10-year scorecard. Including
apply to the following sequestrations: the sequestration net savings and costs from prior sessions of the Congress,
pursuant to the PAYGO Act, the sequestration to elimi- balances in 2016, the budget year column, showed total
nate excess spending above discretionary caps specified net savings of $3,016 million on the 5-year scorecard and
in section 251 of BBEDCA, and the mandatory seques- $15,448 million on the 10-year scorecard, so no sequestra-
tration currently required by the BCA as a result of the tion was required.5
failure of the Joint Committee process. Administrative PAYGO
Even though sequestration is calculated to fully offset
any net costs on the PAYGO scorecard, it historically has The Administration continues to review potential
acted as a successful deterrent to enacting legislation administrative actions by Executive Branch agencies
with net costs, and so, has not been implemented. During affecting entitlement programs, as stated in a memoran-
the 1990s, under the first statutory PAYGO law, the se- dum issued on May 23, 2005, by the Director of the Office
questration rules and exemptions were almost identical of Management and Budget. This effectively establishes
to those in the current Act. The Congress complied with a PAYGO requirement for administrative actions involv-
PAYGO throughout that decade. As a result, no PAYGO ing mandatory spending programs. Exceptions to this
sequestration ever occurred. requirement are only provided in extraordinary or com-
As was the case during the 1990s, the PAYGO seques- pelling circumstances.6
tration has not been required during the six Congressional
5 OMBs annual PAYGO reports and other explanatory material about
sessions since the PAYGO Act reinstated the statutory
the PAYGO Act are available at www.whitehouse.gov/omb/paygo_default.
PAYGO requirement. For each of those sessions, OMBs 6 For a review of the application of Administrative PAYGO, see US-
annual PAYGO reports showed net savings in the budget DAs Application of Administrative PAYGO to Its Mandatory Spending
year column of both the 5- and 10-year scorecards. For Programs, GAO, October 31, 2011, GAO-11-921R.
III. IMPROVED BASELINE AND BUDGET PRESENTATION
Improved Definition of Baseline

to the BBEDCA baseline for purpose of entries on the
In each of its Budgets, this Administration has depicted PAYGO scorecards, discussed earlier in the chapter.
its budget proposals relative to a baseline that is designed Adjustments for Emergency and Disaster Costs.
to reflect the budget outlook under current policy and to Because the BBEDCA baseline extends all appropriations
serve as a realistic basis for evaluating the effects of pol- already enacted for the year in progress, it can be sub-
icy changes. The Administration recommends that the ject to huge swings as a result of funding enacted as an
Congress, the Congressional Budget Office, and the public emergency requirement or as disaster relief funding pur-
use such a baseline in their own analyses as well. suant to the cap adjustments for these items permitted
Section 257 of BBEDCA provides rules for constructing by section 251(b)(2) of BBEDCA. At times, the BBEDCA
a baseline that were used by the Congress for many years. baseline could extend large one-time emergency or disas-
In recent years, however, these rules have become less use- ter appropriations for the next 10 years; at other times
ful because they do not provide guidance to address major it might extend very little. The Administrations base-
changes in policy, including the reestablishment of the line includes adjustments to account for these swings.
discretionary spending limits and the enactment of Joint Specifically, for the 2017 Budget, the Administrations
Committee enforcement procedures. The rules also fall adjusted baseline removes the extension of $7.6 billion
short in their approach to one-time emergency appropria- in enacted 2016 appropriations that were designated as
tions, which are extended permanently in the BBEDCA emergency requirements or as disaster relief funding. In
baseline along with regular agency appropriations. addition, the adjusted baseline substitutes an allowance
This section describes the Administrations adjust- for disaster costs in the current year, the budget year, and
ments to the BBEDCA baseline to make it more useful. future fiscal years. This allowance reflects the fact that
The deficit impacts of these adjustments are summarized major natural or man-made disasters may occur in the
in Summary Table S-8 of the Budget. Further detail about near future and are highly likely to occur at some point
the adjusted baseline is provided in Chapter 25, Current in subsequent years. Obviously, both the timing and
Services Estimates, in this volume. amounts are unknowable in advance. In addition to the
While the adjusted baseline provides a more realistic inclusion of this entry in the baseline, the Administration
basis for analyzing budgets, it is not intended to replace includes the same allowance in its Budget.
the BBEDCA baseline with respect to mandatory pro- The baseline and Budget figures are not a reserve
grams and revenues, either for legal purposes or to alter fund, nor are they a request for discretionary budget au-
the application of the Statutory PAYGO Act of 2010. thority or congressional legislation of any kind. Instead,
Specifically, the costs or savings from legislation affecting they are placeholders that represent a meaningful down
mandatory spending or revenues are measured relative payment on potential future disaster relief requirements
that are not for known needs in the budget year. For more Fannie Mae and Freddie Mac
information, see the discussion of disaster relief fund-
ing earlier in this chapter in Section I (Budget Reform The Budget continues to present Fannie Mae and
Proposals) under the heading titled Disaster Relief Freddie Mac, the housing Government-sponsored enter-
Funding. Including a meaningful down payment for the prises (GSEs) currently in Federal conservatorship, as
future costs of potential disaster relief funding makes the non-Federal entities. However, Treasury equity invest-
budget totals more honest and realistic. ments in the GSEs are recorded as budgetary outlays, and
Discretionary spending limits and Joint the dividends on those investments are recorded as off-
Committee enforcement.The BBEDCA baseline setting receipts. In addition, the budget estimates reflect
extends enacted appropriations without regard to the collections from the 10 basis point increase in GSE guar-
discretionary spending limits imposed by BBEDCA. The antee fees that was enacted under the Temporary Payroll
adjusted baseline includes an allowance to reduce the dis- Tax Cut Continuation Act of 2011 (P.L. 112-78), and col-
cretionary spending levels in the baseline to comply with lections from the 4.2 basis point set-aside on each dollar
the limits for the defense and non-defense categories. of unpaid principal balance of new business purchases au-
These adjustments assume that the limits remain in place thorized under the Housing and Economic Recovery Act
after their statutory expiration in 2021, growing with in- of 2008 (P.L. 111-289) to be remitted to several Federal af-
flation in each subsequent year through the end of the fordable housing funds. The GSEs are discussed in more
budget window. In addition, appropriations for program detail in Chapter 20, Credit and Insurance.
integrity activities of the Social Security Administration
Fair Value for Credit Programs
and the Health Care Fraud and Abuse Control account
are adjusted to the levels of cap adjustments permitted In recent years, some analysts have argued that Federal
under BBEDCA. No adjustment is made for appropria- direct loan and loan guarantee programs impose costs on
tions designated as Overseas Contingency Operations taxpayers that are not reflected under the current budget-
because this category of appropriations is not subject to ing rules, such as the risk that assets may not perform as
spending limits. expected, and propose to require that the Budget use fair
The adjusted baseline also reflects the future opera- value estimates for these credit programs. Under fair
tion of Joint Committee enforcement procedures, under value, comparable market interest rates would be used
which the discretionary spending limits would be further to discount expected cash flows, instead of the Federal
reduced for 2018 through 2021, and mandatory spending Governments cost of borrowing. While fair value may of-
sequestered for 2018 through 2025, according to the pro- fer some useful insights and inform decision-making in
cedures of BBEDCA. some cases, using fair value for budgetary cost estimates of
Reclassification of surface transportation spend- credit programs raises serious conceptual and implemen-
ing.The adjusted baseline includes a reclassification tation problems. Most importantly, it would compromise
of certain surface transportation accounts from discre- the central objective of current budgeting rules for credit,
tionary to mandatory. This reclassification allows the which are designed to put credit program estimates on a
Administrations surface transportation proposal to be comparable basis to other forms of Federal spending and
portrayed more clearly, as discussed in more detail earlier improve the allocation of resources. In addition, many of
in this chapter. the factors reflected in fair value pricing are irrelevant or
Former current policy extensions of Medicare less relevant to taxpayers than to private investors; in-
physician payment relief and Recovery Act tax cluding these factors in budgetary cost estimates would
credits.In the 2016 Budget, the adjusted baseline overstate the cost of credit assistance and introduce a
assumed extension of the policies in place to provide bias relative to other forms of Federal assistance. On
relief from the large cuts in Medicare physician pay- top of these and other conceptual issues, implementing
ments required under the Sustainable Growth Rate fair value may require significant increases in the costs
(SGR) mechanism. In April 2015, the Medicare Access of administering credit programs and introduce inconsis-
and CHIP Reauthorization Act replaced the SGR sys- tencies in how credit subsidy costs are estimated across
tem with a new system of physician payments that programs, reducing the consistency and transparency of
does not include the large, unrealistic reductions em- the Budget. For a detailed discussion of the conceptual
bedded in prior law. As a result, the Budget no longer and implementation issues raised by fair value estimates,
includes policy extensions to maintain Medicare physi- see the Credit and Insurance chapter of the Analytical
cian payment levels in the adjusted baseline. Likewise, Perspectives volume of the 2015 Budget.
the adjusted baseline assumed extension of certain
Debt Net of Financial Assets
tax credits for individuals and families enacted in the
American Recovery and Reinvestment Act of 2009, In the Summary Tables included in the main Budget
and subsequently extended through tax year 2017. In volume, Tables S-1 and S-13 display both debt held by the
December 2015, the Protecting Americans from Tax public and debt held by the public net of financial assets.
Hikes Act made these tax credits permanent, so an Borrowing from the public is normally a good approxima-
adjustment is no longer necessary to continue current tion of the Federal demand on credit markets. However, it
policy for these provisions. provides an incomplete picture of the financial condition
of the Government and under some circumstances may
misrepresent the net effect of Federal activity on credit the public net of financial assets provides a more accu-
markets. Some transactions that increase the Federal debt rate measure of the Governments net financial position
also increase the financial assets held by the Government. by including the value of loans and other financial assets
For example, when the Government lends money to a held by the Government. While Federal borrowing reduc-
private firm or individual, the Government acquires a fies the amount of private saving that is available through
nancial asset that provides a stream of future payments financial markets for private-sector investment, Federal
of principal and interest, net of the Governments expect- acquisition of financial assets has the opposite effectit
ed losses on the loan. At the time the loan is made, debt injects cash into financial markets. Thus, the change in
held by the public reflects only Treasurys borrowing to debt net of financial assets can also better indicate the ef-
finance the loan, failing to reflect the value of the loan fect of the Federal Government on the financial markets.
asset acquired by the Government. Similarly, the esti- For further discussion of debt net of financial assets, see
mate of debt held by the public does not reflect estimated Chapter 4, Federal Borrowing and Debt.
liabilities on loan guarantees. In contrast, debt held by
FEDERAL RECEIPTS
151
152
12. GOVERNMENTAL RECEIPTS
A simpler, fairer, and more efficient tax system is critical The tax proposals outlined in this chapter address each
to achieving many of the Presidents fiscal and economic of these challenges. The Budget would reform and sim-
goals. At a time when middle-class and working parents plify tax incentives that help families afford child care,
remain anxious about how they will meet their families pay for college, and save for retirement, while expanding
needs, the tax system does not do enough to reward hard tax benefits that support and reward work. It would pay
work, support working families, or create opportunity. for these changes by reforming the system of capital gains
After decades of rising income and wealth inequality, taxation and by imposing a new fee on large, heavily-
the tax system continues to favor unearned over earned leveraged financial firms, and it would raise revenue for
income, and a porous capital gains tax system lets the deficit reduction by curbing high-income tax benefits and
wealthy shelter hundreds of billions of dollars from taxes closing loopholes. The Budget also supports sustained
each year. In a period where an aging population will put investment in a 21st Century Clean Transportation
increasing pressure on the Federal budget, a wide range Plan while providing for the long-term solvency of the
of inefficient tax breaks prevents the tax system from new Transportation Trust Fund by levying a new fee on
raising the level of revenue the Nation needs. The U.S. oil, paid by oil companies. Finally, the Budget includes
needs to invest in building an American transportation proposals to broaden the business tax base, strengthen
system that supports a competitive 21st Century econo- incentives for research and clean energy, grow and create
my -- innovative, sustainable, and capable of integrating innovative small businesses, and reform the international
new technologies and speeding goods to market -- while tax system.
reducing reliance on oil, cutting carbon pollution, and Going forward, the President is committed to working
strengthening resilience to the impacts of climate change. with the Congress and other stakeholders to build on the
And while commerce around the world is increasingly in- foundation laid by the Budget to create a tax system that
terconnected, an out-of-date, loophole-ridden business tax is fair, simple, and efficientone that is right for the 21st
system puts U.S. companies at a disadvantage relative to Century American economy.
their competitors, while also failing to encourage invest-
ment in the United States.
ESTIMATES OF GOVERNMENTAL RECEIPTS

Governmental receipts (on-budget and off-budget) sovereign or governmental powers. The difference
are taxes and other collections from the public that between governmental receipts and outlays is the sur-
result from the exercise of the Federal Governments plus or deficit.
Table 121. RECEIPTS BY SOURCESUMMARY

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Individual income taxes 1,540.8 1,627.8 1,788.0 1,891.3 1,985.0 2,106.3 2,221.9 2,339.1 2,460.7 2,585.9 2,716.4 2,853.4
Corporation income taxes 343.8 292.6 418.7 492.8 525.2 574.7 582.4 554.1 537.0 545.9 556.4 567.8
Social insurance and retirement
receipts 1,065.3 1,100.8 1,141.2 1,191.1 1,239.7 1,286.5 1,351.8 1,416.5 1,478.6 1,546.4 1,614.0 1,694.7
(On-budget) (294.9) (303.1) (314.3) (327.9) (341.5) (354.6) (371.6) (388.9) (406.5) (422.9) (440.7) (462.3)
(Off-budget) (770.4) (797.7) (826.9) (863.3) (898.2) (931.9) (980.2) (1,027.5) (1,072.0) (1,123.5) (1,173.3) (1,232.4)
Excise taxes 98.3 96.8 110.1 142.9 152.6 164.6 178.2 189.0 192.7 196.5 201.0 206.1
Estate and gift taxes 19.2 21.1 22.4 31.5 34.0 36.7 39.8 43.0 46.7 50.9 55.5 60.2
Customs duties 35.0 36.7 39.5 39.9 41.0 42.4 43.8 45.2 46.5 47.7 48.9 50.3
Miscellaneous receipts 147.5 159.7 122.8 102.1 97.6 104.6 114.0 123.8 131.6 139.2 145.1 152.8
Allowance for immigration reform ......... ......... 1.0 7.0 20.0 30.0 40.0 45.0 55.0 64.0 74.0 84.0
Total, receipts 3,249.9 3,335.5 3,643.7 3,898.6 4,095.1 4,345.7 4,572.0 4,755.8 4,948.9 5,176.5 5,411.2 5,669.3
(On-budget) (2,479.5) (2,537.8) (2,816.9) (3,035.4) (3,196.8) (3,413.8) (3,591.8) (3,728.3) (3,876.8) (4,053.0) (4,237.9) (4,436.9)
(Off-budget) (770.4) (797.7) (826.9) (863.3) (898.2) (931.9) (980.2) (1,027.5) (1,072.0) (1,123.5) (1,173.3) (1,232.4)
Total receipts as a percentage of
GDP 18.3 18.1 18.9 19.4 19.5 19.8 20.0 19.9 19.9 19.9 20.0 20.0
153
The Federal Government also collects income from the Receipts are estimated to rise to $3,643.7 billion in
public from market-oriented activities. Collections from 2017, an increase of $308.2 billion or 9.2 percent relative
these activities, which are subtracted from gross outlays, to 2016. Receipts are projected to grow at an average an-
rather than added to taxes and other governmental re- nual rate of 5.8 percent between 2017 and 2021, rising to
ceipts, are discussed in the next Chapter. $4,572.0 billion. Receipts are projected to rise to $5,669.3
Total governmental receipts (hereafter referred to as billion in 2026, growing at an average annual rate of 4.4
receipts) are estimated to be $3,335.5 billion in 2016, percent between 2021 and 2026. This growth is largely
an increase of $85.6 billion or 2.6 percent from 2015. The due to assumed increases in incomes resulting from both
estimated increase in 2016 is largely due to increases in real economic growth and inflation, as well as the effect of
payroll taxes and individual income taxes. Receipts in the Budgets receipt proposals.
2016 are estimated to be 18.1 percent of Gross Domestic As a share of GDP, receipts are projected to increase
Product (GDP), which is lower than in 2015, when re- from 18.1 percent in 2016 to 18.9 percent in 2017, and to
ceipts were 18.3 percent of GDP. rise to 20.0 percent in 2026.
LEGISLATION ENACTED IN 2015 THAT AFFECTS GOVERNMENTAL RECEIPTS

Several laws were enacted during 2015 that affect re- will increase tax revenues and reduce outlays associated
ceipts. The major provisions of those laws that have a with the premium tax credit.
significant impact on receipts are described below.1 Increase levy authority for payments to Medicare
providers with delinquent tax debt.Under prior law,
TERRORISM RISK INSURANCE the Department of the Treasury was authorized to contin-
PROGRAM REAUTHORIZATION ACT uously levy up to 30 percent of a payment to a Medicare
provider to collect delinquent tax debt. This Act increased
OF 2015 (PUBLICLAW 114-1)
this authority to 100 percent, effective for payments made
This Act, which was signed into law by President Obama more than 180 days after the date of enactment.
on January 12, 2015, extended the Terrorism Risk Insurance
Program for six years through December 31, 2020, and made TRADE PREFERENCES EXTENSION
major reforms to the program. These reforms reduced tax- ACT OF 2015 (PUBLIC LAW 114-27)
payer exposure, increased private sector contributions, and
better positioned the Program for future transition to the pri- This Act was signed into law by President Obama on
vate sector. The Act also established a National Association June 29, 2015. The major provisions of this Act that affect
of Registered Agents and Brokers (NARAB) as a mechanism receipts are described below.
for insurance producers to be licensed to sell insurance in Extend the Generalized System of Preferences
States other than their home State without having to be sep- (GSP).Under GSP, which expired under prior law on
arately licensed in each State. July 31, 2013, the United States provided nonrecipro-
cal elimination of duties on up to 5,000 products from
MEDICARE ACCESS AND CHIP 122 developing countries. Generally, duty-free treat-
REAUTHORIZATION ACT OF ment of imported goods from GSP-designated developing
countries applied to products that are not considered
2015 (PUBLICLAW114-10)
import-sensitive, with many used as inputs by U.S. com-
This Act was signed into law by President Obama on panies to manufacture goods in the United States. Under
April 16, 2015. The major provisions of this Act that af- this Act, GSP was renewed retroactively to August 1,
fect receipts are described below. 2013, and extended through December 31, 2017.
Permanently extend the work-related transitional Extend the African Growth and Opportunity Act
medical assistance (TMA) program.This Act perma- (AGOA).Under AGOA, the United States provides
nently extended the TMA program, which requires States nonreciprocal tariff reductions to roughly 40 eligible
to provide continued medical coverage for certain families sub-Saharan African countries for certain goods that the
who would otherwise become ineligible for Medicaid be- United States imports. This Act extended the authority
cause of increased earnings. Some of those families would for reduced tariffs under AGOA, which were set to expire
no longer be enrolled in employment-based health insur- at the end of September 30, 2015, through September 30,
ance or Marketplace qualified health plans. This will 2025. This Act also extended the special rule that would
increase tax revenues and reduce outlays associated with apply to certain lesser-developed sub-Saharan countries
the premium tax credit. under AGOA. Under this rule, a lesser-developed country
Extend the Childrens Health Insurance Program may export duty-free to the United States any apparel
(CHIP).This Act extended CHIP through 2017, which good that is assembled within the country, regardless of
would reduce enrollment in employment-based health the origin of the fabric or yarn. In addition, this Act re-
insurance and Marketplace qualified health plans. This vised the rules of origin for AGOA beneficiary countries
under GSP and provided the Executive Branch more
flexibility to withdraw, suspend, or limit benefits under
1 In the discussions of enacted legislation, years referred to are calen-
dar years, unless otherwise noted.

12. GOVERNMENTAL RECEIPTS 155
AGOA and undertake an out-of-cycle review of a countrys tax payments due in July through September by corpora-
AGOA eligibility. tions with assets of at least $1 billion to 108 percent of the
Extend preferential duty treatment for Haiti. amount otherwise due in 2020. For corporations affected
Under the Haitian Hemispheric Opportunity through by this provision, the next required estimated tax pay-
Partnership Encouragement Act (HOPE) and related pro- ment is reduced accordingly.
grams, certain textile and apparel goods that the United Require payee statement to claim certain educa-
States imports from Haiti are eligible for duty-free treat- tion tax benefits.Under this Act, except as otherwise
ment if restrictions regarding the source of the yarns and provided by the Secretary of the Treasury, a taxpayer may
fabrics used in the imported goods are met. Under prior not claim the American Opportunity tax credit (AOTC),
law, some of these trade benefits for Haiti were sched- the Hope Scholarship tax credit, the Lifetime Learning
uled to expire beginning in 2016. This Act extended the tax credit, or a tax deduction for qualified tuition and
duty-free status for qualifying goods from Haiti through related expenses unless the taxpayer or the taxpayers
September 30, 2025. Special rules regarding the duty-free dependent receives a payee statement containing the
entry of apparel articles, including woven articles and cer- students taxpayer identification number (TIN) and other
tain knit articles assembled in Haiti and imported by the information. This provision is effective for taxable years
United States from Haiti or the Dominican Republic were beginning after the date of enactment.
extended through December 19, 2025. Establish special rule for educational institu-
Reinstate, extend, and modify the health coverage tions unable to collect TINs of individuals with
tax credit (HCTC).Under prior law, the HCTC was respect to higher education tuition and related ex-
provided to eligible individuals for a portion of the cost of penses.Under this Act, information reporting penalties
qualified health insurance for the individual and qualify- are not imposed on eligible educational institutions for
ing family members. Qualified individuals included those failure to provide the students TIN on Form 1098-T if the
eligible for Trade Adjustment Assistance (TAA) or alter- institution contemporaneously certifies under penalties
native TAA, and certain retired workers whose pensions of perjury that it has complied with standards promul-
were paid by the Pension Benefit Guaranty Corporation gated by the Secretary of the Treasury for obtaining the
(PBGC) and who were not eligible for Medicare. This TIN. This provision is effective for returns required to
refundable tax credit, which expired on December 31, be made and statements required to be furnished after
2013, was advanced to eligible individuals and families December 31, 2015.
for health coverage on a monthly basis applied to their Increase penalty for failure to file correct infor-
health plan premium or paid as a credit on their Federal mation returns and provide payee statements.This
tax returns. Under this Act the HCTC was reinstated Act increased penalties for failure to file correct informa-
retroactively to January 1, 2014, and extended through tion returns and correct payee statements, and for the
December 31, 2019. The credit rate was set at 72.5 percent intentional disregard of such requirements. This provi-
of premiums paid for qualifying health insurance (the last sion is effective for returns and statements required to be
rate in effect under prior law). The Act also provided that filed after December 31, 2015.
an eligible individual could not claim both the HCTC and Disallow refundable child tax credit for taxpay-
the premium tax credit provided under the Affordable ers electing to exclude foreign earned income from
Care Act (ACA) for the same coverage for the same month tax.This Act disallowed any taxpayer who elects to ex-
and that individual health insurance coverage purchased clude from gross income any amount of foreign earned
through the Health Insurance Marketplace is qualified income or foreign housing costs from claiming the refund-
coverage for coverage months in 2014 and 2015. able portion of the child tax credit for the taxable year.
Modify tariff classification of certain articles. This change is effective for taxable years beginning after
This Act established new categories in the Harmonized December 31, 2014.
Tariff Schedule of the United States for recreational per-
formance outerwear, effective for such articles entering SURFACE TRANSPORTATION AND VETERANS
the United States or withdrawn from warehouse for con- HEALTH CARE CHOICE IMPROVEMENT
sumption 180 days after the date of enactment. This Act
ACT OF 2015 (PUBLIC LAW 114-41)
also modified the definition of protective active footwear
and reduced the duty rate on such articles effective for This Act was signed into law by President Obama on
such articles entering the United States or withdrawn July 31, 2015. The major provisions of this Act that affect
from warehouse for consumption 15 days after the date receipts are described below.
of enactment. Modify mortgage reporting requirements.Under
Modify the timing of estimated tax payments by prior law, mortgage lenders who received interest from a
corporations.Corporations generally are required to borrower of $600 or more on any mortgage for any calen-
pay their income tax liability in quarterly estimated pay- dar year were required to include on their information
ments. For corporations that keep their accounts on a returns the following items: (1) the name and address of
calendar year basis, these payments are due on or before the borrower; (2) the amount of interest received; and (3)
April 15, June 15, September 15 and December 15. If the amount of points received. Effective for returns re-
these dates fall on a holiday or weekend, payment is due quired to be filed and statements required to be furnished
on the next business day. This Act increased the estimated after December 31, 2016, this Act required mortgage lend-
ers to include the following additional information: (1) the months. These changes are generally effective for returns
outstanding principal on the mortgage as of the beginning for taxable years beginning after December 31, 2015.
of the calendar year; (2) the mortgage origination date; For C corporations with a year that ends on June 30, the
and (3) the address (or other description in the case of change in the tax return due date is effective for taxable
property without an address) of the property that secures years beginning after December 31, 2025.
the mortgage. Extend the ability of employers to transfer excess
Require consistency between estate tax value and pension assets to retiree health accounts.This Act
income tax basis of assets acquired from a dece- extended the ability of employers to transfer excess assets
dent.This Act imposes a consistency requirement on of a defined benefit pension plan to a retiree medical ac-
the recipient of property inherited from a decedent if that count for four years to apply to such transfers made after
property increases the estates Federal estate tax liabil- December 31, 2021, and before January 1, 2026.
ity: the recipients initial basis in that inherited property Equalize excise taxes on liquefied natural gas,
may not exceed the final value of that property for fed- liquefied petroleum gas, and compressed natural
eral estate tax purposes. A penalty is imposed on any gas.This Act adjusted the excise taxes on a gallon of
underpayment of tax attributable to any inconsistent liquefied natural gas, liquefied petroleum gas, and com-
estate basis. In addition, the Act requires the executor pressed natural gas on an energy-equivalent basis with a
of any estate subject to Federal estate tax to furnish the gallon of gasoline or diesel. These changes apply to any
Department of the Treasury and each person acquiring sale or use of such fuel after December 31, 2015.
any interest in property included in the decedents gross Modify Internal Revenue Code with regard to
estate a statement identifying the estate tax value of the health care for veterans.Under this Act, effective for
persons interest in such property. This statute is intend- months beginning after December 31, 2015, a veteran re-
ed to ensure that beneficiaries do not overstate the basis ceiving medical care under any law administered by the
of an inherited property, and thus understate the tax li- Secretary of Veterans Affairs for a service-connected dis-
ability, at the time of sale and applies to property with ability cannot be denied eligibility for a health savings
respect to which an estate tax return is filed after July account merely because the individual receives such
31, 2015. care. In addition, effective for months beginning after
Clarify six-year statute of limitations in the case December 31, 2013, an individual with medical cover-
of overstatement of basis.In general, the amount of age under TRICARE or a Department of Veterans Affairs
any tax imposed under the Internal Revenue Code must health program for a month shall not be taken into ac-
be assessed within three years after the return is filed by count for such month as an employee solely for purposes
the taxpayer. However, among other exceptions to this of determining whether an employer is large enough to be
general rule, if a taxpayer omits from gross income an subject to the employer shared responsibility provisions
amount properly includible that is in excess of 25percent under the Affordable Care Act (ACA).
of the amount of gross income stated in the return, the
tax may be assessed at any time within six years after the AIRPORT AND AIRWAY EXTENSION
return was filed. Under this Act, an understatement of ACT OF 2015 (PUBLIC LAW 114-55)
gross income by reason of an overstatement of unrecov-
ered cost or other basis is to be included as an omission This Act, which was signed into law by President
in determining the amount of the understatement of Obama on September 30, 2015, extended the authority to
gross income for purposes of applying the six-year statute collect taxes that fund the Airport and Airway Trust Fund
of limitations. This provision applies to returns filed after through March 31, 2016. The prior law exemption from
July 31, 2015 and returns filed on or before that date if domestic and international air passenger ticket taxes
the period of limitations on assessment with respect to provided for aircraft in fractional ownership aircraft pro-
such return has not expired as of that date. grams was also extended through that date. These taxes
Modify certain due dates.Under this Act, the tax had been scheduled to expire after September 30, 2015,
return due date for filing tax returns of partnerships under prior law.
and S corporations is March 15 following the close of the
calendar year (or the fifteenth day of the third month BIPARTISAN BUDGET ACT OF
following the close of the fiscal year, in the case of a fis- 2015 (PUBLIC LAW 114-74)
cal-year filer) and the tax return due date for filing tax
returns of C corporations is April 15 following the close This Act was signed into law by President Obama on
of the calendar year (or the fifteenth day of the fourth November 2, 2015. The major provisions of this Act that
month following the close of the fiscal year). This Act also affect receipts are described below.
increased the automatic three-month extension for filing Allow adjustments to mortality tables used by
a tax return for a corporation to six months, except in the defined benefit pension plans.Under prior law, pri-
case of C corporations with a taxable year that ends on vate sector-defined benefit pension plans generally had
December 31 and begins before January 1, 2026: (1) there to use mortality tables prescribed by the Department of
is a five-month automatic extension; and (2) C corpora- the Treasury for purposes of calculating pension liabili-
tions with a taxable year that ends on June 30 and begins ties. Plans could apply to use a separate mortality table
before January 1, 2026, the automatic extension is seven only under certain conditions. Under this Act, effective
for plan years beginning after December 31, 2015, the and 2.37 percent will be allocated to DI, compared to the
determination of whether a plan has credible mortality 10.6 percent and 1.8 percent allocations, respectively, in
information shall be made in accordance with established prior years. This reallocation is expected to allow the DI
actuarial credibility theory, which is materially different Trust Fund to pay full disability benefits until calendar
from prior law rules. A plan will be allowed to use mor- year 2022.
tality tables that are adjusted from the tables provided Modify partnership audit rules.This Act replaced
by the Department of the Treasury tables if such adjust- existing partnership audit rules with a centralized system
ments are based on a plans experience. for audit, adjustment, and collection of tax at the partnership
Extend current funding stabilization percentages level, unless a partnership makes a valid election to opt out
for single-employer pension funding rules.Under of application of these rules (generally available to partner-
prior law, the interest rates for valuing single-employer ships with no more than 100 partners). Under these rules
defined benefit pension plan liabilities for plan years any adjustment to items of partnership income, gain, loss,
2012 through 2017 were deemed not to vary more than 10 deductions, credits, or partnership distribution as a result
percent from the average interest rates over the prior 25 of such adjustments is determined at the partnership level
years. That interest rate corridor increased by five per- and any tax resulting from an imputed underpayment at-
cent per year through 2021, and remained permanently tributable to these adjustments is generally imputed to the
at 30 percent in each subsequent year. Under this Act, partnership and assessed and collected at the partnership
the corridor on interest rates will remain at 10 percent level in the year the adjustment becomes final. As an alter-
through 2019 and will increase by five percent per year native to payment at the partnership level, the partnership
through 2023, at which point the corridor will remain per- may elect to push the partnership adjustments out to the
manently at 30 percent. partners for the reviewed year and have them pay in the cur-
Repeal automatic enrollment in health plans by rent year the tax attributable to their allocable portion of the
large employers.This Act repealed the prior-law re- adjustments. The partners are generally bound by the final
quirement that employers with more than 200 full-time determination of partnership adjustments and any action
employees automatically enroll new full-time employees taken by the partnerships designated representative who
in a health plan if one is offered by that employer, and may be a partner or other person with a substantial pres-
continue the enrollment of current employees in a health ence in the United States. These new rules generally apply
plan offered by the employer. Prior to repeal, employers to returns filed for partnership taxable years beginning after
had not been required to comply with this provision, as December 31, 2017.
regulations had not been issued. Clarify rules for partnership interests created
Adjust civil monetary penalties for inflation. by gift.This Act clarified that in the case of a capital
This Act amended the Federal Civil Penalties Inflation interest in a partnership in which capital is a material
Adjustment Act of 1990 by requiring that no later than income-producing factor, the determination of whether
July 1, 2016, all Federal agencies with civil monetary pen- a person is a partner with respect to such interest must
alties covered by the statute update penalties based on be made under the generally applicable rules defining a
their value in the last update prior to 1996 and the change partner and a partnership, without regard to whether
in the consumer price index (CPI) between that date and such interest was derived by gift from any other person.
October 2015. This initial catch up adjustment would be This clarification applies to partnership taxable years be-
capped at 150 percent. This Act also required annual ad- ginning on or after January 1, 2015.
justments in such penalties not later than January 15th
of each subsequent year, replaced prior law rounding rules NATIONAL DEFENSE AUTHORIZATION ACT
with a simple rule that penalties be rounded to the near- FOR FISCAL YEAR 2016 (PUBLICLAW114-92)
est dollar, and expanded these inflation adjustments to
apply to civil penalties assessed under the Occupational This Act was signed into law by President Obama on
Safety and Health Act and under the Social Security Act. November 25, 2015. The provision of this Act that affects
The Act also provided for increasing a penalty by less receipts is described below.
than the required amount if increasing the penalty by the Establish a Thrift Savings Plan (TSP) benefit
full amount would have a negative economic impact or for all uniformed servicemembers.This Act estab-
the social costs outweighed the benefits. lished a TSP benefit for all uniformed servicemembers
Extend reserve depletion date for Social Securitys who enter on or after October 1, 2017, or current eligible
Disability Insurance program.This Act provid- servicemembers who make a voluntary election to opt-
ed a temporary reallocation of payroll taxes from the in to the new plan. Under this Act, the Department of
Social Security Administrations Old-Age and Survivors Defense would provide an automatic TSP contribution of
Insurance (OASI) Trust Fund to the Disability Insurance one percent to all uniformed servicemembers upon reach-
(DI) Trust Fund, effective for wages paid in calendar ing 60 days of service, which would continue through the
years 2016 through 2018, and self-employment earnings second year of service. After the second year of service,
reported in taxable years beginning after December 31 the Department of Defense would begin matching TSP
2015, and before January 1, 2019. Under this reallocation contributions by servicemembers up to five percent of
the combined OASDI payroll tax rate will remain at 12.4 that servicemembers base pay. Both the automatic and
percent; however, 10.03 percent will be allocated to OASI
matching TSP contributions would end on the day the ser- member banks with assets of $10 billion or less, the Act
vicemember reaches 26 years of service. retained the six-percent dividend consistent with prior
law, indexed to inflation.
FIXING AMERICAS SURFACE
TRANSPORTATION ACT OF 2015 CONSOLIDATED APPROPRIATIONS
(PUBLICLAW114-94) ACT, 2016 (PUBLIC LAW 114-113)
This Act was signed into law by President Obama on This Act was signed into law by President Obama on
December 4, 2015. The major provisions of this Act that December 18, 2015. The major provisions that affect re-
affect receipts are described below. ceipts are included in Division Q of this Act, which may
Extend highway-related taxes.This Act extended be cited as the Protecting Americans from Tax Hikes Act
the authority to collect taxes that fund the Highway Trust of 2015. These provisions, as well as those included in
Fund, the Leaking Underground Storage Tank (LUST) Division P of this Act, Tax Related Provisions, are de-
Trust Fund, and the Sport Fish Restoration and Boating scribed below.
Trust Fund, which were scheduled to expire on September
30, 2016, through September 30, 2022. This Act also ex- PROTECTING AMERICANS FROM
tended the annual use tax on heavy vehicles, which is TAX HIKES ACT OF 2015
deposited in the Highway Trust Fund and was scheduled
to expire on September 30, 2017, through September 30,
2023. Tax Relief for Families and Individuals
Revoke or deny passport in case of certain unpaid
taxes.This Act provided for the denial, revocation or Permanently extend increased refundability of the
limitation of passports by the Department of State for child tax credit (CTC).The American Recovery and
persons with seriously delinquent tax debts (generally in- Reinvestment Act of 2009 (ARRA) increased the refund-
dividuals who owe more than $50,000 and who are not on ability of the CTC by reducing the earnings threshold for
a payment plan), effective on December 4, 2015. refundability to $3,000 (unindexed) from $10,000 (indexed
Reform rules relating to qualified tax collec- after 2001), effective for taxable years 2009 and 2010. The
tion contracts.Under this Act, the Secretary of the Tax Relief, Unemployment Insurance Reauthorization
Treasury is required to enter into qualified tax collec- and Job Creation Act of 2010 (TRUIRJCA) extended
tion contracts for the collection of outstanding inactive this provision through 2012 and the American Taxpayer
tax receivables. Inactive tax receivables are defined as Relief Act of 2012 (ATRA) extended the provision through
any tax receivable 1) removed from the active inventory 2017. This Act permanently extended the $3,000 earn-
for lack of resources or inability to locate the taxpay- ings threshold.
er, 2) for which more than one-third of the applicable Permanently extend Earned Income Tax Credit
limitations period has lapsed and no Internal Revenue (EITC) marriage penalty relief.ARRA, as extended
Service (IRS) employee has been assigned to collect by TRUIRJCA and ATRA, provided tax relief through
the receivable, or 3) for which a receivable has been 2017 to married couples filing a joint return (regardless
assigned for collection but more than 365 days have of the number of qualifying children) by increasing the
passed without interaction with the taxpayer or a third amount by which the income thresholds for the phase-
party for purposes of furthering the collection. Tax re- out of the EITC exceed the thresholds for other taxpayers
ceivables are defined as any outstanding assessment from $3,000 (indexed for inflation after 2008) to $5,000
that the IRS includes in potentially collectible invento- (indexed for inflation after 2009). This Act permanently
ry. The provision designates certain tax receivables as extended the indexed $5,000 increase in the EITC phase-
not eligible for collection under qualified tax collection out threshold for married couples.
contracts and requires the Secretary of the Treasury to Permanently extend EITC for larger families.
give priority to private collection contractors and debt ARRA, as extended by TRUIRJCA and ATRA, added
collection centers currently approved by the Treasury a fourth credit schedule to the EITC through 2017 to
Departments Bureau of the Fiscal Service. The provi- provide a larger credit for families with more than two
sion generally applies to tax receivables identified by qualifying children. This Act permanently extended the
the Secretary after the date of enactment. fourth schedule.
Limit surplus funds of Federal Reserve banks. Permanently extend AOTC.The AOTC, which
This Act capped the Federal Reserve surplus account at was created under ARRA and extended through 2017 by
$10 billion and required any amounts that exceed the cap TRUIRJCA and ATRA, provided taxpayers a credit of up
to be remitted to the U.S. Treasury. to $2,500 per eligible student per year for qualified tuition
Reduce dividends of certain Federal Reserve and related expenses paid for each of the first four years
member banks.For member banks with assets in ex- of the students post-secondary education in a degree or
cess of $10 billion, this Act reduced the dividend paid certification program. The student must be enrolled at
by the Federal Reserve to the lower of six percent or the least half-time to receive the credit, which is partially
high yield of the 10-year Treasury note auctioned at the refundable and phased out above specified income thresh-
last auction held prior to the payment of a dividend. For olds. This Act permanently extended the AOTC.
Modify and permanently extend the above-the- Extend deduction for qualified tuition and re-
line deduction for qualified out-of-pocket classroom lated expenses.An above-the-line deduction of up
expenses.Certain teachers and other elementary and to $4,000 is provided for qualified higher education ex-
secondary school professionals are permitted to deduct penses paid by a qualified taxpayer during the taxable
up to $250 in annual qualified out-of-pocket classroom year. For a given taxable year, the deduction may not
expenses. Under prior law, the deduction expired for be claimed: (1) if an education tax credit is claimed for
taxable years beginning before January 1, 2015. This the same student; (2) for amounts taken into account
Act reinstated and permanently extended this above- in determining the amount excludable from income due
the-line deduction, effective for such expenses incurred to a distribution from a Coverdell education savings ac-
after December 31, 2014, and provided for the annual count or the amount of interest excludable from income
indexation of the $250 deduction limit, effective for tax- with respect to education savings bonds; and (3) for the
able years beginning after 2015. In addition, this Act amount of a distribution from a qualified tuition plan that
expanded the deduction to apply to professional develop- is excludable from income, except that the deduction may
ment expenses, effective for such expenses incurred after be claimed for the amount not attributable to earnings.
December 31, 2015. Under prior law, the deduction expired for expenses in-
Permanently extend parity for exclusion from curred in taxable years after December 31, 2014. This
income for employer-provided mass transit and Act reinstated and extended the deduction for two years,
parking benefits.Qualified transportation fringe ben- to apply to expenses incurred in taxable years beginning
efits provided by an employer through transit passes and after December 31, 2014, and before January 1, 2017.
vanpooling can be excluded from an employees income up
to a statutory maximum of $100 per month in combined Tax Incentives for Charitable Giving
transit pass and vanpool benefits and $175 per month
in qualified parking benefits. Both statutory limits are Modify and permanently extend increased limits
adjusted annually for inflation after 1999. Prior law tem- on contributions of partial interest in real property
porarily provided parity in these benefits by increasing for conservation purposes.Special rules for the de-
the monthly exclusion for combined employer-provided ductibility of qualified conservation contributions were
transit pass and vanpool benefits to the same level as the temporarily enhanced, applicable for qualified conserva-
exclusion for employer-provided parking benefits. This tion contributions made in taxable years beginning after
Act reinstated and permanently extended that parity, ef- December 31, 2005, and before January 1, 2015. These
fective for benefits provided after December 31, 2014. enhancements: (1) increased the cap on deductions for
Permanently extend optional deduction for State qualified conservation contributions from 30 percent to
and local general sales taxes.Under prior law, a 50 percent of the excess of the donors contribution base
taxpayer was allowed to elect to take an itemized deduc- over the amount of all other allowable charitable contri-
tion for State and local general sales taxes in lieu of the butions; (2) increased the cap on deductions for qualified
itemized deduction for State and local income taxes for conservation contributions applicable to qualified ranch-
taxable years beginning before January 1, 2015. This Act ers and farmers to 100 percent of the excess of the donors
reinstated and permanently extended this deduction, ef- contribution base over the amount of all other allowable
fective for taxable years beginning after December 31, charitable contributions in the case of individuals and
2014. to 100 percent of the excess of taxable income over the
Modify and extend the ability to exclude discharg- amount of all other allowable charitable contributions in
es of indebtedness on principal residences from gross the case of corporations; and (3) increased the number
income.Up to $2 million (or up to $1 million per spouse of years qualified conservation contributions in excess
for married taxpayers filing separate returns) of discharg- of the 50- and 100-percent caps may be carried forward
es of certain indebtedness on a principal residence may be from five to 15 years. This Act reinstated and perma-
excluded from gross income for indebtedness discharged be- nently extended these enhanced special rules, applicable
fore January 1, 2015. This Act reinstated and extended the for qualified conservation contributions made in taxable
exclusion for two years, to apply to indebtedness discharged years beginning after December 31, 2014. In addition,
after December 31, 2014, and before January 1, 2017. The Alaska Native Corporations will be allowed to deduct do-
exclusion will also apply to indebtedness discharged after nations of conservation easements of up to 100 percent of
December 31, 2016, if the discharge is pursuant to a writ- taxable income, effective for such donations made after
ten arrangement entered into before 2017. December 31, 2015.
Extend deduction for mortgage insurance premi- Permanently extend tax-free distributions from
ums.Certain premiums paid or accrued for qualified Individual Retirement Accounts (IRAs) for charita-
mortgage insurance by a taxpayer in connection with ble contributions.An exclusion from gross income was
acquisition indebtedness on a qualified residence are provided for otherwise taxable distributions from a tradi-
deductible for income tax purposes, for amounts paid or tional or a Roth IRA made directly to a qualified charitable
accrued before 2015. This Act reinstated and extended organization in taxable years beginning after December 31,
the deduction for two years, to apply to amounts paid or 2005, and before January 1, 2015. The exclusion for these
accrued in 2015 and 2016 that are not properly allocable qualified charitable distributions may not exceed $100,000
to any period after December 31, 2016. per taxpayer per taxable year and is applicable only to dis-
tributions made on or after the date the IRA owner attains January 1, 2015, shareholders were allowed to adjust
age 70 1/2. This Act reinstated and permanently extended their basis in the stock of the company by their pro rata
the exclusion to apply to distributions made in taxable share of the adjusted basis of the contributed property
years beginning after December 31, 2014. instead of by their pro rata share of the market value of
Modify and permanently extend the enhanced the contributed property. This Act reinstated and per-
charitable deduction for contributions of food manently extended this provision, to apply to charitable
inventory.A taxpayers deduction for charitable contri- contributions made by an S corporation in taxable years
butions of inventory generally is limited to the taxpayers beginning after December 31, 2014.
basis (typically cost) in the inventory or, if less, the fair
market value of the inventory. For certain contributions Tax Incentives for Growth, Jobs,
of inventory, C corporations may claim an enhanced de- Investment, and Innovation
duction equal to the lesser of: (1) basis plus one-half of
the items appreciation; or (2) two times basis. However, Modify and permanently extend research and ex-
under a special temporary provision, any taxpayer (not perimentation (R&E) tax credit.A tax credit of 20
just a C corporation) engaged in a trade or business was percent is provided for qualified research and experimen-
eligible to claim the enhanced deduction for donations of tation expenditures above a base amount. An alternative
food inventory in taxable years beginning after August 28, simplified credit (ASC) of 14 percent is also provided.
2005, and before January 1, 2015. To qualify for the en- Under prior law, these credits expired for amounts paid
hanced deduction, the donated food inventory must meet or incurred after December 31, 2014. This Act reinstated
certain quality standards and cannot exceed 10 percent of and permanently extended these tax credits, to apply to
the taxpayers net income from the related trade or busi- expenditures paid or incurred after December 31, 2014.
ness. This Act reinstated and permanently extended the In addition, effective for taxable years beginning after
enhanced charitable deduction for contributions of food December 31, 2015, eligible small businesses ($50 mil-
inventory, to apply to contributions made after December lion or less in gross receipts) will be allowed to claim the
31, 2014. In addition, this Act increased the limitation credit against their alternative minimum tax (AMT) li-
from 10 percent to 15 percent of the taxpayers net income ability, and certain qualified small businesses will be able
from the related trade or business and modified the de- to claim the credit against their Social Security payroll
duction to provide special rules for valuing food inventory, tax liability.
effective for taxable years beginning after December 31, Permanently extend employer wage credit for
2015. employees who are active duty members of the uni-
Permanently extend special rule regarding tax formed services.Some employers voluntarily pay their
treatment of certain payments to controlling exempt employees who are called to active duty in the armed
organizations.Interest, rents, royalties, and income forces of the United States the difference between the
from annuities generally are excluded from the tax on compensation that they would have paid the employee
unrelated business income of tax-exempt organizations, during the period of military service and the amount of
unless such income is received from a taxable or tax-ex- pay received by the employee from the military. This pay-
empt subsidiary that is more than 50-percent controlled ment by the employer is often referred to as differential
by the parent tax-exempt organization. However, under pay. Eligible small business employers are provided a
a special temporary provision, such income received by a tax credit equal to 20 percent of up to $20,000 in annual
tax-exempt parent organization from a controlled subsid- eligible differential wage payments made to each quali-
iary before January 1, 2015, and pursuant to a binding fied employee. Under prior law, this credit expired for
written contract that was in effect on August 17, 2006, is amounts paid after December 31, 2014. This Act rein-
taxable only to the extent that it exceeds amounts that stated and permanently extended the credit, making it
would have been received if such payments had been de- available for eligible differential wage payments made
termined under the arms length principles of section 482 to a qualified employee after December 31, 2014, and ex-
of the Internal Revenue Code. This Act reinstated and panded the credit to apply to all employers, effective for
permanently extended this provision, to apply to such in- such payments made after December 31, 2015.
come received after December 31, 2014. Permanently extend modified recovery period for
Extend basis adjustment to stock of S corpora- qualified leasehold improvement property, qualified
tions contributing appreciated property.Each restaurant property, and qualified retail improve-
shareholder of an S corporation must take into account ment property.This Act reinstated and permanently
his or her pro rata share of a charitable contribution by extended the 15-year recovery period for qualified lease-
the S corporation in determining his or her income tax hold improvement property, qualified restaurant property,
liability. For donations of property, this generally is the and qualified retail improvement property, effective for
pro rata share of the propertys fair market value; the such property placed in service after December 31, 2014.
shareholders basis in the stock of the company is re- Modify and permanently extend increased ex-
duced by the amount of the charitable contribution that pensing for small business.Taxpayers were allowed
flows through to the shareholder. However, effective for to expense up to $500,000 in annual investment expen-
charitable contributions made by an S corporation in tax- ditures for qualifying depreciable property used in an
able years beginning after December 31, 2005, and before active trade or business (including off-the-shelf comput-
er software and up to $250,000 of certain qualified real Extend subpart F active financing and look-
property) placed in service in taxable years beginning through exceptions.Under the rules contained in
after 2009 and before 2015. The maximum amount that subpart F of the Internal Revenue Code, U.S. sharehold-
could be expensed was reduced by the amount by which ers of a controlled foreign corporation (CFC) are subject to
the taxpayers cost of qualifying property exceeded $2 U.S. tax currently on certain income earned by the CFC,
million. This Act reinstated and permanently extended whether or not such income is distributed. Exceptions
the annual expensing limit and the phase-out threshold from subpart F are provided for: (1) certain income
amount that were in effect in 2010 through 2014, effective derived in the active conduct of a banking, financing, in-
for qualifying property placed in service in taxable years surance, or similar business (active financing exception);
beginning after December 31, 2014. Qualifying property and (2) dividends, interest, rents, and royalties received
will continue to include off-the-shelf computer software by one CFC from a related CFC to the extent attributable
and certain real property. Effective for taxable years be- or properly allocable to income of the related CFC that
ginning after December 31, 2015, both the $500,000 and is neither subpart F income nor income treated as effec-
$2 million amounts will be indexed annually for infla- tively connected with the conduct of a trade or business in
tion; the $250,000 cap on annual expensing of certain real the United States (look-through exception). Under prior
property will be eliminated; and the definition of qualify- law, these exceptions expired for taxable years beginning
ing property will be expanded to include air conditioning after December 31, 2014. This Act reinstated and perma-
and heating units. nently extended the exception under subpart F for active
Permanently extend special tax rules applicable financing income to apply to taxable years of foreign
to regulated investment companies (RICs).This Act corporations beginning after December 31, 2014, and re-
reinstated and permanently extended, effective for taxable instated and extended the look-through exception for five
years beginning after December 31, 2014, the following years, to apply to taxable years of foreign corporations be-
special tax rules applicable to RICs: (1) the exemption ginning after December 31, 2014, and before January 1,
from U.S. withholding tax for certain interest-related 2020.
dividends and short-term capital gain dividends paid by Extend the New Markets tax credit (NMTC).The
a RIC to a foreign shareholder; and (2) the treatment of NMTC is a 39-percent credit for qualified equity invest-
RICs as qualified investment entities for purposes of the ments made in qualified community development entities
provisions regarding foreign investment in U.S. real prop- that are held for a period of seven years. This Act rein-
erty interests. stated and extended the NMTC, which expired at the end
Permanently extend exclusion of 100 percent of of 2014, for five years, authorizing up to $3.5 billion in
gain on certain small business stock.Capital gains qualifying investment for each year, 2015 through 2019.
realized on the sale of certain small business stock held Modify and extend the work opportunity tax
by an individual for more than five years are excluded credit (WOTC).The WOTC provides incentives to em-
from tax, effective for stock issued after September 27, ployers for hiring individuals from one or more of nine
2010, and before January 1, 2015. This Act reinstated targeted groups. The credit available for qualified wages
and permanently extended the 100-percent exclusion and paid to members of all targeted groups (except for long-
eliminated the treatment of a percentage of the exclusion term family assistance recipients and qualified summer
as a preference for the AMT, to apply to qualified small youth employees) is equal to 40 percent (25 percent for
business stock issued after December 31, 2014. employment of 400 hours or less) of the first $6,000 of
Permanently extend reduction in recognition pe- qualified first-year wages attributable to service rendered
riod for S corporation built-in gains tax.A small during the one-year period beginning with the day the in-
business corporation may elect to be treated as an S cor- dividual began work for the employer. With respect to
poration. Unlike C corporations, S corporations generally qualified summer youth employees, the maximum credit
pay no corporate-level tax; instead, items of income and is $1,200 (40 percent of the first $3,000 of qualified first-
loss of an S corporation pass through to its shareholders. year wages). In the case of long-term family assistance
A corporate level tax, at the highest marginal tax rate ap- recipients, the credit is equal to 40 percent (25 percent
plicable to corporations (currently 35 percent), is imposed for employment of 400 hours or less) of the first $10,000
on the net recognized built-in gain of an S corporation in qualified first-year wages and 50 percent of the first
that arose prior to the conversion of a C corporation to the $10,000 of qualified second-year wages. Under prior law,
S corporation and that is recognized by the S corporation this credit expired for individuals who begin work for an
during the recognition period. The recognition period employer after December 31, 2014. This Act reinstated
is the 10-year period beginning with the first day of the and extended the credit for five years, to apply to wages
first taxable year for which the election to be treated as paid to qualified individuals who begin work for the em-
an S corporation is in effect; however, the recognition ployer after December 31, 2014, and before January 1,
period was reduced to five years for dispositions of prop- 2020. This Act also modified the credit to apply to wages
erty in taxable years beginning in 2011, 2012, 2013, and paid to qualified long-term unemployed individuals (those
2014. This Act reinstated and permanently extended the who have been unemployed for 27 weeks or more) who
five-year recognition period, to apply to dispositions of begin work for the employer after December 31, 2015, and
property in taxable years beginning in 2015 before January 1, 2020.
Extend first-year depreciation deduction for cer- respect to the training program costs of the qualified
tain property.This Act reinstated and extended for mine rescue team employee; or (2) $10,000. Under prior
five years the additional first-year depreciation deduction law, this credit expired for taxable years beginning after
to apply to qualifying property acquired and placed in December 31, 2014. This Act reinstated and extended
service in calendar years 2015 through 2019. The placed- the credit for two years, to apply to costs incurred in tax-
in-service deadline was extended through 2020 for certain able years beginning after December 31, 2014, and before
longer-lived property, transportation property, and cer- January 1, 2017.
tain aircraft. The deduction is 50 percent of the adjusted Extend the issuance of qualified zone academy
basis of the property for qualifying property acquired and bonds.This Act reinstated and extended the qualified
placed in service in calendar years 2015 through 2017, zone academy bond program for two years, authorizing
40 percent for property placed in service in 2018, and 30 the issuance of $400 million in such bonds in calendar
percent for property placed in service in 2019. For certain years 2015 and 2016.
longer-lived property, transportation property, and cer- Extend classification of certain race horses as
tain aircraft, the deduction percentage is 50 percent for three-year property.Under this Act, the three-year
2016 through 2018, 40 percent for 2019, and 30 percent recovery period applicable to any race horse placed in ser-
for 2020. Under this Act, corporations may continue to vice after December 31, 2008, and before January 1, 2015,
elect to claim additional AMT credits in lieu of claiming was reinstated and extended for two years, to apply to
the additional first-year depreciation for property placed race horses placed in service before January 1, 2017.
in service in 2015. The Act increased the amount of un- Extend seven-year recovery period for motor-
used AMT credits that may be claimed in lieu of bonus sports entertainment complexes.Under this Act, the
depreciation for taxable years beginning after December seven-year recovery period applicable to motorsports en-
31, 2015. This Act expanded the definition of qualified tertainment complexes placed in service before January
property to include qualified improvement property for 1, 2015, was reinstated and extended for two years, to ap-
property placed in service after December 31, 2015, in ply to such facilities placed in service before January 1,
taxable years beginning after such date. After December 2017.
31, 2015, and before January 1, 2020, it also altered the Modify and extend accelerated depreciation for
treatment for certain trees, vines, and plants bearing fruit business property on Indian reservations.This Act
or nuts that are planted or grafted to a plant that has reinstated and extended for two years, through December
already been planted. The additional first-year deprecia- 31, 2016, the accelerated depreciation rules for qualified
tion deduction is allowed when such plants are planted or property used in the active conduct of a trade or business
grafted, rather than when they are placed in service. within an Indian reservation. Property used to conduct
Extend tax incentives for employment on Indian or house certain gaming activities is not eligible for the
reservations.This Act reinstated and extended for two accelerated depreciation rules. This Act also modified the
years, for taxable years beginning before January 1, 2017, deduction for taxable years beginning after December 31,
the employment tax credit for qualified workers employed 2015, allowing taxpayers to elect out of the accelerated
on an Indian reservation. The employment tax credit is depreciation rules.
not available for employees involved in certain gaming Extend expensing of advanced mine safety equip-
activities or who work in a building that houses certain ment.Under prior law, taxpayers were allowed to
gaming activities. immediately expense 50 percent of the cost of under-
Modify and extend railroad track maintenance ground mine safety equipment that is above and beyond
credit.A 50-percent business tax credit is provided for existing safety equipment requirements for property
qualified railroad track maintenance expenditures paid placed in service before January 1, 2015. This Act rein-
or incurred by an eligible taxpayer in taxable years begin- stated and extended this provision for two years, to apply
ning after December 31, 2004, and before January 1, 2015. to property placed in service after December 31, 2014, and
The credit was limited to the product of $3,500 times the before January 1, 2017.
number of miles of railroad track owned or leased by, or Extend expensing for certain qualified film and
assigned to, an eligible taxpayer as of the close of the tax- television productions.Taxpayers could elect to de-
able year. In general, an eligible taxpayer is a Class II duct up to $15 million ($20 million for productions in
or Class III railroad. This Act reinstated and extended certain areas) of the aggregate costs of any qualifying
the credit for two years, to apply to qualified expenses film and television production in the year in which the ex-
incurred in taxable years beginning after December 31, penses were incurred, in lieu of capitalizing the cost and
2014, and before January 1, 2017. This Act also modified recovering it through depreciation allowances. Under
the credit to apply to expenditures for maintaining rail- prior law, this deduction expired for qualifying film and
road track owned or leased as of January 1, 2015, rather television production, commencing after December 31,
than as of January 1, 2005, as provided under prior law. 2014. This Act reinstated and extended this provision for
Extend credit for mine rescue training.An eli- two years, to apply to qualified film and television produc-
gible taxpayer may claim a general business tax credit tions commencing after December 31, 2014, and before
with respect to each qualified mine rescue team employee January 1, 2017. The Act also extended this expensing
equal to the lesser of: (1) 20 percent of the amount paid provision to qualified live theatrical productions com-
or incurred by the taxpayer during the taxable year with mencing after December 31, 2015.
Extend the domestic production activities deduc- Extend the economic development credit for
tion for activities in Puerto Rico.A deduction is American Samoa.Under prior law, a domestic corpo-
provided for a portion of a taxpayers qualified production ration that was an existing possession tax credit claimant
activities income. Qualified production activities income with respect to American Samoa and elected the applica-
generally is equal to domestic production gross receipts tion of the tax credit for its last taxable year beginning
reduced by the sum of the costs of goods sold and other before January 1, 2006, was allowed to claim a possession
expenses, losses, or deductions that are properly alloca- tax credit based on the economic activity-based limita-
ble to those receipts. Domestic production gross receipts tion rules for the first nine taxable years beginning after
generally only include receipts from activities performed December 31, 2005, and before January 1, 2015. A domes-
within the United States, and do not include receipts from tic corporation that was an existing possession tax credit
activities performed in Puerto Rico. For taxable years be- claimant and did not elect the application of the tax credit
ginning after May 17, 2006, the amount of the deduction for its last taxable year beginning before January 1, 2006,
for a taxable year is limited to 50 percent of the wages paid was allowed to claim a possession tax credit based on the
by the taxpayer and properly allocable to domestic pro- economic activity-based limitation rules for the first three
duction gross receipts during the calendar year that ends taxable years beginning after December 31, 2011, and be-
in such taxable year. Wages paid to bona fide residents of fore January 1, 2015. This Act reinstated and extended
Puerto Rico generally are not included in the wage limita- the ability of domestic corporations to claim a possession
tion amounts. However, effective for the first nine taxable tax credit based on the economic activity-based limitation
years of a taxpayer beginning after December 31, 2005, rules for two years, to apply to taxable years beginning
and before January 1, 2015, a taxpayer with gross re- after December 31, 2014, and before January 1, 2017.
ceipts from sources within the Commonwealth of Puerto Suspend tax on manufacturers of medical devices
Rico can treat production activities performed in Puerto for two years.This Act suspended the 2.3-percent ex-
Rico as performed in the United States for purposes of cise tax imposed on the sale of any taxable medical device
determining qualified production activities income, and by the manufacturer, producer, or importer of the device,
can take into account wages paid to bona fide residents effective for sales after December 31, 2015, and before
of Puerto Rico for services performed in Puerto Rico in January 1, 2018.
computing the 50-percent wage limitation, provided all of
the taxpayers gross receipts are subject to the Federal in- Tax Incentives for Real Estate Investment
come tax. This Act reinstated and extended this provision
for two years, to apply to the first eleven taxable years of Permanently extend temporary minimum Low-
a taxpayer beginning after December 31, 2005, and before Income Housing tax credit (LIHTC) rate for
January 1, 2017. non-Federally subsidized new buildings.The
Modify and extend tax incentives for empower- LIHTC is provided to owners of qualified low-income
ment zones.This Act reinstated and extended the tax rental units. The credit may be claimed over a 10-year
incentives (including employment credits and low-cost period for a portion of the cost of rental housing occupied
loans) that are provided to businesses located in the 40 by tenants having incomes below specified levels. Under
Federally-designated empowerment zones (30 in ur- prior law, a temporary minimum credit percentage of nine
ban areas and 10 in rural areas) for two years, through percent was provided for newly constructed non-Federally
December 31, 2016. In addition, beginning in 2016, subsidized buildings that received an allocation of a hous-
employees will be allowed to meet the enterprise zone fa- ing credit dollar amount before January 1, 2015. This Act
cility bond employment requirement if they are residents reinstated and permanently extended the nine-percent
of the empowerment zone, an enterprise community, or rate, effective January 1, 2015.
a qualified low-income community within an applicable Permanently extend treatment of basic housing
nominating jurisdiction. allowances for the purpose of LIHTC income eligi-
Extend temporary increase in limit on cover over bility rules.In general, to be eligible for the LIHTC, a
of rum excise taxes to Puerto Rico and the Virgin qualified low-income housing project must satisfy one of
Islands.A $13.50-per-proof-gallon excise tax is im- two tests at the election of the taxpayer: (1) 20 percent or
posed on distilled spirits produced in or imported into the more of the residential units in the project are both rent-
United States. Under current law, $10.50 per proof gal- restricted, and occupied by individuals whose income is
lon of the tax imposed on rum imported into the United 50 percent or less of area median gross income; or (2)
States is covered over (paid) to Puerto Rico and the Virgin 40 percent or more of the residential units in the proj-
Islands. A temporary increase in the amount covered ect are both rent-restricted, and occupied by individuals
over to Puerto Rico and the Virgin Islands to $13.25 per whose income is 60 percent or less of area median gross
proof gallon expired with respect to rum imported into income. These income requirements are adjusted for fam-
the United States after December 31, 2014. This Act re- ily size. Effective for income determinations made after
instated and extended the $13.25-per-proof-gallon cover July 30, 2008, and before January 1, 2015, for buildings
over amount for two years, to apply to rum imported into that are located in certain counties, the basic housing al-
the United States after December 31, 2014, and before lowance (payments provided under section 403 of title 37,
January 1, 2017. United States Code) provided to military personnel was
not included in income for the purpose of LIHTC income
eligibility rules. This Act reinstated and permanently sale or use in a trade or business. An income tax credit
extended the disregard of basic housing allowances for for biodiesel fuels (the biodiesel fuels credit) is also pro-
purposes of LIHTC income eligibility rules for buildings vided. The biodiesel fuels income tax credit is the sum
in those counties, effective for income determinations of three credits: (1) the biodiesel mixture credit, which is
made after December 31, 2014. $1.00 for each gallon of biodiesel and agri-biodiesel used
Permanently extend special tax rules applicable by the taxpayer in the production of a qualified biodiesel
to RICs provided under the Foreign Investment in mixture; (2) the biodiesel credit, which is $1.00 for each
Real Property Tax Act (FIRPTA).This Act rein- gallon of biodiesel and agri-biodiesel that is not in a mix-
stated and permanently extended the following special ture with diesel when used as a fuel or sold at retail; and
tax rules applicable to RICs: (1) the exemption from U.S. (3) the small agri-biodiesel producer credit, which is a
withholding tax for certain interest-related dividends 10-cents-per-gallon credit for up to 15 million gallons of
and short-term capital gain dividends paid by a RIC to agri-biodiesel produced by small producers. Renewable
a foreign shareholder; and (2) the treatment of RICs as diesel is eligible for the excise tax credit (or payment) and
qualified investment entities for purposes of the provi- the income tax credit provided to biodiesel fuels at a rate
sions regarding foreign investment in U.S. real property of $1.00 per gallon. Under prior law, these credits and
interests. payments expired with respect to fuel sold or used after
December 31, 2014. This Act reinstated and extended for
Tax Incentives for Energy two years, through December 31, 2016, these credits and
Production and Conservation payments for biodiesel and renewable diesel fuels.
Modify and extend credit for the production of
Extend credit for nonbusiness energy property.A Indian coal.A credit is available for the production
tax credit is provided for the purchase of qualified energy of coal from reserves owned by Indian tribes at a quali-
efficient improvements to existing homes located in the fied facility (a facility placed in service before January
United States and owned and used by the taxpayer as 1, 2009) for the nine-year period beginning January 1,
the taxpayers principal residence. Under prior law, this 2006, through December 31, 2014. This Act reinstated
credit expired for qualified property placed in service af- and extended the credit for two years, to apply to produc-
ter December 31, 2014. This Act reinstated and extended tion for the eleven-year period beginning January 1, 2006,
the credit for two years, to apply to property purchased through December 31, 2016. This Act also modified the
and placed in service after December 31, 2014, and before credit beginning in 2016 by removing the placed-in-ser-
January 1, 2017. vice date limitation and allowing the credit to be claimed
Extend credit for alternative fuel vehicle refuel- against the AMT.
ing property.A tax credit is provided for the cost of Extend tax credit with respect to facilities
qualified clean-fuel vehicle refueling property to be used producing energy from certain renewable sources.
in a trade or business of the taxpayer or installed at the Taxpayers are allowed a tax credit for electricity produced
principal residence of the taxpayer. Under prior law, the from wind, closed-loop biomass, open-loop biomass, geo-
credit is available for hydrogen and non-hydrogen refu- thermal energy, solar energy, small irrigation power,
eling property placed in service before January 1, 2015. municipal solid waste, qualified hydropower, and marine
This Act reinstated and extended the credit for hydrogen and hydrokinetic renewable energy at qualified facilities
and non-hydrogen refueling property for two years, to ap- (the renewable electricity production credit). To qualify
ply to property placed in service after December 31, 2014, for the credit, electricity generally must be sold by the
and before January 1, 2017. taxpayer to an unrelated person and must be produced at
Extend the credit for two-wheeled plug-in electric a qualified facility. For the production of electricity from
vehicles.Under prior law, a ten-percent credit (capped solar energy or small irrigation power, a facility is quali-
at $2,500) was available for qualifying two-wheeled plug- fied if it was placed in service before January 1, 2006, and
in electric vehicles acquired after December 31, 2011, and October 3, 2008, respectively. For the production of elec-
before January 1, 2014. This Act reinstated and extended tricity from wind, closed-loop biomass, open-loop biomass,
the credit for a few years, to apply to such vehicles ac- geothermal energy, municipal solid waste, qualified hy-
quired after December 31, 2014, and before January 1, dropower, and marine and hydrokinetic renewable energy,
2017. a facility is qualified if construction began before January
Extend second generation biofuel producer cred- 1, 2015. This Act reinstated and extended for two years,
it.An income tax credit (generally equal to $1.01 per through December 31, 2016, the date on which construc-
gallon) is provided to producers of second generation bio- tion must commence for a facility that produces electricity
fuel for fuel produced before January 1, 2015. This Act from closed-loop biomass, open-loop biomass, geothermal
reinstated and extended the credit for two years, to ap- energy, municipal solid waste, qualified hydropower, and
ply to fuel produced after December 31, 2014, and before marine and hydrokinetic renewable energy to be a quali-
January 1, 2017. fied facility. This Act also extended for two years, through
Extend credits for renewable diesel and biodies- December 31, 2016, the election to treat qualified facili-
el fuels.An excise tax credit (or a payment) of $1.00 ties as energy property eligible for the 30-percent energy
is provided for each gallon of biodiesel and agri-biodiesel production credit, in lieu of the renewable electricity pro-
used by a taxpayer in producing a biodiesel mixture for duction credit.
Extend credit for the construction of energy-ef- credit. Under prior law, these credits and payments ex-
ficient new homes.An eligible contractor is provided pired with respect to fuel used or sold after December 31,
a tax credit for each qualified new energy-efficient home 2014. This Act reinstated and extended the alternative
that is constructed and acquired from the contractor by a fuel credit, the alternative fuel mixture credit, and relat-
person for use as a residence for homes purchased before ed payments, to apply to fuel sold or used before January
January 1, 2015. This Act reinstated and extended the 1, 2017. In light of the retroactive nature of the provision
credit for two years, to apply to homes purchased after as it relates to fuel sold or used in 2015, a special rule
December 31, 2014, and before January 1, 2017. is provided to address claims regarding credits and pay-
Extend special allowance for second generation ments associated with that year.
biofuel plant property.This Act reinstated and ex- Extend credit for new qualified fuel cell motor
tended the additional first-year depreciation deduction, vehicles.A credit is provided for the purchase of new
equal to 50 percent of the adjusted basis of qualified sec- fuel cell vehicles. The amount of the credit ranges from
ond generation biofuel plant property, for two years, to $4,000 to $40,000, depending on the weight of the vehicle.
apply to such property placed in service before January Under prior law, the credit expired for vehicles purchased
1, 2017. after December 31, 2014. This Act reinstated and extend-
Extend deduction for energy-efficient commercial ed the credit for two years, to apply to vehicles purchased
building property.A deduction is provided for the cost after December 31, 2014 and before January 1, 2017.
of energy-efficient commercial building property placed
in service before January 1, 2015. This Act reinstated Program Integrity
and extended the deduction for two years, to apply to
such property placed in service after December 31, 2014, This Act included a number of provisions that could
and before January 1, 2017. This Act also updated the increase program integrity within the tax system by: (1)
standard against which energy savings are measured accelerating the filing due date for Forms W-2, W-3, and
in the definition of energy efficient commercial building returns and statements reporting nonemployee compen-
property. sation to January 31 and removing the extended March
Extend special rules for sales or dispositions to 31 due date for these electronically filed forms; and pro-
implement Federal Energy Regulatory Commission hibiting the payment of credits or refunds to taxpayers
(FERC) or State electric restructuring rules for receiving the refundable CTC or EITC prior to February
qualified electric utilities.Under a special provision 15; (2) establishing a safe harbor from penalties for cer-
of prior law, taxpayers were allowed to elect to recognize tain de minimis errors on information returns and payee
gain from the sale or disposition of qualifying electric statements; (3) modifying the rules relating to the issu-
transmission property before January 1, 2015 ratably ance, renewal, and expiration of an individual taxpayer
over an eight-year period beginning in the year of sale if identification number (ITIN); (4) prohibiting the filing of
the amount realized from such sale was used to purchase retroactive claims for the EITC, CTC or AOTC by requir-
exempt utility property (reinvestment property) within ing that the required TIN be issued on or before the filing
the applicable period. Any gain realized in excess of the due date of the return; (5) extending the paid-preparer
amount used to purchase the reinvestment property was due diligence requirements with respect to the EITC to
recognized as income in the year of the qualifying electric returns claiming the CTC and the AOTC; (6) extending
transmission transaction. This Act reinstated and ex- the rules that bar a taxpayer from claiming the EITC for
tended this special rule for two years, to apply to the sale 10 years if convicted of fraud and for two years if found to
or disposition of qualifying electric transmission property have recklessly or intentionally disregarded the rules, to
after December 31, 2014, and before January 1, 2017. apply to the CTC and the AOTC; (7) applying the penalty
Extend alternative fuels excise tax credits.Two for erroneous refunds and credits to the EITC and provid-
per-gallon excise tax credits are available for the producing reasonable cause relief from the penalty, and applying
tion of alternative fuel: the alternative fuel credit and the the accuracy-related penalty to the refundable portion of
alternative fuel mixture credit. Alternative fuel means erroneously claimed refundable credits; (8) increasing the
liquefied petroleum gas, P Series fuels, compressed or penalty for tax preparers who engage in willful or reck-
liquefied natural gas, liquefied hydrogen, liquid fuel de- less conduct; (9) requiring that a taxpayer claiming the
rived from coal through the Fischer-Tropsch process, AOTC provide the employer identification number (EIN)
compressed or liquefied gas derived from biomass, or liq- of the educational institution to which the taxpayer makes
uefied fuel derived from biomass. The alternative fuel qualified payments under the credit; and (10) requiring
credit is 50 cents per gallon of alternative fuel or gaso- that educational institutions report only qualified tuition
line gallon equivalents of nonliquid alternative fuel sold and related expenses actually paid on Form 1098-T.
by the taxpayer for use as a motor fuel in a motor vehicle
or motorboat, sold for use in aviation or so used by the Miscellaneous Provisions
taxpayer. The alternative fuel mixture credit is 50 cents
per gallon of alternative fuel used in producing an alter- This Act included a number of miscellaneous provi-
native fuel mixture for sale or use in a trade or business sions that modify tax relief provided to families, modify
of the taxpayer. A taxpayer is also allowed to file a claim the taxation of real estate investment trusts (REITs), and
for payment equal to the amount of the alternative fuel
make other changes to prior tax law. The major miscella- Treat certain persons as employers with respect
neous provisions that affect receipts are described below. to motion picture projects.Employment taxes im-
Modify tax relief provided to families.This Act posed on employers and employees include the Social
included a number of provisions that provided tax relief Security or old age, survivors, and disability insurance
to families by: (1) excluding payments received under a (OASDI) tax, equal to 6.2 percent of covered wages up to
comprehensive student work-learning-service program the OASDI wage base ($118,500 for 2015) and taxes un-
operated by a work college (as defined under the Higher der the Federal Unemployment Tax Act (FUTA), equal to
Education Act of 1965) from gross income; (2) expand- six percent of wages up to the FUTA wage base of $7,000.
ing the definition of qualified higher education expenses In each case, wages that exceed the applicable wage base
eligible for tax-preferred distributions from a qualified are not subject to the otherwise applicable employment
tuition program (section 529 account); (3) eliminating the tax. A separate wage base applies to each employer that
residency requirement for qualified Achieving a Better employs an individual during the calendar year. This Act
Life Experience (ABLE) accounts; and (4) excluding from modifies the application of the wage base to remunera-
gross income civil damages, restitution, or other mon- tion paid by a motion picture employer to a motion picture
etary awards received by a taxpayer as compensation for worker by treating all such remuneration as paid by a
a wrongful incarceration. single employer without regard to whether the worker is
Modify taxation of REITs and other provisions. a common law employee of multiple clients of the motion
This Act included a number of provisions that modified picture employer during the year. As a result, a single
the taxation of REITs by (1) placing restrictions on tax- OASDI wage base and a single FUTA wage base will ap-
free spinoffs involving REITs; (2) increasing the maximum ply to all such remuneration paid during a calendar year.
stock ownership a shareholder may have held during the Expand and modify the alternative tax for cer-
applicable period in a publicly traded REIT (from 5 to tain small non-life insurance companies.This Act
10 percent) to avoid having that stock treated as a U.S. increased the maximum amount of annual premiums
real property interest under FIRPTA or to avoid having from $1.2 million to $2.2 million that a small non-life in-
a distribution from a publicly traded REIT being subject surance company may receive and still elect to be taxed
to FIRPTA; (3) providing that stock of a REIT owned by only on its taxable investment income. The $2.2 million
certain publicly traded foreign entities is not treated as a amount refers to a companys net written premiums (or,
U.S. real property interest, and, therefore, can be disposed if greater, its direct written premiums) for a taxable year.
of without triggering FIRPTA withholding, except to the This threshold amount is indexed for inflation beginning
extent the REIT stock owned by such a publicly traded for- in 2016. The Act also added a diversification requirement
eign entity is attributable to an investor that owns more for electing companies, effective for taxable years begin-
than 10 percent of the publicly traded foreign entity; (4) ning after December 31, 2016. No more than 20 percent
exempting any U.S. real property interest held by, or any of premiums for a taxable year be attributable to a single
distribution received from a REIT by, a foreign pension policyholder, where all related policyholders are treated
fund from the application of FIRPTA, including FIRPTA as one. If this requirement is not met, then a company
withholding; (5) increasing the rate of withholding of tax may still qualify as long as each owner of an interest in
on dispositions of most U.S. real property interests (from the insurance company that is a spouse or lineal descen-
10 to 15 percent) for dispositions occurring 60 days after dant of an owner of the business or assets being insured
the date of enactment; (6) providing that the cleansing by the insurance company does not own a greater (direct
rule (applicable to interests in corporations that general- or indirect) percentage interest in the insurance compa-
ly have disposed of all U.S. real property interests during ny than he or she has in the insured business or insured
the prior five-year period in fully taxable transactions) assets.
applies only to interests in a corporation that has not
been a RIC or a REIT during the five-year period ending Tax Administration
on the date of the disposition of stock of the corporation;
(7) providing new rules and presumptions for purposes This Act included a number of provisions related to
of determining whether a RIC or a REIT is domestically tax administration, including a number of IRS reforms
controlled; and (8) making dividends derived by a foreign that: (1) require the Commissioner to ensure that IRS
corporation from RICs and REITs ineligible for treatment employees are familiar with and act in accordance with
as dividends from domestic corporations for purposes of certain taxpayer rights; (2) prohibit IRS employees from
determining whether dividends from the foreign corpora- using personal e-mail accounts for official business; (3)
tion that owns shares in the RIC or REIT are eligible for permit the IRS to disclosure to the taxpayer the status
a dividend received deduction. of an investigation regarding a claim of unauthorized
Prevent transfer of certain losses from tax indif- disclosure or inspection of the taxpayers return or re-
ferent parties.This Act modified the related-party loss turn information or unlawful acts by revenue officers or
rules to prevent losses from being shifted from a tax-indif- agents: (4) require the establishment of procedures under
ferent party to another party in whose hands any gain or which a 501(c) organization may request an adminis-
loss with respect to the property would be subject to U.S. trative appeal of an adverse determination; (5) require
tax. This change is effective for sales and other disposi- the establishment of a notification process for organiza-
tions of property acquired after December 31, 2015. tions claiming tax-exemption under section 501(c)(4); (6)
provide for the termination of IRS employees who take property eligible for the energy property investment cred-
official actions for political purposes; and (7) extend IRS it, in lieu of the renewable electricity production credit
authority to permit truncated social security numbers on and phased out the energy percentage for facilities that
Forms W-2 furnished to employees. This Act also provides begin construction after 2016.
that the gift tax is not to apply to contributions to certain Modify and extend investment tax credit for solar
exempt organizations that are described in section 501(c) energy property.This Act extended for five years the
(4), (5) or )(6). 30 percent business investment tax credit for solar en-
ergy property (equipment) used to generate electricity, to
Trade-Related Provisions heat or cool a structure, or to provide solar process heat
(except for the purpose of heating a swimming pool), effec-
Modify effective date of provisions relating to tar- tive for property on which construction commences after
iff classification of recreational performance outer December 31, 2016, and before January 1, 2022. This Act
wear.This Act delayed implementation of changes in reduced the rate of the credit from 30 percent to 26 per-
the classification of certain recreation performance out- cent for property on which construction commences after
erwear products that would inadvertently increase tariffs December 31, 2019, and before January 1, 2021, and to
on some of those products. The implementation is de- 22 percent for property on which construction commences
layed from the 180th day after the enactment of the Trade after December 31, 2020 and before January 1, 2022. The
Preferences Extension Act of 2015 on June 29, 2015, to energy percentage is 10 percent for eligible property on
March 31, 2016. which construction begins before January 1, 2022, that
Reduce rates of duty on certain environmen- is not placed in service before January 1, 2024. A perma-
tal goods to fulfill an agreement by Asia-Pacific nent 10 percent credit is available to property on which
Economic Cooperation members.This Act ensured construction begins on or after January 1, 2022.
that the reduction of tariffs on certain environmental Modify and extend tax credit for residential en-
goods to fulfill an agreement by members of the Asia-Pacific ergy efficient solar property.This Act extended for
Economic Cooperation (APEC) forum is implemented five years the tax credit provided to individuals for ex-
in accordance with the Bipartisan Congressional Trade penditures made on qualified solar electric property and
Priorities and Accountability Act of 2015. qualified solar water heating property, to apply to pur-
chases made by the taxpayer after December 31, 2016,
TAX RELATED PROVISIONS (DIVISION P) and before January 1, 2022. A qualified solar electric
property expenditure is an expenditure for property
Delay tax on high-cost employer-sponsored health that uses solar energy to generate electricity for use in a
insurance coverage.This Act delayed the excise tax dwelling unit located in the United States and used as a
on high-cost employer-sponsored health insurance cov- residence by the taxpayer. A qualified solar water heat-
erage for two years, making the tax effective for taxable ing property expenditure is an expenditure for property to
years beginning after December 31, 2019. This Act also heat water for use in a dwelling unit located in the United
provided for the deductibility of the tax by taxpayers. States and used as a residence by the taxpayer, if at least
Place a one-year moratorium on tax levied on half of the energy used by the property for that purpose
health insurance providers.This Act placed a one- is derived from the sun. This Act also reduced the rate
year moratorium on the excise tax levied on health of the credit from 30 percent to 26 percent, effective for
insurance providers under section 9010 of the ACA, effec- property placed in service after December 31, 2019, and
tive for calendar year 2017. before January 1, 2021, and to 22 percent, effective for
Modify and extend tax credit with respect to fa- property placed in service after December 31, 2020, and
cilities producing energy from wind.This Act before January 1, 2022.
extended through December 31, 2019, the date by which Modify treatment of transportation costs of inde-
construction must commence for a facility that produces pendent refiners.This Act temporarily exempted 75
electricity from wind to qualify for the renewable electric- percent of qualified transportation costs of certain inde-
ity production tax credit, and included annual reductions pendent refiners from the calculation of their domestic
in the credit rate for facilities that begin construction af- production activities, effective for taxable years beginning
ter 2016. This Act also extended through December 31, after December 31, 2021, and before January 1, 2022.
2019, the election to treat qualified facilities as energy
BUDGET PROPOSALS
The number of special deductions, credits, and other Nation cannot afford to maintain a tax code burdened
tax preferences provided to businesses in the Internal with such tax breaks; instead, the tax code needs to en-
Revenue Code has expanded significantly since the last sure that the United States is the most attractive place
comprehensive tax reform effort nearly three decades for entrepreneurship and business growth. Therefore, the
ago. Such tax preferences help well-connected special Presidents Budget includes a detailed set of business tax
interests, but do little for economic growth. To be suc- reform proposals to achieve the following five goals: (1)
cessful in an increasingly competitive global economy, the cut the corporate tax rate and pay for it by making struc-
tural reforms and eliminating loopholes and subsidies; Provide tax incentives for locating jobs and busi-
(2) strengthen American manufacturing and innovation; ness activity in the United States and remove tax
(3) strengthen the international tax system; (4) simplify deductions for shipping jobs overseas.To provide
and cut taxes for small businesses; and (5) avoid adding to a tax incentive for U.S. companies to move jobs into the
deficits in the short-term or the long-term. United States from offshore, the Administration proposes
The Administrations receipt proposals begin the pro- to create a credit against income tax equal to 20 percent
cess of comprehensively reforming the Internal Revenue of the expenses paid or incurred in connection with in-
Code to help address the challenges faced by working sourcing a U.S. trade or business. In addition, to reduce
families. These proposals: (1) help make work pay by incentives for U.S. companies to move jobs offshore, the
expanding the EITC for workers without qualifying chil- proposal would disallow deductions for expenses paid or
dren and creating a new second-earner credit; (2) reform incurred in connection with outsourcing a U.S. trade or
and simplify tax incentives that help families save for business. For this purpose, insourcing (outsourcing) a
retirement and pay for college and child care; and (3) re- U.S. trade or business means reducing or eliminating a
form capital gains taxation to eliminate a loophole that trade or business or line of business currently conducted
lets substantial capital gains income escape tax forever. outside (inside) the United States and starting up, ex-
They also reduce the deficit and make the tax system panding, or otherwise moving the same trade or business
fairer by eliminating a number of tax loopholes and re- within (outside) the United States. Also for this purpose,
ducing tax benefits for higher-income taxpayers. The expenses paid or incurred in connection with insourcing
Administrations proposals that affect receipts are de- or outsourcing a U.S. trade or business are limited solely
scribed below. to expenses associated with the relocation of the trade or
business and do not include capital expenditures, sever-
ELEMENTS OF BUSINESS TAX REFORM ance pay, or other assistance to displaced workers. The
proposal would be effective for expenses paid or incurred
Reform the U.S. International Tax System after the date of enactment.
Repeal delay in the implementation of worldwide
Restrict deductions for excessive interest of mem- interest allocation.The rules for allocating and ap-
bers of financial reporting groups.Section 163(j) of portioning interest expense between U.S. and foreign
the Internal Revenue Code generally places a cap on the source income are based on the theory that money is
amount of interest expense paid to related parties (and to fungible and, therefore, interest expense is properly at-
unrelated parties on debt guaranteed by a related party) tributable to all investments of a taxpayer. Under current
that a corporation can deduct relative to its U.S. earnings, law, however, interest expense of the domestic members
but does not consider whether a foreign-parented groups of a worldwide group of companies is allocated by treat-
U.S. operations are more leveraged than the rest of the ing only the domestic members as a single corporation.
groups operations. In lieu of applying section 163(j), the Consequently, U.S. members are required to allocate their
Administrations proposal would limit the interest ex- U.S. interest expense to their U.S. and foreign investments
pense deduction of an entity that is a member of a group without taking into account any third party interest ex-
that prepares consolidated financial statements if the pense incurred by foreign members of the group. Under
members net interest expense for financial statement current law, an election is available for taxable years be-
purposes exceeds the members proportionate share of the ginning after December 31, 2020, to allow members of an
groups financial statement net interest expense (excess affiliated group of U.S. corporations to allocate interest
financial statement net interest expense). The mem- on a worldwide group basis under which interest expense
bers share of the groups financial statement net interest incurred in the United States would be allocated against
expense would be determined based on the members pro- foreign-source income only to the extent that the debt-to-
portionate share of the groups reported earnings. If a asset ratio is higher for U.S. than for foreign investments.
member has excess financial statement net interest ex- Under the Administrations proposal, this election would
pense, that member will have excess net interest expense be permitted for taxable years beginning after December
for tax purposes for which a deduction is disallowed in the 31, 2016.
same proportion that the members net interest expense Impose a 19-percent minimum tax on foreign
for financial statement purposes is excess financial state- income.Subject to certain limited exceptions under
ment net interest expense. Alternatively, if a member subpart F, U.S. companies are able to defer paying U.S.
fails to substantiate its share of the groups net interest tax on the profits earned by their CFCs until the prof-
expense, or a member so elects, the members interest de- its are repatriated. This ability to defer U.S. tax creates
duction would be limited to 10 percent of the members an incentive for U.S. multinationals to locate production
U.S. adjusted taxable income. The proposal would not overseas and shift profits abroad, eroding the U.S. tax
apply to financial services entities or financial reporting base. In addition, the current system discourages these
groups that would otherwise report less than $5 million companies from bringing low-taxed foreign earnings back
of net U.S. interest expense for a taxable year. The pro- to the United States. To address these problems, the
posal would be effective for taxable years beginning after Administration proposes to supplement the existing sub-
December 31, 2016. part F regime with a per-country minimum tax on foreign
earnings.
Under the Administrations proposal, foreign earnings, Limit shifting of income through intangible
other than subpart F income, would be subject to current property transfers.Under current law, there is a lack
U.S. taxation at a rate of 19 percent less 85 percent of of clarity regarding the scope of the definition of intan-
the per-country foreign effective tax rate. The tentative gible property under section 936(h)(3)(B) of the Internal
minimum tax base for each country would be the total Revenue Code. This definition of intangible property ap-
earnings of all business units that are tax resident in plies for purposes of the special rules under section 367 of
that country under foreign law, net of dividends received. the Internal Revenue Code relating to transfers of intan-
The tentative minimum tax base would be reduced by gible property by a U.S. person to a foreign corporation and
an allowance for corporate equity that would provide a the allocation of income and deductions among taxpayers
risk-free return on equity invested in active assets. The under section 482 of the Internal Revenue Code to pre-
minimum tax would be imposed on foreign earnings re- vent inappropriate shifting of income outside the United
gardless of whether they are repatriated to the United States. The Administrations proposal would provide that
States, and all foreign earnings of a CFC could be repatri- the definition of intangible property under section 936(h)
ated without further U.S. tax. Thus under the proposal, (3)(B) (and therefore for purposes of sections 367 and 482)
all CFC earnings would be subject to U.S. tax either im- also includes workforce in place, goodwill and going con-
mediately or not at all. cern value, and any other item owned or controlled by a
Foreign source royalty and interest payments paid to taxpayer that is not a tangible or financial asset and that
U.S. persons would be taxed at the U.S. statutory rate, but has substantial value independent of the services of any
certain income attributable to a foreign branch or to the individual. The proposal would be effective for taxable
performance of services abroad would be eligible for taxa- years beginning after December 31, 2016.
tion at the minimum tax rate. Interest expense allocated Disallow the deduction for excess non-taxed rein-
and apportioned to earnings for which the minimum tax surance premiums paid to affiliates.U.S affiliates
is paid would be deductible at the U.S. minimum tax rate of foreign insurance companies can avoid U.S. taxation
on those earnings. No deduction would be permitted for of their profits from their U.S. insurance business by re-
interest expense allocated and apportioned to foreign insuring that business with affiliated foreign insurance
earnings for which no U.S. income tax is paid. While sub- companies. Under the Administrations proposal, a U.S.
part F generally would continue in effect as under current insurance company would be denied a deduction for cer-
law, the rules regarding CFC investments in U.S. property tain non-taxed reinsurance premiums paid to foreign
and previously taxed earnings would be repealed, and the affiliates, offset by an income exclusion for return premi-
subpart F high-tax exception would be made mandatory. ums, ceding commissions, reinsurance recovered, or other
In addition, the look-through exception, excluding from amounts received from such affiliates. A foreign corpora-
subpart F income interest, dividends, rents and royalties tion that is paid premiums that would be affected by this
received or accrued from a related CFC (to the extent at- provision could instead elect to treat those premiums and
tributable or properly allocable to income of the CFC that the associated investment income as income effectively
is neither subpart F income nor income treated as effec- connected with the conduct of a trade or business in the
tively connected with the conduct of a trade or business in United States and attributable to a permanent estab-
the United States), currently applicable to taxable years lishment for tax treaty purposes. For foreign tax credit
of foreign corporations beginning after December 31, purposes, such effectively connected income would be
2005 and before January 1, 2020, would be permanent- treated as foreign source income and would be placed into
ly extended, and income qualifying for the look-through a separate category for purposes of applying the credit
exception would be subject to the minimum tax. The pro- limitation rules. The proposal would be effective for poli-
posal would be effective for taxable years beginning after cies issued in taxable years beginning after December 31,
December 31, 2016. 2016.
Impose a 14-percent one-time tax on previously Modify tax rules for dual capacity taxpayers.
untaxed foreign income.Under current law, U.S. The Administration proposes to tighten the foreign tax
multinational companies do not pay U.S. tax on the credit rules that apply to taxpayers that are subject to a
profits earned by their CFCs until those profits are re- foreign levy and that also receive (directly or indirectly)
patriated, subject to a limited exception under subpart F a specific economic benefit from the levying country (so-
for passive and other highly mobile income. Under the called dual capacity taxpayers). The proposal would be
Administrations proposal for companies to pay a mini- effective for taxable years beginning after December 31,
mum tax on foreign income, no U.S. tax would be imposed 2016.
on a CFCs payment of a dividend to a U.S. shareholder. Tax gain from the sale of a partnership interest
Therefore, the Administration proposes to impose a one- on look-through basis.Under the Administrations
time 14-percent tax on the accumulated earnings of CFCs proposal, gain or loss from the sale of a partnership in-
that were not previously subject to U.S. tax. A credit terest would be treated as effectively connected with the
would be allowed for the amount of foreign income taxes conduct of a trade or business in the United States and
associated with such earnings, multiplied by the ratio of subject to U.S. income taxation to the extent attributable
the one-time tax rate to the otherwise applicable U.S. cor- to the partners share of the partnerships unrealized gain
porate tax rate. The earnings subject to the one-time tax or loss from property used in a trade or business in the
could then be repatriated without any further U.S. tax. United States. The proposal would also require the pur-
chaser of a partnership interest to withhold 10 percent of to have a subpart F income inclusion with respect to the
the purchase price to ensure the sellers compliance. The corporation. The proposal would be effective for taxable
proposal would be effective for sales and exchanges after years beginning after December 31, 2016.
December 31, 2016. Restrict the use of hybrid arrangements that
Modify sections 338(h)(16) and 902 to limit credits create stateless income.Taxpayers currently use a
when non-double taxation exists.The Administration variety of cross-border hybrid arrangements to claim
proposes to modify the foreign tax credit rules to reduce deductions without corresponding inclusions in any ju-
the availability of foreign tax credits in circumstances risdiction or to claim multiple deductions for the same
where no double taxation would otherwise exist. Under payment in different jurisdictions. The Administration
section 338 of the Internal Revenue Code, taxpayers can proposes to deny deductions for interest and royalty pay-
elect to treat certain acquisitions of the stock of a corpo- ments paid to related parties when either: (1) as a result of
ration as an acquisition of the corporations assets for a hybrid arrangement there is no corresponding inclusion
U.S. tax purposes. Because this election does not alter to the recipient in the foreign jurisdiction; or (2) a hybrid
the foreign tax consequences of the transaction, section arrangement would permit the taxpayer to claim an ad-
338(h)(16) limits the ability of taxpayers to claim addi- ditional deduction for the same payment in more than one
tional foreign tax credits by generally requiring the seller jurisdiction. Additionally, sections 954(c)(3) and 954(c)
to continue to treat the gain recognized on the transac- (6) of the Internal Revenue Code would not apply to pay-
tion as gain from the sale of stock for foreign tax credit ments made to a foreign reverse hybrid held directly by a
purposes. The Administration proposes to extend these U.S. owner when such amounts are treated as deductible
rules to other similar transactions that are treated as as- payments by a foreign related person. Regulatory author-
set acquisitions for U.S. tax purposes but as acquisitions ity would be granted to the Department of the Treasury to
of an equity interest in an entity for foreign tax purposes. issue any regulations necessary to carry out the purposes
In addition, under the Administrations proposal, foreign of this proposal, including regulations that would deny all
income taxes paid by a foreign corporation would be re- or a portion of the deduction claimed with respect to an
duced for U.S. tax purposes if a redemption transaction interest or royalty payment that, as a result of the hybrid
results in the elimination of earnings and profits of the arrangement, is subject to inclusion in the recipients ju-
foreign corporation. The foreign income taxes reduced risdiction pursuant to a preferential regime that has the
under the proposal would be the foreign income taxes that effect of reducing the generally applicable statutory rate
are associated with the eliminated earnings and profits. by at least 25 percent. The proposal would be effective for
The proposals would be effective for transactions occur- taxable years beginning after December 31, 2016.
ring after December 31, 2016. Limit the ability of domestic entities to expatri-
Close loopholes under subpart F.Certain rules ate.Section 7874 of the Internal Revenue Code applies
under subpart F rely on technical distinctions that may be to certain transactions (known as inversion transac-
manipulated or circumvented contrary to subpart Fs pol- tions) in which a U.S. corporation is replaced by a foreign
icy of requiring current U.S. taxation of passive and other corporation as the parent company of a worldwide affiliat-
highly mobile income earned by CFCs. In order to close ed group. Under current law, if an inversion transaction
these loopholes, the Administration proposes to: (1) create occurs, certain adverse tax consequences apply depend-
a new category of subpart F income, foreign base company ing upon whether the continuing ownership of historical
digital income, which generally would include income of a shareholders of the U.S. corporation in the foreign acquir-
CFC from the lease or sale of a digital copyrighted article ing corporation is either 80 percent or more (in which case
or from the provision of a digital service in cases where the foreign acquiring corporation is treated as a domestic
the CFC uses intangible property developed by a related corporation for all U.S. tax purposes) or at least 60 per-
party (including property developed under a cost sharing cent but less than 80 percent (in which case the foreign
arrangement) to produce the income and the CFC does status of the acquiring corporation is respected but other
not, through its own employees, make a substantial con- penalties apply). The Administration proposes to broaden
tribution to the development of the property or services the definition of an inversion transaction by reducing the
that give rise to the income; (2) expand the category of 80-percent shareholder continuity threshold to a great-
foreign base company sales income to include income of er-than-50-percent threshold, and by eliminating the
a CFC from the sale of property manufactured on behalf 60-percent threshold. The Administration also proposes
of the CFC by a related person, regardless of whether the to provide that, regardless of the level of shareholder
CFC is characterized as obtaining the property through a continuity, an inversion transaction will occur if the fair
purchase transaction or through a manufacturing service market value of the stock of the U.S. corporation is great-
contract; (3) amend the ownership attribution rules of sec- er than the fair market value of the stock of the foreign
tion 958(b) of the Internal Revenue Code so that certain acquiring corporation, and the affiliated group is primar-
stock directly owned by a foreign person is attributed to a ily managed and controlled in the United States and does
related U.S. person for purposes of determining whether not conduct substantial business activities in the relevant
a foreign corporation is a CFC or a U.S. person is a U.S. foreign country. In addition, the proposal would provide
shareholder; and (4) eliminate the requirement that a the IRS with authority to share with authorized employ-
foreign corporation must be a CFC for an uninterrupted ees of other Federal agencies, upon request, information
period of at least 30 days in order for a U.S. shareholder collected with respect to the identity of companies that
are the subject of an inversion transaction. The propos- of start-up expenditures in the taxable year in which an
al generally would be effective for transactions that are active trade or business begins. Similarly, a taxpayer
completed after December 31, 2016, except that, effective may also elect to deduct up to $5,000 of organizational
January 1, 2017, the proposal would provide the IRS with expenditures in the taxable year in which a corpora-
the authority to share with other Federal agencies the tion or partnership begins business. In each case, the
specified information without regard to when the inver- $5,000 amount is reduced (but not below zero), by the
sion transaction occurred. amount by which such expenditures exceed $50,000. To
lower the tax cost of investigating new business oppor-
Simplification and Tax Relief for Small Business tunities and investing in new business activities, as well
as tax administration and business compliance costs,
Expand expensing for small business.Business the Administration proposes to consolidate the Internal
taxpayers are allowed to expense up to $500,000 in an- Revenue Code provisions relating to start-up expendi-
nual investment expenditures for qualifying property. tures and organizational expenditures and to double
However, only $25,000 of the cost of any sport utility ve- permanently, from $10,000 to $20,000, the combined
hicle (SUV) may be taken into account. The maximum amount of new business expenditures that a taxpayer
amount that can be expensed is reduced by the amount may elect to deduct, effective for taxable years beginning
by which the taxpayers cost of qualifying property ex- after December 31, 2016. That amount would be reduced
ceeds $2 million. The maximum expensing limit and the (but not below zero) by the amount by which the combined
phase-out threshold amount are indexed for inflation for new business expenditures exceed $120,000. Start-up and
taxable years beginning after December 31, 2015. The organizational expenditures that are not deducted under
Administration proposes to increase the maximum ex- these provisions would continue to be amortized over a
pensing limit to $1 million, indexed for inflation, effective 180-month period, beginning with the month in which the
for qualifying property placed in service in taxable years active trade or business begins.
beginning after December 31, 2016. The $25,000 expens- Expand and simplify the tax credit provided to
ing limit for SUVs would also be indexed for inflation for qualified small employers for non-elective contri-
taxable years beginning after December 31, 2016. butions to employee health insurance.The ACA
Expand simplified accounting for small business provides a tax credit to help small employers provide
and establish a uniform definition of small business health insurance for employees and their families. To
for accounting methods.Current law contains sev- claim the credit, a qualified employer must have fewer
eral small business exceptions from various accounting than 25 full-time equivalent employees during the tax-
requirements based on a taxpayers average annual gross able year, pay annual full-time equivalent employee
receipts. Exception thresholds vary between $1 million wages that average less than $50,000 and make non-elec-
and $25 million of gross receipts, depending on the spe- tive uniform contributions of at least 50 percent of the
cific accounting rule, and the legal status and business premium. The credit is generally available only for health
activity of the taxpayer. The Administration proposes to insurance purchased through an Affordable Insurance
create a uniform small business threshold at $25 million Exchange and only for a maximum coverage period of two
in average annual gross receipts for allowing exceptions consecutive taxable years. The maximum credit, which
from certain accounting rules, effective for taxable years is a specified percentage of premiums the employer pays
beginning after December 31, 2016. This threshold would during the taxable year, is reduced on a sliding scale be-
be indexed for inflation with respect to taxable years tween 10 and 25 full-time equivalent employees as well
beginning after December 31, 2017. Satisfaction of the as between average annual wages of $25,000 and $50,000.
gross receipts test would allow an entity to elect one or Because the reductions are additive, an employer with
more of the following items: (1) use of the cash method fewer than 25 full-time equivalent employees paying av-
of accounting in lieu of an accrual method (regardless of erage wages of less than $50,000 might not be eligible for
whether the entity holds inventories); (2) the non-applica- any tax credit. The qualified amount of the employer con-
tion of the uniform capitalization (UNICAP) rules; and (3) tribution on which the credit is based is reduced if the
the use of an inventory method of accounting that either premium for the coverage purchased exceeds the average
conforms to the taxpayers financial accounting method premium for the small group market in the rating areas
or is otherwise properly reflective of income. These rules in which the employee enrolls for coverage.
would supersede the special cash method exceptions that The Administration proposes to expand the credit
apply to farm corporations, but current exceptions allow- to employers with up to 50 (rather than 25) full-time
ing the cash method by personal service corporations and equivalent employees and to begin the phaseout of the
by business entities that are not C corporations (other maximum credit at 20 full-time equivalent employees
than partnerships with a C corporation partner) would (the credit would be reduced on a sliding scale between 20
continue. The exceptions from UNICAP not based on a and 50, rather than between 10 and 25, full-time equiva-
gross receipts test would also continue. lent employees). In addition, there would be a change to
Increase the limitations for deductible new busi- the coordination of the phaseouts of the credit that apply
ness expenditures and consolidate provisions for as the number of employees and average wages increase
start-up and organizational expenditures.A tax- (using a formula that is multiplicative rather than addi-
payer generally is allowed to elect to deduct up to $5,000 tive) so as to provide a more gradual combined phaseout
and to ensure that employers with fewer than 50 em- training starting within one year after discharge and who
ployees and an average wage less than $50,000 may be are hired within six months of leaving the program; and
eligible for the credit, even if they are nearing the end of (2) modify the Indian employment tax credit by changing
both phaseouts. The Administration also proposes to re- the base year wages and health insurance costs to the av-
duce taxpayer complexity by eliminating the requirement erage of those costs in the two years prior to the year for
that an employer make a uniform contribution on behalf which the credit is being claimed.
of each employee (although applicable non-discrimination Provide new Manufacturing Communities tax
laws will still apply), and eliminating the reduction in the credit.The Administration proposes to provide new
qualifying contribution for premiums that exceed the av- tax credit authority to support qualified investments in
erage premium in the rating area. The proposal would be communities affected by military base closures or mass
effective for taxable years beginning after December 31, layoffs, such as those arising from plant closures. This
2015. would provide about $2 billion in credits for qualified
investments approved in each of the three years, 2017
Incentives for Job Creation, Manufacturing, through 2019.
Research, and Clean Energy Provide Community College Partnership tax
credit.The Administration proposes a new tax credit
Enhance and simplify research incentives.The authority to support collaboration between employers and
R&E tax credit calculated according to the traditional community or technical colleges to encourage employer
method is 20 percent of qualified research and experimen- engagement and investment in these education and train-
tation expenditures above an historic base amount. An ing pathways, and to facilitate the hiring of graduates of
alternative simplified credit (ASC) of 14 percent is also such colleges. This would provide $500 million in credit
provided. The Administration proposes to repeal the tra- authority for each of the five years, 2017 through 2021.
ditional method, which would not apply for expenditures The credit authority would be allocated annually to States
paid or incurred after December 31, 2016. In addition, for on a per capita basis. Credits would be available to quali-
expenditures paid or incurred after December 31, 2016, fying employers that hire qualifying community college
the following changes would apply: (1) the rate of the ASC graduates. The designated State agency would competi-
would be increased to 18 percent; (2) the reduced ASC tively award credit authority to qualifying community
rate of 6 percent for businesses without qualified research college consortia and certify employers participation and
expenses in the prior three years would be eliminated; (3) eligibility to claim the credit.
the credit would be allowed to offset AMT liability for all Designate Promise Zones.The Administration pro-
taxpayers; (4) contract research expenses would include poses to provide two tax incentives to the 20 designated
75 percent of payments to qualified non-profit organi- Promise Zones. First, an employment credit would be
zations (such as educational institutions) for qualified provided to businesses that employ zone residents that
research; and (5) the special rule for owners of a pass- would apply to the first $15,000 of qualifying wages annu-
through entity, which limits the amount of credit to the ally. The credit rate would be 20 percent for zone residents
amount of tax attributable to that portion of a persons who are employed within the zone and 10 percent for zone
taxable income that is allocable or apportionable to the residents employed outside of the zone. Second, qualify-
persons interest in such trade, business or entity would ing property placed in service within the zone would be
be repealed. eligible for additional first-year depreciation of 100 per-
In addition, the proposal would repeal the requirement cent of the adjusted basis of the property. Qualifying
that research and experimentation costs be amortized property would generally consist of depreciable property
over 10 years when calculating individual AMT. This with a recovery period of 20 years or less. Zone designa-
would apply to expenditures paid or incurred after tions for the purpose of the tax incentives would be in
December 31, 2016. effect from January 1, 2017, through December 31, 2026.
Extend and modify certain employment tax cred- Modify and permanently extend renewable elec-
its, including incentives for hiring veterans.The tricity production tax credit and investment tax
WOTC provides incentives to employers for hiring in- credit.Current law provides production tax credits for
dividuals from one or more of nine targeted groups and renewable energy facilities. Qualified energy resources
the Indian employment tax credit provides incentives to include wind, closed-loop biomass, open-loop biomass,
employers for hiring individuals who are members of an geothermal energy, small irrigation power, municipal
Indian tribe. The Indian employment tax credit applies solid waste, qualified hydropower production, and marine
to increases in qualified wages and health insurance costs and hydrokinetic renewable energy. Current law also
over qualified wages and health insurance costs incurred provides an investment tax credit for renewable energy
in calendar year 1993 (the base year). The Administration property. The investment tax credit is 30 percent of eligi-
proposes to permanently extend both credits, which in- ble basis for solar, fuel cell, and small wind property, and
clude the Returning Heroes and Wounded Warrior credits 10 percent for microturbine, combined heat and power
enacted in 2011. In addition, beginning in 2017, the system property, and geothermal property. Under current
Administration proposes to: (1) expand the definition of law, the production tax credit expires for wind facilities on
disabled veterans eligible for the WOTC to include dis- which construction begins after December 31, 2019 and
abled veterans who use the GI bill to receive education or for eligible renewable sources other than wind, December
31, 2016. The Administration proposes to permanently for facilities qualifying for the investment credit at a rate
extend the production tax credit at current credit rates of $50 per metric ton for carbon dioxide permanently se-
(adjusted annually for inflation), make it refundable, and questered and not beneficially reused and $10 per metric
make it available to otherwise eligible renewable electric- ton for carbon dioxide that is permanently sequestered
ity consumed directly by the producer rather than sold and beneficially reused. The sequestration credit would
to an unrelated third party, to the extent that its produc- be indexed for inflation.
tion can be independently verified. The production tax Provide additional tax credits for investment in
credit would also be available to individuals who install qualified property used in a qualifying advanced
qualified solar electric and solar water heating property energy manufacturing project.A 30-percent credit
on a dwelling unit. Individuals would not be permitted to for investment in eligible property used in a qualifying
claim both the residential energy efficient property credit advanced energy manufacturing project was provided un-
and the production tax credit. In addition, the proposal der ARRA. A qualifying advanced energy manufacturing
would permanently extend the investment tax credit un- project re-equips, expands, or establishes a manufactur-
der the terms available in 2016. Specifically, the proposal ing facility for the production of: (1) property designed to
would permanently extend the 30-percent investment tax be used to produce energy from the sun, wind, geother-
credit for solar (including solar process heat), fuel cell, mal deposits, or other renewable resources; (2) fuel cells,
and small wind property and the 10-percent credit for microturbines, or an energy storage system for use with
geothermal, microturbine, and combined heat and power electric or hybrid-electric motor vehicles; (3) electric grids
property. The proposal would also make permanent the to support the transmission of intermittent sources of
election to claim the proposed investment tax credit in renewable energy, including the storage of such energy;
lieu of the production tax credit for qualified facilities eli- (4) property designed to capture and sequester carbon
gible for the production tax credit. dioxide; (5) property designed to refine or blend renew-
Modify and permanently extend the deduction able fuels (excluding fossil fuels) or to produce energy
for energy-efficient commercial building proper- conservation technologies; (6) new qualified plug-in elec-
ty.Under current law, taxpayers are allowed to deduct tric drive motor vehicles or components that are designed
expenditures for energy efficient commercial building specifically for use with such vehicles; or (7) other ad-
property placed in service on or before December 31, 2016. vanced energy property designed to reduce greenhouse
For energy-efficient commercial building property placed gas emissions as may be determined by the Department
in service after calendar year 2016, the Administration of the Treasury. Eligible property must be depreciable
proposes to offer fixed deductions for the installation of (or amortizable) property used in a qualifying advanced
energy-efficient commercial building property that reach energy project and does not include property designed to
an energy savings target. The proposal would also update manufacture equipment for use in the refining or blend-
the standard against which energy savings are measured ing of any transportation fuel other than renewable fuels.
in the definition of energy efficient commercial build- The credit is available only for projects certified by the
ing property. In addition, the proposal would modify the Department of the Treasury (in consultation with the
baseline against which the required energy savings are Department of Energy). The Administration proposes
measured for buildings with at least 10 years of occupan- to provide an additional $2.5 billion in credits, thereby
cy. The new deductions would be permanent. increasing the amount of credits to $4.8 billion. In ad-
Provide a carbon dioxide investment and seques- dition, the Administration proposes to allow up to $200
tration tax credit.The Administration proposes to million of these credits to be allocated to the construction
authorize $2 billion in refundable investment tax credits of infrastructure that contributes to networks of refueling
for property installed at a new or retrofitted electric gen- stations that serve alternative fuel vehicles.
erating unit that captures and permanently sequesters Extend the tax credit for second generation bio-
carbon dioxide. Projects must capture and store at least fuel production.The nonrefundable tax credit of $1.01
one million metric tons of carbon dioxide per year. Projects per gallon for blending cellulosic fuel expires on December
that treat the entire flue gas stream from an electric gen- 31, 2016. The Administration proposes to extend the tax
erating unit or set of units must sequester at least 50 credit at the expired level through December 31, 2022.
percent of the carbon dioxide in the stream. Projects that The amount of the credit would then be reduced by 20.2
treat only a portion of the flue gas stream must capture at cents per gallon in each subsequent year, so that the cred-
least 80 percent of the carbon dioxide in the stream. The it would expire after December 31, 2026.
investment tax credit would be available for 30 percent Provide a tax credit for the production of ad-
of the installed cost of eligible property. Eligible property vanced technology vehicles.Current law provides a
includes only property that is part of a new project or ret- tax credit for plug-in electric drive motor vehicles. The
rofit placed in service after December 31, 2015. No more Administration proposes to replace this credit with a
than $800 million of the credits would be allowed to flow credit for advanced technology vehicles. The credit would
to projects that capture and store less than 80 percent of be available for a vehicle that meets the following crite-
their carbon dioxide emissions. A minimum of 70 per- ria: (1) the vehicle operates primarily on an alternative
cent of the credits must flow to projects fueled by greater to petroleum; (2) as of January 1, 2015, there are few ve-
than 75 percent coal. The Administration also proposes hicles in operation in the United States using the same
to provide a 20-year, refundable sequestration tax credit technology as such vehicle; and (3) the technology used
by the vehicle substantially exceeds the footprint-based Incentives to Promote Regional Growth
target miles per gallon. In general, the credit would be
scalable based on the vehicles miles per gallon gasoline Modify and permanently extend the NMTC.The
equivalent, but would be capped at $10,000 ($7,500 for ve- NMTC is a 39-percent credit for qualified equity invest-
hicles with a manufacturers suggested retail price above ments made in qualified community development entities
$45,000). The credit for a battery-powered vehicle would that are held for a period of seven years. The NMTC pro-
be determined under current law rules for the credit for vision expires at the end of 2019. The Administration
plug-in electric drive motor vehicles if that computation proposes to permanently extend the NMTC. Up to $5 bil-
results in a greater credit. The credit would be allowed lion in qualifying investment would be allowed in each
for vehicles placed in service after December 31, 2016, and year beginning in 2020. The proposal would also permit
before January 1, 2024. The credit would be limited to the NMTC to permanently offset AMT liability for quali-
75 percent of the otherwise allowable amount for vehicles fied equity investments made after December 31, 2019.
placed in service in 2021, to 50 percent of such amount Reform and expand the LIHTC.The LIHTC
for vehicles placed in service in 2022, and to 25 percent of provides a tax incentive for affordable rental housing
such amount for vehicles placed in service in 2023. The developments. The Administration proposes to make sev-
credit would be allowed to the vehicle manufacturer and eral changes to the rules governing LIHTCs. First, States
would be transferable. would be empowered to convert some private-activity-
Provide a tax credit for medium- and heavy-duty bond volume cap into authority to allocate additional
alternative-fuel commercial vehicles.Current law LIHTCs. Also, a building would be able to qualify for
provides no tax incentive for alternative-fuel vehicles 30-percent-present-value LIHTCs without issuing bonds
(other than fuel-cell vehicles) weighing more than 14,000 if the building receives an adequate allocation of tax-
pounds. The Administration proposes to provide a tax exempt volume cap. This proposal would provide States
credit for dedicated alternative-fuel commercial vehicles greater flexibility to address their affordable housing pri-
weighing more than 14,000 pounds. The credit would be orities, and would reduce transaction and financing costs.
$25,000 for vehicles weighing between 14,000 and 26,000 These changes would be effective for new volume cap re-
pounds and $40,000 for vehicles weighing more than ceived by States for calendar years beginning after the
26,000 pounds. The credit would be allowed for vehicles date of enactment, or for volume cap that is allocated to a
placed in service after December 31, 2016, and before building after that date.
January 1, 2023. For vehicles placed in service in calen- Second, to provide incentives for creating mixed-in-
dar year 2022, the credit would be limited to 50 percent come housing, projects would be allowed to comply with
of the otherwise allowable amount. The credit would be an income-average rule for LIHTC eligibility. Under this
allowed to the manufacturer of the vehicle and would be new rule, the average income for at least 40 percent of
transferable. If the credit is transferred to an end-use the units in a project could not exceed 60 percent of area
business purchaser, the purchaser would not be required median income (AMI). None of these units could be occu-
to reduce the basis of depreciable property by the amount pied by households with income greater than 80 percent
of the credit. of AMI. Buildings must meet this new average income
Modify and extend the tax credit for the con- threshold calculated both: (1) with all low-income units
struction of energy-efficient new homes.Under the weighted equally; and (2) with each low-income unit
Administrations proposal, the tax credit for energy-effi- weighted according to imputed LIHTC occupancy rules.
cient new homes, which expires on December 31, 2016, For rehabilitation projects containing units that receive
would be replaced with a two-tier credit starting in 2017. ongoing subsidies administered by the Department of
The first tier would provide a $1,000 tax credit to home- Housing and Urban Development or the Department of
builders for the construction of each qualified ENERGY Agriculture (e.g., rental assistance, operating subsidies,
STAR certified new home that meets guidelines for en- or interest subsidies), a special rule would permit certain
ergy efficiency and construction set by the Environmental non-income qualified tenants to remain in residence with-
Protection Agency. The second tier would provide a out impairing the LIHTCs earned by the project. This
$4,000 tax credit for the construction of each qualified provision adds to the two income criteria currently avail-
Department of Energy (DOE) Zero Energy Ready Home able for LIHTC developments, and would apply to LIHTC
certified to meet substantially higher standards for en- elections that are made after the date of enactment.
ergy savings and construction set by the DOE. To ensure Third, preservation of federally-assisted affordable
that a new home meets the ENERGY STAR or DOE Zero housing would be added to the selection criteria for
Energy Ready Home guidelines, verification by a qualified LIHTC allocation. This factor would join the 10 criteria
third party would be required. The new credits would ap- that State housing agencies must include in the qualified
ply to qualified new homes acquired from the homebuilder action plans that they consider when awarding LIHTCs.
for use as a residence after December 31, 2016, and before This change would apply to allocations made in calendar
January 1, 2027. years beginning after the date of enactment.
Fourth, to remove any doubt, affirmatively furthering
fair housing would be made an explicit fourth allocation
preference in qualified allocation plans. This change
would also apply to allocations made in calendar years eligible uses would include projects that can be financed
beginning after the date of enactment. with a new category of qualified private activity bond,
Fifth, the Administration proposes to allow the known as Qualified Public Infrastructure bonds, un-
Department of Housing and Urban Development (HUD) der a separate budget proposal described below. The
to designate as a qualified census tract (QCT) any cen- proposal, which would be effective for bonds issued begin-
sus tract that meets certain criteria for the prevalence of ning in 2017, recommends exempting direct payments to
poverty or low-income households. A building in a QCT State and local government issuers under the American
earns 30 percent more LIHTCs than it would in anoth- Fast Forward Bond program from sequestration under
er location. The proposal would remove a current limit the Balanced Budget and Emergency Deficit Control Act
under which the aggregate population in census tracts (BBEDCA).
designated as QCTs cannot exceed 20 percent of the met- Allow current refundings of State and local gov-
ropolitan areas population. As a result of this limit, some ernmental bonds.Current law provides Federal tax
census tracts with qualifying levels of poverty or low- subsidies to lower borrowing costs on debt obligations is-
income households may currently fail to be designated sued by State and local governments for eligible purposes
as QCTs because neighboring tracts also qualify. This under various programs. These programs include tradi-
change would apply to allocations made after the date of tional tax-exempt bonds and other temporary or targeted
enactment. qualified tax credit bond programs (e.g., qualified school
Sixth, the proposal adds protection for victims of construction bonds) and direct borrowing subsidy pay-
domestic violence as a mandatory provision of the long- ment programs (e.g., Build America Bonds). State and
term-use agreement required by the Internal Revenue local bond programs have varied in the extent to which
Code between each LIHTC taxpayer and the State. To they expressly allow or treat refinancings (as distin-
make the protection meaningful, victims of domestic vio- guished from original financings to fund eligible program
lence would be given a right to enforce the agreement in purposes). In a current refunding of State and local
State courts. bonds, the refunded bonds are retired promptly within 90
days after issuance of the refinancing bonds. These re-
Incentives for Investment in Infrastructure fundings generally reduce borrowing costs for State and
local governmental issuers, and they also reduce Federal
Provide America Fast Forward Bonds and expand revenue losses due to the Federal borrowing subsidies for
eligible uses.ARRA created the Build America Bond State and local bonds. A general authorization for current
program as an optional new lower cost borrowing incen- refundings of State and local bonds not currently covered
tive for State and local governments on taxable bonds by specific refunding authority would promote greater
issued in 2009 and 2010 to finance new investments in uniformity, tax certainty, and borrowing cost savings. The
governmental capital projects. Under the original pro- Administration proposes to allow current refundings of
gram applicable to Build America Bonds issued in 2009 these State and local bonds if: (1) the principal amount of
and 2010, the Department of the Treasury makes direct the current refunding bonds is no greater than the out-
subsidy payments (called refundable tax credits) to standing principal amount of the refunded bonds, and (2)
State and local governmental issuers in a subsidy amount the weighted average maturity of the current refunding
equal to 35 percent of the coupon interest on the bonds. bonds is no longer than the remaining weighted average
The Administration proposes to create a new permanent maturity of the refunded bonds. This proposal would be
America Fast Forward Bond program, which would be effective as of the date of enactment.
an optional alternative to traditional tax-exempt bonds. Repeal the $150 million non-hospital bond limi-
Like Build America Bonds, America Fast Forward Bonds tation on qualified 501(c)(3) bonds.The Tax Reform
would be conventional taxable bonds issued by State and Act of 1986 established a $150 million limit on the volume
local governments in which the Federal Government of outstanding non-hospital, tax-exempt bonds used for
makes direct payments to State and local governmental the benefit of a section 501(c)(3) organization. The provi-
issuers (refundable tax credits). The subsidy rate would sion was repealed in 1997 with respect to bonds issued
be 28 percent, which is approximately revenue neutral after August 5, 1997, at least 95 percent of the net pro-
in comparison to the Federal tax losses from traditional ceeds of which are used to finance capital expenditures
tax-exempt bonds. The Administration proposes to ex- incurred after that date. The limitation continues to ap-
pand the eligible uses for America Fast Forward Bonds ply to bonds more than five percent of the net proceeds
beyond those for the Build America Bond program to of which finance or refinance: (1) working capital expen-
include financing for governmental capital projects, cur- ditures, or (2) capital expenditures incurred on or before
rent refundings of prior public capital project financings, August 5, 1997. The Administration proposes to repeal in
short-term governmental working capital financings for its entirety the $150 million limit on the volume of out-
governmental operating expenses subject to a 13-month standing, non-hospital, tax-exempt bonds for the benefit
maturity limitation, financing for section 501(c)(3) non- of a section 501(c)(3) organization, effective for bonds is-
profit entities, and financing for the types of projects and sued after the date of enactment.
programs that can be financed with qualified private ac- Increase national limitation amount for quali-
tivity bonds subject to applicable State bond volume caps fied highway or surface freight transfer facility
for the qualified private activity bond category. Further, bonds.Tax-exempt private activity bonds may be used
to finance qualified highway or surface freight transfer tional consideration. The proposal would eliminate the
facilities. A qualified highway or surface freight trans- private corporation ownership requirement and instead
fer facility is any surface transportation, international would allow any private person, including private entities
bridge, or tunnel project that receives Federal assistance organized in ways other than as corporations, either to
under title 23 of the United States Code, or any facility own the public school facilities or to operate those school
for the transfer of freight from truck to rail or rail to truck facilities through lease, concession, or other operating
that receives Federal assistance under title 23 or title 49 arrangements. Further, since private ownership would
of the United States Code. Tax-exempt bonds issued to no longer be an eligibility condition, the proposal would
finance qualified highway or surface freight transfer fa- remove the requirement to transfer the school facilities
cilities are not subject to State volume cap limitations. to a public agency at the end of the term of the bonds
Instead, the Secretary of Transportation is authorized to for no additional consideration. In addition, the proposal
allocate a total of $15 billion of issuance authority to qual- would remove the separate volume cap for qualified pub-
ified highway or surface freight transfer facilities in such lic educational facilities and instead would include these
manner as the Secretary determines appropriate. The facilities under the unified annual State bond volume cap.
Administration proposes to increase the $15 billion aggre- The proposal would be effective for bonds issued after the
gate amount permitted to be allocated by the Secretary of date of enactment.
Transportation to $19 billion with the elimination of this Modify treatment of banks investing in tax-exempt
category of bond and conversion to qualified public infra- bonds.Under current law, financial institutions inter-
structure bonds once these funds are allocated. est deductions are generally reduced by 100 percent of the
Provide a new category of qualified private activ- interest expense allocable to assets that produce tax-ex-
ity bonds for infrastructure projects referred to as empt interest income. Financial institutions, however, can
qualified public infrastructure bonds (QPIBs). generally deduct 80 percent of interest expense allocated
Under the proposal, QPIBs, a new category of tax-exempt to qualified small issuer bonds. Qualified small issuer
private activity bonds, would be available for the financ- bonds are certain tax-exempt bonds issued by States and
ing of newly constructed or substantially rehabilitated localities that annually issue no more than $10 million of
infrastructure facilities owned by governmental entities such bonds. The proposal would increase the size limit for
and available for general public use. Infrastructure fa- the qualified small issuer bond exception from $10 million
cilities eligible for QPIB financing would include airports, to $30 million. Moreover, under current law, if a bank has
docks and wharves, mass commuting facilities, facilities made the election to be taxed under subchapter S or if the
for the furnishing of water, sewage facilities, solid waste bank is a qualified subchapter S subsidiary, the bank is
disposal facilities, qualified highway or surface freight exempt even from the 20-percent disallowance of inter-
transfer facilities, and broadband telecommunications as- est expense allocable to qualified small issuer bonds. The
sets for high-speed internet access. Existing overlapping proposal would make these banks subject to the 20-per-
categories of qualified private activity bonds that can be cent disallowance and thus would equalize the treatment
financed with QPIBs generally would be eliminated. The of financial institutions. Finally, the proposal also would
existing category for qualified highway or surface freight allow financial institutions to deduct up to 80 percent of
transfer facilities would continue to be available for the interest expense allocable to any tax-exempt obligations
existing $15 billion bond volume authorization and the (whether or not a qualified small issuer bond) subject to
proposed additional $4 billion authorization under the a cap that would limit the benefit of this rule to inter-
preceding proposal. QPIBs would not be subject to vol- est expense allocable to bonds representing no more than
ume cap and the interest would not be a preference that is two percent of the basis of the institutions assets. This
subject to tax under the AMT. The proposal also expands two-percent cap, however, would not apply to the qualified
the safe harbor rule for ownership by a governmental unit small issuer bond exception. The proposal would apply
where such facilities are leased or subject to concession to bonds issued in calendar years beginning on or after
agreements or management contracts to QPIBs, which January 1, 2017.
would open up use of tax-exempt financing for public- Repeal tax-exempt bond financing of professional
private partnerships. The proposal would be effective for sports facilities.Current law permits the use of tax-
bonds issued beginning in 2017. exempt governmental bond proceeds for private activities
Modify qualified private activity bonds for public unless both of the following apply: (1) more than 10 per-
education facilities.Current law permits tax-exempt cent of the payment of the debt service is from a private
private activity bond financing for different specified business source, and (2) more than 10 percent of the use of
types of eligible exempt facilities and programs, includ- the facility is for a private business use. Thus, even if use
ing, among others, qualified public educational facilities by a professional sports team of a bond-financed stadium
that are part of public elementary or secondary schools. exceeds 10 percent of the total use of the facility, the fi-
The current eligibility rules require that a private nancing will be tax-exempt if the debt service is paid from
corporation own the public school facilities under a pub- sources other than sports facility revenues or other pri-
lic-private partnership agreement with a public State or vate payments. The proposal would eliminate the private
local educational agency and that the private corporation payment test for professional sports facilities such that
transfer the ownership of the school facilities to the public bonds to finance professional sports facilities would be
agency at the end of the term of the bonds for no addi- taxable private activity bonds if more than 10 percent of
the use of the facility is for a private business purpose. By ervations and that serve resident populations of Indian
removing the private payment test, tax-exempt govern- reservations. Finally, the proposal would continue an
mental bond financing of sports facilities for professional existing targeting restriction that prohibits financing of
sports teams would be eliminated. The proposal would be certain gaming projects. This proposal would be effective
effective for bonds issued after December 31, 2016. as of the date of enactment.
Allow more flexible research arrangements for
purposes of private business use limits.Under cur- Eliminate Fossil Fuel Tax Preferences
rent law, the IRS provides safe harbors that allow certain
basic research arrangements with private businesses at Eliminate fossil fuel tax preferences.Current
tax-exempt bond financed research facilities. The exist- law provides a number of credits and deductions that are
ing safe harbors impose certain constraints on setting targeted towards certain oil, natural gas, and coal activi-
the terms of use of patents or other products resulting ties. In accordance with the Presidents agreement at the
from the research, based on specific legislative history. In G-20 Summit in Pittsburgh to phase out inefficient sub-
particular, the terms of use of resulting products for both sidies for fossil fuels so that the Nation can transition to
research sponsors and other users alike must be set only a 21st century energy economy, the Administration pro-
after the products become available for use even though poses to repeal a number of tax preferences available for
research arrangements typically are made prior to discov- fossil fuels. The following tax preferences available for
eries. The Administration proposes to provide additional oil and natural gas activities are proposed to be repealed
flexibility for bona fide arms length arrangements relat- beginning in 2017: (1) the enhanced oil recovery credit
ing to basic research that would allow setting the terms of for eligible costs attributable to a qualified enhanced oil
use of resulting products in advance of when the products recovery project; (2) the credit for oil and natural gas pro-
become available for use. The proposal would be effective duced from marginal wells; (3) the expensing of intangible
for research arrangements entered into after the date of drilling costs; (4) the deduction for costs paid or incurred
enactment. for any tertiary injectant used as part of a tertiary recov-
Modify tax-exempt bonds for Indian tribal gov- ery method; (5) the exception to passive loss limitations
ernments (ITGs).In general, current law limits ITGs provided to working interests in oil and natural gas prop-
in their use of tax-exempt bonds to the financing of cer- erties; (6) the use of percentage depletion with respect to
tain essential governmental function activities that are oil and natural gas wells; (7) the ability to claim the do-
customarily performed by State and local governments. mestic manufacturing deduction against income derived
ARRA provided a limited $2 billion authorization of from the production of oil and natural gas; and (8) two-
Tribal Economic Development Bonds, which gives ITGs year amortization of independent producers geological
more flexibility to use tax-exempt bonds under standards and geophysical expenditures, instead allowing amortiza-
that are more comparable to those applied to State and tion over the same seven-year period as for integrated oil
local governments in their use of tax-exempt bonds (sub- and natural gas producers. The following tax preferences
ject to certain express targeting restrictions that require available for coal activities are proposed to be repealed
financed projects to be located on Indian reservations and beginning in 2017: (1) expensing of exploration and devel-
that prohibit the financing of certain gaming facilities). In opment costs; (2) percentage depletion for hard mineral
December 2011, the Department of the Treasury submit- fossil fuels; (3) capital gains treatment for royalties; and
ted a required report to the Congress regarding its study (4) the ability to claim the domestic manufacturing deduc-
of the Tribal Economic Development Bond provision and tion against income derived from the production of coal
its recommendations for ITG tax-exempt bond financing. and other hard mineral fossil fuels. In addition, under the
The Administration proposes to modify the standards for proposal, publicly traded partnerships with qualifying
ITG tax-exempt bond financing to reflect the recommen- income and gains from activities relating to fossil fuels
dations in this report. In particular, the Administrations would be taxed as C corporations beginning in 2022.
proposal generally would adopt the State or local gov-
ernment standard for tax-exempt governmental bonds Reform the Treatment of Financial
without a bond volume cap on such governmental bonds and Insurance Industry Products
for purposes of ITG eligibility to issue tax-exempt gov-
ernmental bonds. The proposal would repeal the existing Require that derivative contracts be marked to
essential governmental function standard for ITG tax- market with resulting gain or loss treated as or-
exempt bond financing. In addition, the proposal would dinary.Under current law, derivative contracts are
allow ITGs to issue tax-exempt private activity bonds for subject to various rules on timing and character. The
the same types of projects and activities as are allowed for Administrations proposal would require that gain or loss
State and local governments, under a modified national from a derivative contract be reported on an annual ba-
bond volume cap to be administered by the Department sis as if the contract were sold for its fair market value
of the Treasury. Further, the proposal generally would no later than the last business day of the taxpayers tax-
continue an existing targeting restriction that would re- able year. Gain or loss resulting from the contract would
quire projects financed with ITG bonds to be located on be treated as ordinary and as attributable to a trade or
Indian reservations, with some additional flexibility to business of the taxpayer. A derivative contract would be
finance projects that have a requisite nexus to Indian res- broadly defined to include any contract the value of which
is determined, directly or indirectly, in whole or in part, year in certain policy cash values of life insurance and
by actively traded property. A derivative contract that is annuity policies that would be exempt from tax. The pro-
embedded in another financial instrument or contract is posal would be effective for taxable years beginning after
subject to mark to market if the derivative by itself would December 31, 2016.
be marked. In addition, a taxpayer that enters into a de- Expand pro rata interest expense disallowance
rivative contract that substantially diminishes the risk of for corporate-owned life insurance.The interest de-
loss on actively traded stock that is not otherwise marked ductions of a business other than an insurance company
to market would be required to mark the stock to market are reduced to the extent the interest paid or accrued
with preexisting gain recognized at that time and loss rec- is allocable to unborrowed policy cash values on life in-
ognized when the financial instrument would have been surance and annuity contracts. The purpose of this pro
recognized in the absence of the straddle. An exception rata disallowance is to prevent the deduction of interest
from mark-to-market treatment would be provided for expense that is allocable to the inside buildup of insur-
business hedging transactions. The proposal would apply ance and annuity contracts that is either tax-deferred or
to contracts entered into after December 31, 2016. not taxed at all. An exception to this rule applies under
Modify rules that apply to sales of life insurance current law to contracts covering the lives of officers, di-
contracts.The seller of an interest in a life insurance rectors, employees, and 20-percent owners of the taxpayer.
contract generally must report as taxable income the dif- The Administration proposes to repeal the exception for
ference between the amount received from the buyer and officers, directors, and employees unless those individu-
the adjusted basis of the contract. The recipient of a death als are also 20-percent owners of the business that is the
benefit under a life insurance contract that had been owner or beneficiary of the contracts. Thus, purchases
transferred for a valuable consideration is generally sub- of life insurance by small businesses and other taxpay-
ject to tax on the excess of those benefits over the amounts ers that depend heavily on the services of a 20-percent
paid for the contract, plus any subsequent premiums paid, owner would be unaffected, but the funding of deductible
unless an exception to this transfer-for-value rule ap- interest expenses with tax-exempt or tax-deferred inside
plies. Among the exceptions are transfers to the insured, buildup would be curtailed. The proposal would apply
to a partner of the insured, to a partnership in which to contracts issued after December 31, 2016, in taxable
the insured is a partner, or to a corporation in which the years ending after that date.
insured is a shareholder or officer. The Administration Conform net operating loss (NOL) rules of life
proposes to replace these excepted transfers with excep- insurance companies to those of other corpora-
tions for transfers to the insured, or to a partnership or tions.Current law generally allows businesses to carry
a corporation of which the insured owns at least 20 per- back an NOL up to two taxable years preceding the taxable
cent of the partnership or corporation. Furthermore, year of loss (loss year) and to carry forward an NOL up to
in response to the growth in the number and size of life 20 taxable years following the loss year. Life insurance
settlement transactions, the Administration proposes to companies, however, may carry a loss from operations
expand information reporting on the sale of life insurance (a life insurance companys NOL equivalent) back three
contracts and the payment of death benefits on contracts taxable years preceding the loss year and forward 15 tax-
that were sold. The proposal would apply to sales or as- able years following the loss year. The proposal would
signments of interests in life insurance policies occurring establish operating loss conformity for life insurance com-
after December 31, 2016. panies by allowing a loss from operations to be carried
Modify proration rules for life insurance com- back up to two taxable years prior to the loss year, and
pany general and separate accounts.Under current carried forward 20 taxable years following the loss year.
law, a life insurance company is required to prorate its The proposal would be effective for taxable years begin-
net investment income between a companys share and ning after December 31, 2016.
the policyholders share. The result of this proration cal-
culation is used to limit the funding of tax-deductible Other Business Revenue Changes
reserve increases with tax-preferred income. However, and Loophole Closers
the complexity of this proration regime has generated
significant controversy between life insurance companies Repeal last-in, first-out (LIFO) method of ac-
and the IRS. The Administration proposes to replace the counting for inventories.Under the LIFO method of
current regime with one that is simpler and less contro- accounting for inventories, it is assumed that the cost of
versial. Under the proposal, a companys share would be the items of inventory that are sold is equal to the cost of
calculated for a life insurance companys general account the items of inventory that were most recently purchased
and individually for each of its separate accounts. The or produced. The Administration proposes to repeal the
companys share would equal one less the ratio of an ac- use of the LIFO accounting method for Federal tax purpos-
counts mean reserves to its mean assets. The companys es, effective for taxable years beginning after December
share would determine the portion of the non-affiliated 31, 2016. Taxpayers required to change from the LIFO
corporate dividends received by the company that would method would be required to change their method of ac-
be eligible for a dividends-received deduction. It would counting for inventory and report their beginning-of-year
also determine the portion of interest earned on State and inventory at its first-in, first-out (FIFO) value in the year
local bonds and the portion of increases for the taxable
of change. Taxpayers would recognize any income result- of the partners adjusted basis in its partnership interest
ing from the change in accounting ratably over 10 years. at the end of the partnership year in which such loss oc-
Repeal lower-of-cost-or-market inventory ac- curred. Any excess is allowed as a deduction at the end of
counting method.The Administration proposes to the partnership year in which the partner has sufficient
prohibit the use of the lower-of-cost-or-market and sub- basis in its partnership interest to take the deductions.
normal goods methods of inventory accounting, which This basis limitation does not apply to partnership expen-
currently allow certain taxpayers to take cost-of-goods- ditures that are not deductible in computing its taxable
sold deductions on certain merchandise before the income and not properly chargeable to capital account.
merchandise is sold. The proposed prohibition would be Thus, even though a partners distributive share of non-
effective for taxable years beginning after December 31, deductible expenditures reduces the partners basis in its
2016. Taxpayers would recognize any income resulting partnership interest, such items are not subject to the ba-
from the change in accounting method ratably over four sis limitation and the partner may deduct or credit them
years. currently even if the partners basis in its partnership
Modify like-kind exchange rules.Under sec- interest is zero. The Administration proposes to allow a
tion 1031 of the Internal Revenue Code, no gain or loss partners distributive share of expenditures not deduct-
is recognized when business or investment property is ible in computing the partnerships taxable income and
exchanged for like-kind business or investment prop- not properly chargeable to capital account only to the
erty. The Administration proposes to limit the amount extent of the partners adjusted basis in its partnership
of capital gain deferred under section 1031 to $1 million interest at the end of the partnership year in which such
(indexed for inflation) per taxpayer per taxable year. In expenditure occurred. The proposal would apply to a
addition, art and collectibles would no longer be eligible partnerships taxable year beginning on or after the date
for like-kind exchanges. The proposal would be effective of enactment.
for like-kind exchanges completed after December 31, Deny deduction for punitive damages.The
2016. Administration proposes to deny tax deductions for pu-
Modify depreciation rules for purchases of gen- nitive damages paid or incurred by a taxpayer, whether
eral aviation passenger aircraft.Under current upon a judgment or in settlement of a claim. Where the
law, airplanes used in commercial and contract carry- liability for punitive damages is covered by insurance,
ing of passengers and freight generally are depreciated such damages paid or incurred by the insurer would be
over seven years. Airplanes not used in commercial or included in the gross income of the insured person. This
contract carrying of passengers or freight, such as corpo- proposal would apply to damages paid or incurred after
rate jets, generally are depreciated over five years. The December 31, 2016.
Administration proposes to increase the depreciation re- Conform corporate ownership standards.Tax-
covery period for general aviation airplanes that carry free treatment of corporate reorganizations, distributions,
passengers to seven years, effective for such airplanes and incorporations generally turns on whether sharehold-
placed in service after December 31, 2016. ers acquire or retain control of the relevant corporation.
Expand the definition of substantial built-in loss For this purpose, control is defined as the ownership of 80
for purposes of partnership loss transfers.Upon a percent of the corporations voting stock and 80 percent
sale or exchange of a partnership interest, certain part- of the number of shares of all other classes of stock of the
nerships, including partnerships that have a substantial corporation. In contrast, the ownership standard for cor-
built-in loss in their assets, must adjust the basis of those porate affiliation (required for filing consolidated returns,
assets. A substantial built-in loss is defined by reference tax-free parent-subsidiary liquidations, and treating
to the partnerships adjusted basis that is, there is a certain stock dispositions as asset sales) is the direct or
substantial built-in loss if the partnerships adjusted ba- indirect ownership by a parent corporation of at least 80
sis in its assets exceeds by more than $250,000 the fair percent of the total voting power of another corporations
market value of such property. Although the provision stock and at least 80 percent of the total value of that
prevents the duplication of losses where the partnership other corporations stock. The control test for tax-free re-
has a substantial built-in loss in its assets, it does not organizations, distributions, and incorporations is easily
prevent the duplication of losses where the transferee manipulated by allocating voting power among the shares
partner would be allocated a loss in excess of $250,000 if of a corporation, and the absence of a value component
the partnership sold all of its assets, but the partnership allows shareholders to retain voting control of a corpo-
itself does not have a substantial built-in loss in its assets. ration but to economically sell a significant amount of
Accordingly, the Administration proposes to measure a the value of the corporation. In addition, the existence of
substantial built-in loss also by reference to whether the two ownership standards in the corporate tax area causes
transferee would be allocated a loss in excess of $250,000 unnecessary complexity and traps for the unwary. The
if the partnership sold all of its assets immediately after Administration proposes to substitute the ownership test
the sale or exchange. The proposal would apply to sales for affiliation for the control test used in connection with
or exchanges after the date of enactment. tax-free incorporations, distributions, and reorganiza-
Extend partnership basis limitation rules to non- tions. The proposal would be effective for transactions
deductible expenditures.A partners distributive occurring after December 31, 2016.
share of loss is allowed as a deduction only to the extent
Tax corporate distributions as dividends.The taxed at a rate of $13.50 per proof gallon. Some distilled
Administration proposes to amend the Internal Revenue spirits are flavored with wine or other additives. Current
Code to ensure that a transfer of property by a corpora- law allows a credit against the $13.50 per proof gallon
tion to its shareholder better reflects the corporations excise tax on distilled spirits for flavor and wine additives.
dividend paying capacity. First, the Administration pro- As a result of the credit, flavorings of up to 2.5 percent of
poses to tax non-dividend leveraged distributions from the distilled spirit mixture are tax exempt, and wine in a
a distributing corporation as a dividend distribution distilled spirits mixture is taxed at the lower rate on wine.
made by a related corporation directly to the distribut- Thus, the credit reduces the effective excise tax rate paid
ing corporations shareholder to the extent the related on distilled spirits with such content. The proposal would
corporation funded the distribution with a principal pur- repeal this credit effective for all spirits produced in or
pose of not treating the distribution from the distributing imported into the United States after December 31, 2016.
corporation to its shareholder as a dividend. Second, the
Administration proposes to repeal the boot-within-gain TRANSITION TO A REFORMED
limitation under section 356(a) of the Internal Revenue BUSINESS TAX SYSTEM
Code in reorganization transactions in which the share-
holders exchange has the effect of the distribution of a The Administrations proposal to impose a 14-percent
dividend. For this purpose, the Administration also pro- one-time tax on previously untaxed foreign income gener-
poses to align the available pool of earnings and profits ates one-time transition revenue in the short run. This
for such distributions with that for ordinary distributions. proposal is described above as part of the business tax
Third, the Administration proposes amending section reform discussion, because it should be enacted in the
312(a)(3) of the Internal Revenue Code so that earnings context of comprehensive business tax reform.
and profits are reduced only by the distributing corpora-
tions basis in any high-basis distributed stock, determined MIDDLE CLASS AND PRO-WORK TAX REFORMS
without regard to basis adjustments resulting from actual
or deemed dividend equivalent redemptions, or any series Reform child care tax incentives.Taxpayers with
of distributions or transactions undertaken with a view to child or dependent care expenses who are working or
create and distribute high-basis stock of any corporation. looking for work are eligible for a nonrefundable tax cred-
Fourth, the Administration proposes disregarding a sub- it that partially offsets these expenses. To qualify for this
sidiarys purchase of hook stock issued by a controlling benefit, the child and dependent care expenses must be for
corporation in exchange for property so that the property either a child under age 13 when the care was provided
used to purchase the hook stock gives rise to a deemed or a disabled dependent of any age with the same place of
distribution from the purchasing subsidiary (through any abode as the taxpayer. Any allowable expense is reduced
intervening entities) to the issuing corporation. The hook by the aggregate amount excluded from income under a
stock would be treated as being contributed by the issuer dependent care assistance program. Eligible taxpayers
(through any intervening entities) to the subsidiary. The may claim the credit of up to 35 percent of up to $3,000
proposal would grant the Secretary of the Treasury au- in eligible expenses for one child or dependent and up to
thority to prescribe regulations necessary to achieve the $6,000 in eligible expenses for more than one child or de-
purposes of this proposal, including regulations to: (1) pendent. The percentage of expenses for which a credit
treat transactions as leveraged distributions; (2) treat may be taken decreases by one percentage point for every
purchases of interests in shareholder entities other than $2,000 of adjusted gross income (AGI) over $15,000 until
corporations as hook stock and provide rules related to the percentage of expenses reaches 20 percent (at incomes
hook stock within a consolidated group; and (3) treat above $43,000). The income phasedown and the credit
a transaction as undertaken with a view to create and are not indexed for inflation. The proposal would repeal
distribute high-basis stock of any corporation. The first, dependent care flexible spending accounts, increase the
second and fourth proposals would be effective for trans- start of income phasedown of the child and dependent care
actions occurring after December 31, 2016. The third credit from $15,000 to $120,000, and create a larger cred-
proposal would be effective upon enactment. it for taxpayers with children under age five. Taxpayers
Repeal Federal Insurance Contribution Act with young children could claim a child care credit of up
(FICA) tip credit.Certain employers in food and bev- to 50 percent of up to $6,000 ($12,000 for two children)
erage service industries may receive an income tax credit of eligible expenses. The credit rate for the young child
for FICA taxes they pay on employee tip income. The credit would phase down at a rate of one percentage point
credit applies to Social Security and Medicare taxes paid for every $2,000 (or part thereof) of AGI over $120,000 un-
on the portion of an employees tip income that, when til the rate reaches 20 percent for taxpayers with incomes
added to the employees non-tip wages, exceeds $5.15 per above $178,000. The expense limits and incomes at which
hour. The Administration proposes to repeal the income the credit rates begin to phase down would be indexed for
tax credit for the FICA taxes an employer pays on tips, inflation for both young children and other dependents.
effective for taxable years beginning after December 31, The proposal would be effective for taxable years begin-
2016. ning after December 31, 2016.
Repeal the excise tax credit for distilled spirits Simplify and better target tax benefits for educa-
with flavor and wine additives.Distilled spirits are tion.Because there are multiple tax benefits for the
same higher education expenses, incomplete information low wages who do not have a qualifying child and are at
reporting, and a lack of coordination between Federal least 25 years old and less than 65 years old (or for whom,
grant and tax benefits, many middle- and lower-income if filing jointly, the age of at least one spouse is within
families do not claim all the education-related tax benefits these limits) may be eligible to claim the small EITC for
to which they are entitled. To simplify and better target workers without qualifying children. The Administration
these benefits, the Administration proposes to consolidate proposes to increase the credit for workers without quali-
the lifetime learning credit and AOTC into an expanded fying children. The phasein rate and the phaseout rate
AOTC, which would be available for five years instead of would be increased from 7.65 percent to 15.30 percent,
four. As under current law, the AOTC for students attend- which would double the size of the maximum credit from
ing school at least half time would be 100 percent of the about $500 to about $1,000 in 2017. The income at which
first $2,000 of expenses and 25 percent of the next $2,000 the credit would begin to phase out would be increased
of expenses for a maximum annual credit of $2,500. In ad- to $11,500 ($17,100 for joint filers) in 2017 and indexed
dition, less than half-time undergraduate students would thereafter. The Administration also proposes to expand
be eligible for a part-time AOTC equal to 50 percent of eligibility to workers at least 21 years old and less than
the first $2,000 of eligible expenses plus 12.5 percent of 67 years old. As under current law, taxpayers who may
the next $2,000 of eligible expenses for a maximum credit be claimed as a dependent or as the qualifying child of
of $1,250. The Administration also proposes to increase another taxpayer (e.g., taxpayers who are dependent
the refundable portion of the AOTC from 40 percent of students age 19 to age 23) may not claim the EITC for
the otherwise allowable credit to the first $1,500 of AOTC workers without children. This proposal would be effec-
(first $750 for students enrolled less than half time). The tive for taxable years beginning after December 31, 2016.
expense limits and the amount that is refundable would Simplify the rules for claiming the EITC for work-
be indexed for inflation. ers without qualifying children.The EITC generally
To further simplify education benefits for low-income equals a specified percentage of earned income, up to a
students, the proposal would exclude all Pell Grants from maximum dollar amount, that is reduced by the product
gross income to allow low-income students to claim an of a specified phaseout rate and the amount of earned in-
AOTC without reducing eligible expenses by the amount come or AGI, if greater, in excess of a specified income
of their Pell Grant. In addition, the Administration threshold. Different credit schedules apply for taxpayers
proposes to require any entity issuing a scholarship or based on the number of qualifying children the taxpayer
grant in excess of $500 (indexed for inflation) that is not claims. In general, taxpayers with low wages who do not
processed or administered by an institution of higher edu- have a qualifying child may be eligible to claim the small
cation to report the scholarship or grant on Form 1098-T. EITC for workers without qualifying children. However,
In addition, the Administration proposes to repeal the if the taxpayer resides with a qualifying child whom the
deduction for student loan interest for new students. Not taxpayer does not claim (perhaps because that child is
only would new students be able to reduce their borrowing claimed by another individual within the household), the
due to the expanded AOTC, but all new student borrow- taxpayer is not eligible for any EITC. The Administration
ers would have access to Pay-As-You-Earn, a generous proposes to allow otherwise eligible taxpayers residing
income-driven repayment option that limits payments to with qualifying children to claim the EITC for workers
affordable levels and forgives remaining balances after without qualifying children. This proposal would be effec-
a limited repayment period. The Administration fur- tive for taxable years beginning after December 31, 2016.
ther proposes to exclude from gross income the forgiven Provide a second-earner tax credit.Married
portion of Federal student loans in cases where the loan couples generally file jointly on their Federal individual
was forgiven or discharged as part of a program adminis- income tax returns and cannot choose single or head of
tered by the Department of Education, and debt forgiven household filing status. Because tax rates rise with taxable
and certain scholarship amounts for participants in the income under a progressive tax system, the lower earner
Indian Health Service Health Professions Programs. in a married couple may be discouraged to work when
The Administration would also allow the Department of these second earners make their labor supply decisions
Education to obtain from the IRS the addresses of bor- conditional on the primary earners decisions, effectively
rowers who are delinquent in repaying their loans (in treating their earnings as taxed at the couples highest
addition to allowing access to addresses of defaulted bor- marginal rates. In addition, low- and moderate-income
rowers as under current law). married couples can face a high marginal tax rate due to
The proposal would generally be effective for taxable the phaseout of tax credits and other benefits. To provide
years beginning after December 31, 2016. tax relief for working families and promote employment
Expand the EITC for workers without qualify- among second earners, the Administration proposes a sec-
ing children.Low and moderate income workers may ond-earner tax credit. Two-earner married couples who
be eligible for a refundable EITC. The EITC generally file a joint Federal income tax return would be eligible for
equals a specified percentage of earned income, up to a a nonrefundable tax credit equal to a percentage of the
maximum dollar amount, and is gradually phased out lower earners earned income up to $10,000. The credit
once income exceeds a specified threshold. Different cred- rate would be 5 percent and would phase down at a rate
it schedules apply for taxpayers based on the number of of one-half of one percentage point for every $10,000 of
qualifying children the taxpayer claims. Taxpayers with AGI over $120,000. Therefore, the credit would be fully
phased out at AGI above $210,000. The maximum credit- sponsoring a qualified retirement plan, SEP, or SIMPLE
able earned income ($10,000) and the AGI at which the plan to do so by tripling this tax credit to a maximum of
credit rate starts to phase down ($120,000) would be in- $1,500 per year for three years and extending it to four
dexed for inflation. The proposal would be effective for years (rather than three) for any small employer that
taxable years beginning after December 31, 2016. adopts a new qualified retirement plan, SEP, or SIMPLE
Extend exclusion from income for cancellation plan during the three years beginning when it first offers
of certain home mortgage debt.Under current law, or first is required to offer an automatic IRA arrangement.
amounts that are realized from discharges of qualified In addition, small employers would be allowed a credit of
principal residence indebtedness may be excluded from $500 per year for up to three years, for new or existing
gross incomes for amounts that are discharged before defined contribution plans that add auto-enrollment. The
January 1, 2017. The Administration proposes to extend proposal would be effective for taxable years beginning
this provision for one year, to apply to amounts that are after December 31, 2017.
discharged after December 31, 2016, and before January Expand penalty-free withdrawals for long-
1, 2018, or that are discharged pursuant to an arrange- term unemployed.Under current law, a 10-percent
ment entered into before January 1, 2018. additional tax applies to early withdrawals from a
tax-qualified retirement plan or IRA, unless an ex-
REFORMS TO RETIREMENT AND ception applies. IRA account holders who have been
HEALTH BENEFIT PLANS unemployed for 12 weeks can withdraw funds during
a two-year period to pay for health insurance without
Provide for automatic enrollment in IRAs, in- paying the 10-percent additional tax, but the unem-
cluding a small employer tax credit, increase the ployment exception does not extend to withdrawals
tax credit for small employer plan start-up costs, used for any other purpose. There is no exception
and provide an additional tax credit for small em- to the 10-percent additional tax for early withdraw-
ployer plans newly offering auto-enrollment.The als from a qualified plan due to unemployment. The
Administration proposes to encourage saving and in- Administration proposes to expand the exception from
crease participation in retirement savings arrangements the 10-percent additional tax to withdrawals by long-
by requiring employers that do not currently offer a re- term unemployed individuals from IRAs, 401(k) plans,
tirement plan to their employees to provide automatic or other tax-qualified defined contribution plans for any
enrollment in an IRA. Employers with 10 or fewer em- use. For this purpose, long-term unemployed individu-
ployees and employers in existence for less than two years als would be individuals who have been unemployed
would be exempt. An employee not providing a written for at least 27 weeks (or, if less, the maximum period
participation election would be enrolled at a default rate of unemployment benefits available under applicable
of three percent of the employees compensation in a Roth state law). Under the proposal, the exception would
IRA. Employees would always have the option of opting not apply to IRA distributions that exceed 50 percent
out, opting for a lower or higher contribution within the of the fair market value of all the individuals IRAs or
IRA limits, or opting for a traditional IRA. Contributions a distribution from a retirement plan that exceeds 50
by employees to automatic payroll-deposit IRAs would percent of the individuals vested accrued benefit in all
qualify for the savers credit (to the extent the contributor tax-qualified retirement plans, and would be subject to
and the contributions otherwise qualified). an aggregate annual maximum of $50,000. The first
Small employers (those that have no more than 100 $10,000 of distributions would not be subject to the
employees) that offer an automatic IRA arrangement 50-percent of the IRA or plan limitation. The propos-
(including those that are not required to do so) would be al would be effective for distributions occurring after
entitled to a temporary business tax credit for the em- December 31, 2016.
ployers expenses associated with the arrangement up to Require retirement plans to allow long-term
$1,000 per year for three years. Furthermore, these em- part-time workers to participate.Under current
ployers would be entitled to an additional credit of $25 law, a qualified retirement plan sponsor generally is not
per participating employee up to a total of $250 per year required to extend eligibility for coverage to employees
for six years. who are credited with fewer than 1,000 hours in a year
Under current law, small employers (those that have (about half time). Similar to the 1,000-hour threshold for
no more than 100 employees) that adopt a new quali- coverage eligibility, employees also are not required to be
fied retirement plan, Simplified Employee Plan (SEP), or credited with a year of service for purposes of vesting in
Savings Incentive Match Plan for Employees (SIMPLE employer contributions unless they earn 1,000 hours of
plan) are entitled to a temporary business tax credit equal service in a year. To increase coverage and vesting for
to 50 percent of the employers expenses of establishing or long-term part-time employees, the Administration pro-
administering the plan, including expenses of retirement- poses to require that employees be permitted to make
related employee education with respect to the plan and contributions in lieu of salary if they have had at least
any employer contributions. The credit is limited to a 500 hours of service per year with the employer for at
maximum of $500 per year for three years. In conjunc- least three consecutive years. These plans would also be
tion with the automatic IRA proposal, the Administration required to credit, for each year in which employees have
proposes to encourage small employers not currently at least 500 hours of service, a year of service for purposes
of vesting in any employer contributions. With respect retirement accounts, i.e., requiring distributions to begin
to employees newly covered under the proposed change, shortly after age 70, without regard to whether amounts
employers would receive nondiscrimination testing relief are held in designated Roth accounts or in Roth IRAs.
(similar to current-law relief for plans covering otherwise Consistent with this change to the MRD rules for Roth
excludable employees), including permission to exclude IRAs, individuals also would not be permitted to make
these employees from top-heavy benefit requirements. additional contributions to Roth IRAs after they reach
The proposal would be effective for plan years beginning age 70. The proposal would be effective for taxpayers
after December 31, 2016. attaining age 70 and taxpayers who die before age 70
Facilitate annuity portability.Under current after December 31, 2016.
law, 401(k) and other defined contribution retirement Allow all inherited plan and IRA balances to be
plans may not permit distributions absent a distribut- rolled over within 60 days.Generally, most amounts
able event. Distributable events for 401(k) plans include distributed from qualified plans or IRAs may be rolled
severance from employment and attainment of age 59. over into another IRA or into an eligible retirement
Sponsors of defined contribution plans that want to offer plan. However, the movement of assets from a plan or
annuities (for example, qualified longevity annuity con- IRA account inherited by a non-spouse beneficiary can-
tracts (QLACs) and deferred annuities inside target date not be accomplished by means of a 60-day rollover. This
funds) may be discouraged from doing so if the sponsor difference in treatment between plan and IRA accounts
has no clear way to allow employees to continue existing inherited by a non-spouse beneficiary and accounts of liv-
annuities if the annuity product is no longer supported by ing participants serves little if any purpose, generates
the plan at some point in the future (for example, because confusion among plan and IRA administrators, and cre-
of a change in trustee or recordkeeper or a reassessment ates a trap for unwary beneficiaries. The Administration
of the value of an annuity option in light of take-up or proposes to permit rollovers of distributions to all desig-
because the annuity product is no longer available on fa- nated beneficiaries of inherited IRA and plan accounts,
vorable terms). To facilitate the offering of annuities, the subject to inherited IRA treatment, under the same rules
Administration proposes to allow defined contribution that apply to other IRA accounts, beginning January 1,
plans to let participants take a distribution through a 2017.
direct rollover to an IRA or other retirement plan of an Permit unaffiliated employers to maintain a
annuity in the event the annuity is no longer authorized single multiple-employer defined contribution
to be held as an investment under the plan, without re- plan.Although the Internal Revenue Code imposes no
gard to whether a distributable event (such as severance constraints on the ability of unrelated or otherwise unaf-
from employment) has occurred. The proposal would be filiated employers to participate in a multiple-employer
effective for plan years beginning after December 31, plan (MEP) that is considered a single plan, under the
2016. Employee Retirement Income Security Act (ERISA), each
Simplify minimum required distribution (MRD) unaffiliated employer participating in a MEP is gener-
rules.The MRD rules generally require that owners ally considered to have established a separate plan that
of IRAs and participants in tax-favored retirement plans must separately meet the reporting, disclosure, fiduciary
commence distributions shortly after attaining age 70 and other requirements of ERISA. MEPs are seen as a
and that these retirement assets be distributed to them means of expanding defined contribution plan coverage
(or their spouses or other beneficiaries) over a period for unaffiliated small employers through a plan offer-
based on the joint life expectancy of the owner or plan ing economies of scale and a professional administrator
participant and the designated beneficiary. The penalty willing to assume many responsibilities for compliance.
for failure to take a minimum required distribution by However, those economies of scale and simplification of
the applicable deadline is 50 percent of the amount not administration cannot be realized if each employers ar-
withdrawn. The Administration proposes to simplify tax rangement must separately meet the requirements of
compliance for retirees of modest means by exempting an ERISA. The proposal would permit unaffiliated employ-
individual from the MRD requirements if the aggregate ers to adopt a defined contribution MEP that would be
value of the individuals IRA and tax-favored retirement treated as a single plan for purposes of ERISA, provided
plan accumulations does not exceed $100,000 on a mea- that the entity promoting and administering the plan (the
surement date. The MRD requirements would phase in provider), the participating employers, and the plan meet
for individuals with aggregate retirement balances be- certain conditions designed to provide protections for the
tween $100,000 and $110,000. The initial measurement employees. Most significantly, the provider would be re-
date for the dollar threshold would be the beginning of quired to be a regulated financial institution that agrees
the year in which the individual turns 70 or dies, with to be a named fiduciary and the ERISA plan administra-
additional measurement dates only if the individual is tor and that registers with the Secretary of Labor. The
subsequently credited with amounts (other than earn- proposal would be effective for years beginning after
ings) that were not previously taken into account. The December 31, 2016.
Administration also proposes to harmonize the applica- Enact changes to the military retirement re-
tion of the MRD requirements for holders of designated form enacted in the FY 2016 National Defense
Roth accounts and of Roth IRAs by generally treating Authorization Act.This proposal more closely aligns
Roth IRAs in the same manner as all other tax-favored the enacted retirement reform with the Administrations
FY 2016 proposal. Specifically, the Administration mium tax credit. The proposal would be effective January
proposes to allow flexibility in timing and amount of con- 1, 2017.
tinuation pay, increasing government contributions up Standardize definition of American Indian and
to 6 percent (1 percent automatic plus up to 5 percent Alaska Native in the ACA.The Administration pro-
matching), starting TSP matching in the 5th year of ser- poses to revise the definitions of Indian in the ACA to
vice, and providing TSP matching for the entire military align with eligibility requirements used for delivery of
career. other federally supported health services to American
Improve the excise tax on high cost employer- Indians and Alaska Natives under Medicaid, CHIP,
sponsored health coverage.Under current law for and the Indian Health Service (IHS). As a result, more
2020 and later, the cost of employer-sponsored health cov- American Indians and Alaska Natives will meet eligibil-
erage in excess of a threshold is subject to a 40-percent ity requirements for certain ACA provisions, including
excise tax. The threshold is $10,200 for self-only coverage enrollment in qualified health plans without cost-sharing
and $27,500 for other coverage in 2018 dollars, indexed to requirements. This will increase outlays associated with
the CPI plus one percentage point for 2019 and to the CPI the Refundable Premium Tax Credit and Cost Sharing
thereafter. The threshold is increased for plan partici- Reductions account.
pants in firms likely to face higher health coverage costs
due to the age and gender of their workforces or the oc- REFORMS TO CAPITAL GAINS TAXATION,
cupations of plan participants, and for qualified retirees. UPPER-INCOME TAX BENEFITS, AND THE
The cost of coverage includes premiums (whether paid by
TAXATION OF FINANCIAL INSTITUTIONS
the employer or the employee) plus certain contributions
to flexible spending arrangements (FSAs), health savings Reduce the value of certain tax expenditures.
accounts and Archer Medical Savings Accounts. To en- The Administration proposes to limit the tax rate at which
sure that the tax is only applied to higher-cost plans, the upper-income taxpayers can use itemized deductions and
proposal would increase the tax threshold to the great- other tax preferences to reduce tax liability to a maximum
er of the current law threshold or a gold plan average of 28 percent. This limitation would reduce the value of
premium that would be calculated for each State. The the specified exclusions and deductions that would oth-
proposal would also define the cost of coverage with re- erwise reduce taxable income in the top three individual
spect to salary reduction contributions to an FSA as the income tax rate brackets of 33, 35, and 39.6 percent to 28
average amount elected for the year by similarly-situated percent. The limit would apply to all itemized deductions,
employees (rather than amounts actually contributed on interest on tax-exempt bonds, employer-sponsored health
an employee-by-employee basis). Finally, building off of a insurance, deductions and income exclusions for employ-
required study of the methodology used to adjust the tax ee retirement contributions, and certain above-the-line
threshold for differences in age and gender mix across em- deductions. If a deduction or exclusion for contributions
ployers, the proposal would require a study of the potential to retirement plans or individual retirement arrange-
effects of the tax on firms with unusually sick employ- ments is limited by this proposal, the taxpayers basis
ees, conducted by the Government Accountability Office would be increased to reflect the additional tax paid. The
in consultation with the Department of the Treasury and limit would be effective for taxable years beginning after
other experts. The proposal would be effective for taxable December 31, 2016.
years after December 31, 2016 (with the tax first levied in Reform the taxation of capital income.Capital
2020, as under current law). gains are taxable only upon the sale or other disposition
Extend CHIP through 2019.The Administration of an appreciated asset. Under current law, most capital
proposes to extend CHIP funding for two years, through gains are taxed at graduated rates, with 20 percent gen-
fiscal year 2019. As a result, more children will be en- erally being the highest rate. In addition, higher-income
rolled in CHIP and fewer children will be enrolled in taxpayers are subject to a tax of 3.8 percent of the lesser
Marketplace qualified health plans and employment- of net investment income, including capital gains, or mod-
based health insurance. This will increase tax revenues ified AGI in excess of a threshold. When a donor gives an
and reduce outlays associated with the premium tax appreciated asset to a donee during life, the donee takes
credit. the donors basis in the asset and there is no recognition
Create State option to provide 12-month con- of capital gains until the donee later disposes of that as-
tinuous Medicaid eligibility for adults.The set. When an appreciated asset is held by a decedent at
Administration proposes to create a new continuous eligi- death, the decedents heir receives a basis in that asset
bility State plan option that would allow all adult Medicaid equal to its fair market value at the date of decedents
beneficiaries, or at State option, only those who qualify death. As a result, the appreciation accruing during the
on the basis of modified adjusted gross income (MAGI), decedents life on assets that are still held by the decedent
to maintain Medicaid eligibility during a 12-month con- at death is never subjected to the capital gains tax.
tinuous coverage period, regardless of changes to income Under this proposal, the 20-percent capital gains tax
or other eligibility criteria. The expanded Medicaid eli- rate would be increased to 24.2 percent (for a total of
gibility will result in fewer individuals being enrolled in 28 percent for gains also subject to the net investment
Marketplace qualified health plans, which will increase income tax). This would also increase the tax rate on
tax revenues and reduce outlays associated with the pre- qualified dividends, which would be taxed at the same
rate as capital gains. In addition, transfers at death or Impose a financial fee.The Administration pro-
by gift would result in recognition of gain. In the case of poses to impose a fee on banks, both U.S. and foreign,
a gift, the gain would be taxable on the donors income and would also apply to bank holding companies and
tax return for the year in which the gift was made. In nonbanks, such as insurance companies, savings and
the case of death, the tax would be reported either on the loan holding companies, exchanges, asset managers,
decedents final income tax return or on a new income tax broker-dealers, specialty finance corporations, and finan-
return created for this purpose. The proposal would ex- cial affiliates with assets in excess of $50 billion. Firms
empt gain on household furnishings and personal effects with worldwide consolidated assets of less than $50 bil-
(excluding collectibles) and allow a $100,000 exclusion of lion would not be subject to the fee for the period when
other gains recognized at death (which would be indexed their assets are below this threshold. U.S. subsidiaries
for inflation and would be portable to a surviving spouse of international firms that fall into these categories with
resulting in a $200,000 per couple exclusion). In addi- assets in excess of $50 billion would also be covered. The
tion, the current law ($250,000 per person) exclusion of fee base is assets less equity (also known as liabilities)
capital gains from a principal residence would apply to all for banks and nonbanks based on audited financial state-
residences at death. If any share of a personal residence ments with a deduction for separate account (primarily
is bequeathed to a spouse, the spouse would be allowed for insurance companies). The fee rate would be seven
the use of the first spouses exclusion of gain (that is, the basis points and would be effective on January 1, 2017.
$250,000 personal residence exclusion would be portable). The fee is intended to discourage excessive risk-taking by
The unlimited use of capital losses and carryforwards financial firms, who were key contributors to the recent
would be allowed against ordinary income on the dece- financial crisis. The fee would also satisfy the statuto-
dents final income tax return, and the capital gains tax ry requirement for the President to propose a means to
imposed at death would be deductible on the decedents recoup the net costs of assistance provided through the
estate tax return. Appreciated property given to charity Troubled Asset Relief Program.
would be exempt from the capital gains tax. Gifts or be-
quests to a spouse would carry the basis of the donor or LOOPHOLE CLOSERS
decedent, and capital gain would not be realized until the
spouse disposes of the asset or dies. The proposal would Require current inclusion in income of accrued
provide for the deferral of tax payment (with interest) market discount and limit the accrual amount for
on the appreciation of certain small family-owned busi- distressed debt.Just as original issue discount (OID)
nesses, until the business is sold or transferred to owners is part of the yield of a debt instrument purchased at
outside the family. The proposal would further allow a 15- original issuance, market discount generally enhances
year fixed-rate payment plan for the capital gains tax on the yield to a purchaser of debt in the secondary market.
assets other than liquid assets such as publicly traded fi- Unlike OID, however, recognition of market discount is
nancial assets transferred at death. This proposal would generally deferred under current law until a debt instru-
be effective for gifts, deaths, qualified dividends received, ment matures or is otherwise sold or transferred. The
and other capital gains realizations in taxable years be- Administrations proposal would require taxpayers to ac-
ginning after December 31, 2016. crue market discount into income currently, in the same
Implement the Buffett Rule by imposing a new manner as original issue discount. To prevent over-ac-
Fair Share Tax.The Administration proposes a new crual of market discount on distressed debt, the accrual
minimum tax, called the Fair Share Tax (FST), for high- would be limited to the greater of (1) an amount equal
income taxpayers. The tentative FST equals 30 percent to the bonds yield to maturity at issuance plus five per-
of AGI less a charitable credit. The charitable credit centage points, or (2) an amount equal to the Applicable
equals 28 percent of itemized charitable contributions Federal Rate plus 10 percentage points. The proposal
allowed after the overall limitation on itemized deduc- would apply to debt securities acquired after December
tions (Pease). The final FST is the excess, if any, of the 31, 2016.
tentative FST over the sum of the taxpayers: (1) regu- Require that the cost basis of stock that is a cov-
lar income tax (after certain credits) including the 3.8 ered security must be determined using an average
percent net investment income tax, (2) the AMT, and (3) cost basis method.Current regulations permit tax-
the employee portion of payroll taxes. The set of certain payers to use specific identification when they sell or
credits subtracted from regular income tax excludes the otherwise dispose of stock. Specific identification allows
foreign tax credit, the credit for tax withheld on wages, taxpayers who hold identical shares of stock that have
and the credit for certain uses of gasoline and special fu- different tax basis to select the amount of gain or loss to
els. The tax is phased in linearly starting at $1 million of recognize on the disposition. The Administrations pro-
AGI ($500,000 in the case of a married individual filing a posal would require the use of average cost basis for all
separate return). The tax is fully phased in at $2 million identical shares of portfolio stock held by a taxpayer that
of AGI ($1 million in the case of a married individual filing have a long-term holding period. The proposal would
a separate return). The threshold is indexed for inflation apply to covered securities acquired after December 31,
beginning after 2017. The proposal would be effective for 2016.
taxable years beginning after December 31, 2016. Tax carried (profits) interests as ordinary
income.A partnership does not pay Federal income
tax; instead, an item of income or loss of the partnership the deduction or exclusion for contributions to defined
and associated character flows through to the partners contribution plans, defined benefit plans, or IRAs for an
who must include such items on their income tax returns. individual who has total balances or accrued benefits
Certain partners receive partnership interests, typi- under those plans that are sufficient to provide an annu-
cally interests in future profits, in exchange for services ity equal to the maximum allowable defined benefit plan
(commonly referred to as profits interests or carried in- benefit. This maximum, currently an annual benefit of
terests). Because the partners, including partners who $210,000 payable in the form of a joint and survivor ben-
provide services, reflect their share of partnership items efit commencing at age 62, is indexed for inflation. The
on their tax return in accordance with the character of the proposal would be effective for taxable years beginning
income at the partnership level, long-term capital gains after December 31, 2016.
and qualifying dividends attributable to carried interests Rationalize Net Investment Income and Self-
may be taxed at a maximum 20-percent rate (the maxi- Employment Contributions Act (SECA) taxes.A gap
mum tax rate on capital gains) rather than at ordinary between the definitions of net investment income and
income tax rates. The Administration proposes to desig- net earnings from self-employment may create uncer-
nate a carried interest in an investment partnership as tainty in the treatment of limited partners and limited
an investment services partnership interest (ISPI) and liability company (LLC) members who materially par-
to tax a partners share of income from an ISPI that is ticipate in the business, for purposes of net investment
not attributable to invested capital as ordinary income, income and SECA taxes. Furthermore, the distributive
regardless of the character of the income at the partner- shares of S corporation owner-employees, in many cases,
ship level. In addition, the partner would be required to are subject to neither tax. This gap exists even though
pay self-employment taxes on such income, and the gain the net investment income tax (NIIT) was specifically
recognized on the sale of an ISPI that is not attributable designed to tax the investment income of high-income
to invested capital would generally be taxed as ordinary taxpayers in the same way that earned income is taxed
income, not as capital gain. However, any allocation of for Medicare purposes. The proposal would ensure that
income or gain attributable to invested capital on the part all trade or business income of high-income taxpayers is
of the partner would be taxed as ordinary income or capi- subject to a 3.8 percent tax, either through NIIT or SECA
tal gain based on its character to the partnership and any taxes, that investment income of high-income taxpayers
gain realized on a sale of the interest attributable to such continues to be subject to the NIIT, and that labor income
partners invested capital would be treated as capital gain derived from professional service pass-throughs is subject
or ordinary income as provided under current law. The to self-employment tax. It would do so in two ways: (1) It
proposal would be effective for taxable years ending after would amend the definition of net investment income to
December 31, 2016. include gross income and gain of individuals from trades
Require non-spouse beneficiaries of deceased or businesses not otherwise subject to employment taxes.
IRA owners and retirement plan participants to This would include active income of S corporation share-
take inherited distributions over no more than five holders, partners, and LLC members, and would include
years.Under current law, owners of IRAs and employ- income from the sale of business property. Proceeds from
ees with tax-favored retirement plans generally must the NIIT would be directed to the Medicare trust fund,
take distributions from those retirement accounts begin- as are Medicare taxes on employment earnings. (2) The
ning at age 70. The minimum amount required to be proposal would treat all individual owners of professional
distributed is based on the joint life expectancy of the service businesses (as defined in the proposal) as subject
owner or plan participant and the designated beneficiary, to SECA in the same manner and to the same degree, re-
calculated at the end of each year. Minimum distribution gardless of the legal form of the organization. Partners
rules also apply to balances remaining after a participant and S corporation shareholders who provide services and
or IRA owner has died. Heirs who are designated as ben- materially participate in a business that provides profes-
eficiaries under IRAs and qualified retirement plans may sional services would be subject to self-employment tax
receive distributions over their lifetimes, no matter what on their distributive shares of income, as currently ap-
the age difference between the deceased IRA owner or plied to general partners and sole proprietors. Owners
plan participant and the beneficiary. The Administration who do not materially participate would be subject to self-
proposes to require non-spouse beneficiaries of IRA own- employment tax only on an amount equal to reasonable
ers and retirement plan participants to take inherited compensation for services provided and would continue to
distributions over no more than five years. Exceptions be subject to the NIIT on the remainder of their distribu-
would be provided for disabled beneficiaries and benefi- tive shares of income. The proposal would be effective for
ciaries within 10 years of age of the deceased IRA owner taxable years beginning after December 31, 2016.
or plan participant. Minor children would be allowed to Limit Roth conversions to pre-tax dollars.Subject
receive payments up to five years after they attain the age to certain restrictions, taxpayers can convert traditional
of majority. This proposal would be effective for distribu- IRA/401(k) balances to Roth IRA/Roth 401(k) balances by
tions with respect to participants or IRA owners who die paying tax at ordinary rates on the amount of the con-
after December 31, 2016. version in excess of basis. No tax is paid on the portion
Limit the total accrual of tax-favored retire- of the conversion that is a return of basis. The limits on
ment benefits.The Administration proposes to limit after-tax contributions to plans and nondeductible contri-
butions to IRAs (which generate basis) are weaker than gift. In contrast to the general rule for valuing donations
those on pre-tax and Roth contributions. Taxpayers may in exchange for benefits, donors to colleges and universi-
exploit those weaker limits by performing a Roth conver- ties who receive the right to purchase tickets for seating
sion immediately after making such a contribution and at an athletic event may deduct 80 percent of the con-
thereby obtainat no additional costthe full benefits tribution even when the value of the ability to purchase
of Roth treatment on a less-advantaged after-tax or non- the tickets is far in excess of 20 percent of the contrib-
deductible contribution. The proposal would limit Roth uted amount. The proposal would deny the deduction for
conversions to pre-tax dollars, which would reduce the contributions that entitle donors to a right to purchase
scope for strategies of this nature by precluding Roth con- tickets to sporting events. The proposal would be effective
versions of after tax or nondeductible contributions. The for contributions made in taxable years beginning after
proposal would be effective for taxable years beginning December 31, 2016.
after December 31, 2016.
Eliminate deduction for dividends on stock of MODIFY ESTATE AND GIFT TAX PROVISIONS
publicly-traded corporations held in employee
stock ownership plans (ESOPs).Generally, corpora- Restore the estate, gift, and generation-skipping
tions do not receive a corporate income tax deduction for transfer (GST) tax parameters in effect in 2009.
dividends paid to their shareholders. However, a deduc- Under current law, estates, gifts, and GSTs are taxed at
tion for dividends paid on employer securities is allowed a maximum tax rate of 40 percent with a lifetime exclu-
under a special rule for ESOPs, including, for example, sion of $5 million, indexed for inflation after 2011. The
dividends paid on employer stock held in an ESOP ac- Administration proposes to restore and permanently
count that is one of the investment options available to extend estate, gift, and GST tax parameters as they ap-
employees under a typical 401(k) plan. This special rule plied for calendar year 2009. Under those parameters,
has been justified as encouraging employee ownership, estates and GSTs would be taxed at a maximum tax rate
which has been viewed as having a productivity incentive of 45 percent with a life-time exclusion of $3.5 million.
effect. However, ownership of stock of a publicly-traded Gifts would be taxed at a maximum tax rate of 45 percent
corporation generally does not result in employees own- with a lifetime exclusion of $1 million. These parameters
ing a significant percentage of the corporation and can would be effective for the estates of decedents dying and
result in an excessive concentration of assets intend- transfers made after December 31, 2016, and would not
ed for retirement security in a single investment. The be indexed for inflation.
Administrations proposal would repeal the deduction for Expand requirement of consistency in value for
dividends paid with respect to employer stock held by an transfer and income tax purposes.Current law pro-
ESOP that is sponsored by a publicly-traded corporation. vides generally that the basis of property inherited from
This proposal would be effective with respect to dividends a decedent is the propertys fair market value at the de-
paid after the date of enactment. cedents death, and that the basis of property received by
Repeal exclusion of net unrealized appreciation gift is the donors basis (but limited to the fair market
(NUA) in employer securities.In general, distri- value of the gift for purposes of determining the donees
butions from retirement plans are taxed as ordinary loss on a sale, if the donors basis exceeds that value at
income. However, for employer securities received as the time of the transfer). Elsewhere in this Budget the
part of a lump-sum distribution, more favorable tax treat- Administration proposes to tax accrued capital gains (that
ment generally is available under which the excess of the is, fair market value in excess of the basis) when assets
market value of the employer stock at the time of the dis- are transferred by death or gift. Generally, the same stan-
tribution over the cost or other basis of that stock to the dards apply to determine the value subject to estate and
plan (the net unrealized appreciation) is excluded from gift taxes as apply to computing the beneficiarys basis or
gross income at the time of distribution. The net unre- to computing gain under the Administrations proposal.
alized appreciation generally is taxed as a capital gain However, prior to the enactment on July 31, 2015, of the
at the time the employer stock is sold by the recipient. Surface Transportation and Veterans Health Care Choice
The Administration proposes to repeal this special exclu- Improvement Act of 2015, there was no explicit consis-
sion for employer stock for retirement plan participants tency rule that would have required the recipient of the
who have not attained age 50 on or before December 31, property to use for income tax purposes the value used for
2016. The proposal would be effective for distributions estate tax purposes as the recipients basis in that prop-
occurring after December 31, 2016. erty when the basis is determined by reference to the fair
Disallow the deduction for charitable contribu- market value on the date of death. Similarly, there was
tions that are a prerequisite for purchasing tickets no explicit consistency rule that would have required the
to college sporting events.Under current law, donors recipient to use the same value of the gifted property for
who receive benefits in exchange for a charitable contribu- determining loss as the value used for gift tax purposes.
tion must reduce the value of their charitable contribution That Act amended the basis rules to provide that a benefi-
deduction by the fair market value of the benefits they ciarys initial basis in property inherited from a decedent
receive. Many colleges and universities give exclusive or that increased the estates Federal estate tax liability
priority purchasing privileges for sports ticket sales to do- may not exceed the final value of the property for Federal
nors, with the priority often dependent on the size of the estate tax purposes. The Administration proposes to re-
quire that, for property with respect to which a required the extent any distribution is made to another (except in
estate tax return is filed after enactment, the property discharge of the deemed owners obligation to the distrib-
subject to the consistency requirement be expanded to utee) during the deemed owners life. The transfer taxes
also include property qualifying for the estate tax marital would be payable from the trust. The proposal would be
deduction, even though that property does not increase effective with regard to GRATs created after the date of
the estates Federal estate tax liability. In addition, the enactment, and to other grantor trusts that engage in a
Administration proposes to require that the value used to described transaction on or after the date of enactment.
determine the donees loss, if the donors basis exceeded Limit duration of GST tax exemption.Current
that value on the date of the gift, cannot exceed the value law provides that each person has a lifetime GST tax
of the property for gift tax purposes. exemption ($5,450,000 in 2016) that may be allocated to
Modify transfer tax rules for grantor retained the persons transfers to or for the benefit of transferees
annuity trusts (GRATs) and other grantor trusts. who are two or more generations younger than the trans-
Current law provides that the value of the remainder feror (skip persons). The allocation of a persons GST
interest in a GRAT for gift tax purposes is determined exemption to such a transfer made in trust exempts from
by deducting the present value of the annuity to be the GST tax not only the amount of the transfer (up to
paid during the GRAT term from the fair market value the amount of exemption allocated), but also all future
of the property contributed to the GRAT. If the grantor appreciation and income from that amount during the
of the GRAT dies during that term, the portion of the existence of the trust. At the time of the enactment of
trust assets needed to produce the annuity is included the GST tax provisions, the law of almost all States in-
in the grantors gross estate for estate tax purposes. cluded a Rule Against Perpetuities (RAP) that required
In practice, grantors commonly use brief GRAT terms the termination of every trust after a certain period of
(often of less than two years) and significant annuities time. Because many States now either have repealed or
to minimize both the risk of estate tax inclusion and limited the application of their RAP laws, trusts subject
the value of the remainder for gift tax purposes. The to the laws of those States may continue in perpetuity.
Administration proposes to add the following require- As a result of this change in State laws, the transfer tax
ments for GRATs: (1) the GRAT must have a minimum shield provided by the GST exemption effectively has
term of 10 years and a maximum term of 10 years more been expanded from trusts funded with $1 million and a
than the annuitants life expectancy, (2) the remainder maximum duration limited by the RAP, to trusts funded
interest must have a minimum value at the creation of with $5,450,000 and continuing (and growing) in perpe-
the GRAT equal to the greater of 25 percent of the val- tuity. The Administration proposes to limit the duration
ue of the property contributed to the GRAT or $500,000 of the benefit of the GST tax exemption by imposing a
(but not more than the value of the assets contributed), bright-line test, more clearly administrable than the com-
(3) no decrease in the annuity during the GRAT term mon law RAP, which, in effect, would terminate the GST
is permitted, and (4) no tax-free exchange of any GRAT tax exclusion on the 90th anniversary of the creation of
asset with the grantor is permitted. the trust. An exception would be made for trusts that
This proposal also would address the sale of an asset are distributed to another trust for the sole benefit of one
to a grantor trust, specifically, a trust of which the seller individual if the distributee trust will be includable in the
is the deemed owner for income tax purposes. A grantor individuals gross estate for Federal estate tax purposes
trust is ignored for income tax purposes, even though the to the extent it is not distributed to that individual during
trust may be irrevocable and the deemed owner may have his or her life. The proposal would apply to trusts created
no beneficial interest in the trust or its assets. The lack after enactment, and to the portion of a pre-existing trust
of coordination between the income tax and transfer tax attributable to additions to such a trust made after that
rules applicable to a grantor trust creates opportunities to date.
structure transactions between the trust and its deemed Extend the lien on estate tax deferrals where
owner that are ignored for income tax purposes and can estate consists largely of interest in closely held
result in the transfer of significant wealth by the deemed business.There is a lien on nearly all estate assets for
owner without transfer tax consequences. The proposal the 10-year period immediately following a decedents
would provide that, if a person who is a deemed owner of death to secure the full payment of the Federal estate tax.
all or a portion of a trust engages in a transaction with However, the estate tax payments on interests in certain
that trust that constitutes a sale, exchange, or comparable closely held businesses are deferred for 14 years after the
transaction that is disregarded for income tax purposes by due date of the return (or nearly 15 years after the date
reason of the persons treatment as a deemed owner of the of death). Thus, this lien expires approximately five years
trust under the grantor trust rules, then the portion of the before the due date of the final payment of the deferred tax.
trust attributable to the property received by the trust in Existing methods of protecting the Federal Governments
that transaction, net of the consideration received by the interest in collecting the amounts due are expensive and
person in the transaction, will be: (1) subject to estate tax may be harmful to businesses. The Administration pro-
as part of the deemed owners gross estate, (2) subject to poses to extend the existing estate tax lien throughout the
gift tax at any time during the deemed owners life when deferral period to eliminate the need for any additional
his or her treatment as a deemed owner of the trust is ter- security in most cases in a manner that is economical and
minated, and (3) treated as a gift by the deemed owner to efficient for both taxpayers and the Federal Government.
The proposal would be effective for the estates of all dece- could have done if still living. In addition, because this
dents dying on or after the date of enactment, as well as definition frequently results in multiple parties being an
for all estates of decedents dying before the date of enact- executor, the proposal would grant regulatory authority
ment as to which the lien has not then expired. to adopt rules to resolve conflicts among multiple execu-
Modify GST tax treatment of Health and tors authorized by that definition. The proposal would
Education Exclusion Trusts (HEETs).Payments be effective upon enactment, regardless of the decedents
made by a donor directly to the provider of medical care date of death.
for another or directly to a school for anothers tuition are
exempt from gift tax. These direct transfers also are ex- OTHER REVENUE RAISERS
empt from the GST tax. However, payments made to a
trust, to be expended by the trust for the same purposes, Impose an Oil Fee.The Administration proposes to
are not exempt from the gift tax. Some contributors to impose an oil fee, which would be the equivalent of $10.25
HEETs interpret the GST tax exclusion to apply also to per barrel of crude oil, to support critical infrastructure
distributions made from the HEET in payment of medical and climate resiliency needs. The fee would be collected
expenses or tuition, and claim that those distributions are on domestically produced as well as imported petroleum
exempt from the GST tax. The Administration proposes products. Exported petroleum products would not be
to provide that the GST tax exclusion for transfers exempt subject to the fee and home heating oil would be tempo-
from the gift tax is limited to outright transfers by the do- rarily exempted. Revenue from the fee would fund the
nor to the provider of the medical care or education and 21st Century Clean Transportation Plan to upgrade the
does not apply to distributions for those same purposes Nations transportation system, improve resilience, and
from a trust. The proposal would apply to trusts created reduce emissions. In addition, 15 percent of the revenues
after the introduction of the bill enacting this change and from the fee would be dedicated for assistance for house-
to transfers after that date made to pre-existing trusts. holds with particularly burdensome energy costs. Other
Simplify gift tax exclusion for annual gifts.The fuel-related trust funds would be held harmless. The fee
annual per-donee gift tax exclusion (currently $14,000) is would be phased in over a five-year period beginning
available only for gifts of present interests, but gener- October 1, 2016. The fee would be fully phased in for pe-
ally a transfer can be converted into a present interest by troleum produced or imported beginning October 1, 2021.
granting the donee an immediate right to withdraw the Increase and modify Oil Spill Liability Trust
property (Crummey power). In an effort to simplify tax Fund financing.An excise tax is imposed on: (1) crude
compliance and administration, and to prevent the possi- oil received at a U.S. refinery; (2) imported petroleum
ble abuse of such withdrawal powers, the Administration products entered into the United States for consumption,
proposes to eliminate the present interest requirement, use, or warehousing; and (3) any domestically produced
define a new category of transfers that will not be affected crude oil that is used in (other than on the premises where
by withdrawal or put rights, and impose an annual per- produced for extracting oil or natural gas) or exported
donor cap of $50,000 (indexed for inflation) on the total from the United States if, before such use or exportation,
amount of gifts in that new category that can be exempt- no taxes were imposed on the crude oil. Under current
ed from gift tax by the annual per-donee exclusion. The law, the tax does not apply to some types of crudes such
new category would include transfers in trust (other than as those produced from bituminous deposits as well as
to a trust described in section 2642(c)(2) of the Internal kerogen-rich rock. The tax is deposited in the Oil Spill
Revenue Code), transfers of interests in pass-through Liability Trust Fund. Amounts in the trust fund are used
entities, transfers of interests subject to a prohibition on for several purposes, including the payment of costs as-
sale, and other transfers of property that, without regard sociated with responding to and removing oil spills. The
to withdrawal, put, or other such rights in the donee, can- tax imposed on crude oil and imported petroleum prod-
not be immediately liquidated by the donee. The proposal ucts is eight cents per barrel, effective for periods after
would be effective for gifts made after the year of enact- December 31, 2008, and before January 1, 2017, and nine
ment. cents per barrel, effective for periods after December 31,
Expand applicability of definition of executor. 2016. The Administration proposes to increase these tax-
Under current law, the statutory definition of executor es by one cent per barrel to 10 cents per barrel for periods
applies only for purposes of the estate tax; therefore, an after December 31, 2016. In addition, the Administration
executor of an estate does not have the authority to ex- proposes to update the law to include other sources of
tend a statute of limitations, claim a refund, agree to a crudes such as those produced from bituminous deposits
compromise or assessment, or pursue judicial relief for a as well as kerogen-rich rock. The tax would cover, at the
tax liability that arose prior to the decedents death. To applicable rate, other sources of crudes received at a U.S.
empower an authorized party to act on behalf of the de- refinery, entered into the United State, or used or export-
cedent in such matters (whether arising before, upon, or ed as described above after December 31, 2016. Finally,
after death), the Administration proposes to make the the proposal would place a prohibition on the drawback
statutory definition of executor applicable for all tax pur- (refunding) of the tax. The prohibition would be effective
poses, and to authorize such executor to do anything on for periods after December 31, 2016.
behalf of the decedent in connection with the decedents Reinstate Superfund taxes.The Administration
pre-death tax liabilities or obligations that the decedent proposes to reinstate the taxes that were deposited in the
Hazardous Substance Superfund prior to their expiration wages) and would be indexed thereafter. This wage base
on December 31, 1995. These taxes, which contributed to increase would be accompanied by a decrease in the tax
financing the cleanup of the Nations highest risk hazard- rate to avoid a Federal tax increase in the first year. In
ous waste sites, are proposed to be reinstated for periods addition, currently, States that must borrow from the
(excise taxes) or taxable years (income tax) beginning af- Federal Government for extended periods of time to cov-
ter 2016, with expiration for periods and taxable years er benefits are assessed a reduction in their FUTA tax
after 2026. The proposed taxes include the following: (1) credits. The Administration proposes to change the rules
an excise tax of 9.7 cents per barrel on crude oil and im- governing credit reductions so they apply for any State
ported petroleum products; (2) an excise tax on specified with an average high cost multiple (AHCM) of less than
hazardous chemicals at rates that vary from 22 cents to 0.5 percent. An AHCM of 1.0 means a State has approxi-
$4.87 per ton; (3) an excise tax on imported substances mately enough funds to cover benefits during one year
that use the specified hazardous chemicals as a feedstock of an average recession, a commonly used solvency mea-
(in an amount equivalent to the tax that would have been sure. Any revenues earned through the credit reduction
imposed on domestic production of the chemicals); and (4) would first be applied to repaying any State borrowing
a corporate environmental income tax imposed at a rate and would then be applied to the State trust fund to help
of 0.12 percent on the amount by which the modified AMT it build up balances to prepare for the next downturn.
income of a corporation exceeds $2 million. Consistent Modernize the UI program.The Administration
with the Administrations proposal regarding taxes depos- proposes to modernize the UI system by improving its
ited in the Oil Spill Liability Trust Fund, the Superfund connection to jobs and making sure benefits are available
excise tax on crude oil and petroleum products would cov- to more workers who need them. To do this, the Budget
er other sources of crudes such as those produced from includes a UI modernization fund that will provide incen-
bituminous deposits as well as kerogen-rich rock. tive payments to States that adopt measures to expand
Increase tobacco taxes and index for inflation. both program eligibility and work-based learning oppor-
Under current law, cigarettes are taxed at a rate of $50.33 tunities and training for unemployed workers. A State
per 1,000 cigarettes. This is equivalent to just under $1.01 can receive incentive payments if it adopts one measure
per pack, or approximately $22.88 per pound of tobacco. that expands eligibility and two measures that improve
Taxes on other tobacco products range from $0.5033 per connections to training and employment. States that
pound for chewing tobacco to $24.78 per pound of roll- maintain these changes for at least four years will also
your-own tobacco. The Administration proposes to raise receive a bonus payment. In addition, all Stateswheth-
tobacco taxes and create parity in tax rates among similar er or not they apply for incentive fundswill be required
tobacco products. Cigarettes and small cigars would be to have an alternative base period, provide coverage for
taxed at $97.50 per 1,000 units, or about $1.95 per pack workers seeking part-time work, provide coverage for
of cigarettes. Large cigars would be taxed at an approxi- workers that quit their jobs for compelling family reasons,
mately equivalent rate (using five per-unit rates that and provide at least 26 weeks of benefits. States will need
vary according to the cigars weight). Chewing tobacco, to raise additional revenue to cover the proposed benefit
pipe tobacco, roll-your-own tobacco, and snuff would be expansions.
taxed at $44.23 per-pound, also roughly equivalent to Create a mandatory reemployment services and
the implied per-pound tax for cigarettes and cigars. The eligibility assessment (RESEA) program.The
Administration also proposes to clarify that roll-your-own Administration proposes to require States to provide
tobacco includes any processed tobacco that is removed for RESEAs to the one-third of claimants identified as most
delivery to anyone other than a manufacturer of tobacco likely to exhaust benefits. This proposal would provide
products or exporter. The new tax rates would be effective grants to States for these services through mandatory
for articles held for sale or removed after December 31, funding beginning in 2018. In general, reduced outlays
2016, and indexed for inflation after 2017. allow States to keep UI taxes lower, reducing overall re-
Make unemployment insurance (UI) surtax per- ceipts to the UI trust funds.
manent.The net Federal UI tax on employers dropped Levy a fee on the production of hardrock minerals
from 0.8 percent to 0.6 percent with respect to wages paid to restore abandoned mines.Until 1977, there were
after June 30, 2011. The Administration proposes to per- no Federal requirements to restore land after mining for
manently reinstate the 0.8 percent rate, effective with coal, leaving nearly $4 billion worth of abandoned coal
respect to wages paid on or after January 1, 2017. mine hazards remaining today. The Department of the
Expand FUTA base and reform FUTA credit Interior collects a fee on every ton of coal produced in the
reduction rules.Many States UI systems are chroni- United States to finance the reclamation of these aban-
cally underfunded and required Federal borrowing to doned coal mines. Historic mining of hardrock minerals,
cover benefits during the most recent downturn. The such as gold and copper, also left numerous abandoned
Administration proposes to improve system solvency by mine lands; however, there is no similar source of Federal
helping States rebuild their trust fund balances to repay funding to reclaim these sites. Just as the coal indus-
their loans, cover current benefits, and create reserves so try is held responsible for past mining practices, the
they are better prepared for the next downturn. Under Administration proposes to hold the hardrock mining in-
this proposal, the FUTA taxable wage base would industry responsible for abandoned hardrock mines. The
crease in 2018 to $40,000 (approximately average insured proposed fee on the production of hardrock minerals
would be charged per volume of material displaced after group of persons owns policies whose cash values rep-
December 31, 2017, and the receipts would be distributed resent at least 10 percent of the value of the account
through a set allocation between Federal and non-Federal would be determined quarterly, based on information
lands. Funds would be used to restore the most hazard- reasonably within the issuers possession.
ous hardrock abandoned mine sites, on both public and The proposal would be effective for payments made to
private lands. The receipts allocated to restoration of contractors after December 31, 2016, or private separate
non-Federal lands would be distributed to States and accounts maintained on or after December 31, 2016.
Tribes based on need, with each State and Tribe selecting Provide an exception to the limitation on disclos-
its own priority projects within certain national criteria. ing tax return information to expand TIN matching
Return fees on the production of coal to pre-2006 beyond forms where payments are subject to backup
levels to restore abandoned mines.Since October 1, withholding.The IRS is prohibited from disclosing
1977, the Department of the Interior has collected fees Federal tax returns and return information (FTI). There
on every ton of coal produced in the United States to fi- are certain very narrow exceptions. Even where disclo-
nance the reclamation of abandoned coal mines. The sure is permitted, recipients of FTI must safeguard the
fees levied on mine operators were originally $0.35 per information and cannot redisclose it unless permitted.
ton for surfaced mined coal and $0.15 per ton for under- The Secretary of the Treasury is required to notify in-
ground mined coal. The 2006 amendments to the Surface formation return filers in certain circumstances where
Mining Control and Reclamation Act instituted a phased backup withholding is required if the recipients TIN is
reduction in these fees beginning in 2006. However, not correct. Filers are required to keep this information
nearly $4 billion worth of abandoned coal mine hazards confidential and are prohibited from using the informa-
remain today. The Administration proposes to restore the tion for purposes other than backup withholding. The
fees to their original level, effective for coal mined after IRS has broad regulatory authority to implement backup
September 30, 2016, to provide additional resources to withholding. Under this authority, the IRS has estab-
continue addressing the legacy of abandoned coal mines. lished a TIN matching program that allows the IRS to
verify the TINs of payees submitted by filers in the case
REDUCE THE TAX GAP AND MAKE REFORMS of payments subject to backup withholding. The proposal
would provide an exception to the limitation on disclosing
Expand Information Reporting FTI to permit the IRS to do TIN matching even in cases
where the filer is not making a payment that is subject to
Improve information reporting for certain backup withholding. The proposal would be effective on
businesses and contractors.The Administration the date of enactment.
proposes to require a contractor receiving payments Provide for reciprocal reporting of informa-
of $600 or more in a calendar year from a particu- tion in connection with the implementation of the
lar business to furnish to the business (on Form W-9) Foreign Account Tax Compliance Act (FATCA).In
the contractors certified TIN. A business would be many cases, foreign law would prevent foreign financial
required to verify the contractors TIN with the IRS, institutions from complying with the FATCA provi-
which would be authorized to disclose, solely for this sions of the Hiring Incentives to Restore Employment
purpose, whether the certified TIN-name combination Act of 2010 by reporting to the IRS information about
matches IRS records. If a contractor failed to furnish an U.S. accounts. Such legal impediments can be ad-
accurate certified TIN, the business would be required dressed through intergovernmental agreements under
to withhold a flat-rate percentage of gross payments. which the foreign government agrees to provide the in-
Contractors receiving payments of $600 or more in a formation required by FATCA to the IRS. Requiring
calendar year from a particular business could require U.S. financial institutions to report similar informa-
the business to withhold a flat-rate percentage of their tion to the IRS with respect to non-resident accounts
gross payments, with the flat-rate percentage of 15, 25, would facilitate such intergovernmental cooperation
30, or 35 percent being selected by the contractor. by enabling the IRS to reciprocate in appropriate cir-
In addition, the Administration proposes to require cumstances by exchanging similar information with
life insurance companies to report to the IRS, for each cooperative foreign governments to support their ef-
contract whose cash value is partially or wholly invest- forts to address tax evasion by their residents. The
ed in a private separate account for any portion of the proposal would require certain financial institutions to
taxable year and represents at least 10 percent of the report the account balance for U.S. financial accounts
value of the account, the policyholders TIN, the policy held by foreign persons, expand the current report-
number, the amount of accumulated untaxed income, ing required with respect to U.S. source income paid
the total contract account value, and the portion of that to accounts held by foreign persons to include similar
value that was invested in one or more private separate non-U.S. source payments, and provide the Secretary
accounts. For this purpose, a private separate account of the Treasury with authority to prescribe regulations
would be defined as any account with respect to which that would require reporting of such other information
a related group of persons owns policies whose cash that is necessary to enable the IRS to facilitate FATCA
values, in the aggregate, represent at least 10 percent implementation by exchanging similar information
of the value of the separate account. Whether a related with cooperative foreign governments in appropriate
circumstances. The proposal would also require that enforcement of the excise tax rules. The Administration
this information, as well as information reported by proposes to facilitate excise tax administration and in-
foreign financial institutions to the IRS, be furnished crease collections by amending current law to permit
to the account holders in order to encourage voluntary disclosure of tax return information to Department of
tax compliance. The proposal would be effective for Homeland Security employees (customs officials) whose
returns required to be filed after December 31, 2017. job responsibilities include tax administration. The pro-
Require Form W-2 reporting for employer contri- posal would be effective upon enactment.
butions to defined contribution plans.Employers Provide authority to readily share information
are currently required to report on Form W-2 an em- about beneficial ownership information of U.S.
ployees elective deferrals under a cash or deferred companies with law enforcement.Illicit actors may
arrangement, such as a 401(k) plan. Employers, however, abuse legal entities to commit financial crimes, includ-
are not required to report amounts that they contribute ing laundering criminal proceeds and financing terrorism
to an employees retirement plan accounts. The proposal through the international banking system. Knowledge of
would require employer contributions to a defined contri- beneficial owners of an entity can help law enforcement
bution plan to be reported on Form W-2, thus providing officials identify and investigate criminals engaged in
employees with a convenient annual statement of the these activities.
amounts that are contributed on their behalf by their em- For anti-money laundering and counter-terrorism fi-
ployers under defined contribution plans and facilitating nancing (AML/CTF) purposes, the beneficial owner of a
compliance with overall contribution limits. foreign private banking account is currently defined in
Treasury regulations under Title 31 of the U.S. Code to
Improve Compliance by Businesses mean an individual who has a level of control over, or en-
titlement to, the funds or assets in the account that, as
Increase certainty with respect to worker clas- a practical matter, enables the individual(s), directly or
sification.Under current law, worker classification as indirectly, to control, manage, or direct the account. For
an employee or as a self-employed person (independent Federal tax purposes, most U.S. entities are required to
contractor) is generally based on a common-law test for obtain an EIN. A company applying for an EIN must pro-
determining whether an employment relationship exists. vide the IRS with the name of a responsible party who
Under a special provision (section 530 of the Revenue will be the IRS contact for the company. Generally, for
Act of 1978), a service recipient may treat a worker who a company that is not publicly traded, the responsible
may actually be an employee as an independent contrac- party is the person who has a level of control over, or
tor for Federal employment tax purposes if, among other entitlement to, the funds or assets in the entity that, as
things, the service recipient has a reasonable basis for a practical matter, enables the individual to directly or
treating the worker as an independent contractor. If a indirectly control, manage, or direct the entity and the
service recipient meets the requirements of this special disposition of its funds or assets. Because this definition
provision with respect to a class of workers, the IRS is is similar to the AML/CTF definition of beneficial owner,
prohibited from reclassifying the workers as employees, the responsible party of an entity for Federal tax purpos-
even prospectively. The special provision also prohibits es will generally be considered a beneficial owner of an
the IRS from issuing generally applicable guidance about account nominally owned by the entity for AML/CTF pur-
the proper classification of workers. The Administration poses. Although this responsible party information may
proposes to permit the IRS to issue generally applicable be useful to law enforcement when investigating financial
guidance about the proper classification of workers and crimes, under current law it cannot be shared with law
to permit the IRS to require prospective reclassification enforcement officials without a court order.
of workers who are currently misclassified and whose re- The proposal would allow the Secretary of the Treasury
classification is prohibited under the special provision. or his delegate to share responsible party information
Penalties would be waived for service recipients with with law enforcement without a court order to combat
only a small number of employees and a small number money laundering, terrorist financing, and other financial
of misclassified workers, if the service recipient had con- crimes. Such sharing would advance criminal investiga-
sistently filed all required information returns reporting tions and successful prosecution, and assist in identifying
all payments to all misclassified workers and the service criminal proceeds and assets. In addition, the proposal
recipient agreed to prospective reclassification of misclas- would require all companies formed in the United States
sified workers. It is anticipated that after enactment, new to obtain an EIN, which would provide a universal identi-
enforcement activity would focus mainly on obtaining the fier for these companies and ensure that responsible party
proper worker classification prospectively, since in many information is provided for every U.S. entity. Further, the
cases the proper classification of workers may not be clear. proposal would provide the Secretary of the Treasury
Increase information sharing to administer ex- with the authority to impose AML/CTF obligations on
cise taxes.Current law allows the IRS and the Alcohol persons in the business of forming companies. Finally,
and Tobacco Tax and Trade Bureau to disclose specific the proposal would establish standards that States would
items of tax return information to permit the effective be encouraged to adopt to improve their regulation and
administration of excise taxes. This disclosure provision oversight of the incorporation process.
is too narrow and prevents effective administration and
Strengthen Tax Administration to amend the charitable contribution deduction provision

to prohibit a deduction for any contribution of a partial
Modify the conservation easement deduction and interest in property that is, or is intended to be, used as
pilot a conservation credit.A deduction is generally a golf course.
available for charitable contributions of cash and prop- Third, concerns have been raised that the deduction
erty. In general, no charitable deduction is allowed for a amounts claimed for contributions of conservation ease-
contribution of a partial interest in property. An excep- ments for historic preservation are excessive and may
tion to this rule allows a donor to deduct the value of a not appropriately take into account existing limitations
conservation easement (a partial interest) that is donat- on the property. The Administration proposes to disal-
ed to a qualified charitable organization exclusively for low a deduction for any value associated with forgone
conservation purposes, including the preservation of rec- upward development above an historic building. The
reational outdoor spaces and certain certified historical Administration also proposes to require contributions
structures. The value of the deduction for any contribu- of conservation easements on all historic buildings, in-
tion that produces a return benefit to the donor must be cluding those listed in the National Register of Historic
reduced by the value of the benefit received. Special rules Places, to comply with a 2006 amendment that requires
raise the usual contribution base limitations for gifts of contributions of historic preservation easements on build-
conservation easements, allowing individuals to deduct ings in registered historic districts to comply with special
up to 50 percent of their contribution base (generally, ad- rules relating to the preservation of the entire exterior
justed gross income computed without regard to the net of the building and the documentation of the easement
operating loss carryback) and allowing qualified farmers contribution.
and ranchers to deduct up to 100 percent of their con- Fourth, the Administration proposes to pilot a
tribution base. Certain corporate farmers and ranchers non-refundable credit of $100 million per year for con-
can deduct the value of contributions of property used in servation easement contributions as an alternative to
agriculture or livestock production (and restricted so as to the current deduction. (This credit amount is for the
remain available for such production) up to 100 percent pilot program only. If successful, a full replacement
of taxable income. Additionally, these donors can deduct of the deduction with a conservation easement credit
any remaining value of the donated easement over the of $475 million per year, indexed for inflation, is es-
succeeding 15 years. timated to be revenue neutral.) The credits would be
The Administration proposes the following modifica- allocated by a Federal board to qualified charitable or-
tions to the conservation easement deduction, effective for ganizations and govern-mental entities that hold and
contributions made after the date of enactment, unless enforce conservation easements. These conservation
otherwise stated. First, to address concerns regarding organizations would in turn allocate the credits to do-
abusive uses of this deduction and to promote effective, nors of conservation easements. Donors would receive
high-value conservation efforts, the Administration pro- up to a maximum of 50 percent of the fair market value
poses to strengthen standards for organizations to qualify of the contributed easement in credits and could use
to receive deductible contributions of conservation ease- the credits to offset up to 100 percent of their income
ments; modify the definition of eligible conservation tax liability. Any unused credit amounts could be car-
purpose and require that, prior to taking a deduction, ried forward for up to 15 years. Under the proposal,
donors of conservation easements establish that the ease- donors would have enhanced incentives to contribute
ment furthers a clearly delineated Federal conservation because the value of the credits is not limited to the
policy or an authorized State or tribal government policy donors tax rate, and there would be fewer regulatory
and will yield a significant public benefit; require that requirements and restrictions on taking the credit.
organizations receiving deductible contributions of ease- Qualified conservation organizations would have flex-
ments acknowledge the Federal conservation purposes ibility to direct the credits toward easements with
served and public benefits yielded by the easement and greatest conservation value and to utilize their credit
attest that the fair market value of the easement reported allocation to maximize the conservation achieved in
by the donor to the IRS is not inaccurate; penalize orga- exchange for the tax benefits. Finally, the costs of tax
nizations that attest to values that they know (or should administration could be reduced because conservation
know) are substantially overstated or for receiving con- organizations, rather than donors, would determine
tributions that do not serve a conservation purpose; and the value of easements and be responsible for allocat-
require additional reporting by organizations receiving ing the tax benefits to donors of valuable easements,
deductible contributions of conservation easements, in- eliminating much of the need for IRS enforcement ac-
cluding information about the contributed easements and tivity to challenge overvalued easements deductions.
their fair market values. Verification of donor compliance would be simplified as
Second, contributions of easements on golf courses have well, as regulatory requirements on donors necessary
raised concerns that the deduction amounts claimed for to support significant IRS examination activity of de-
such easements are excessive and that the conservation ductions would no longer be needed for the credit. The
easement deduction is not narrowly tailored to promote proposal also calls for a report to the Congress from
only bona fide conservation activities, as opposed to the the Department of the Treasury in collaboration with
private interests of donors. The Administration proposes the Department of Agriculture and the Department of
the Interior on the relative merits of the conservation In 2006, a provision was enacted to require taxpayers to
credit and the deduction for conservation contributions, make certain nonrefundable payments with any initial of-
including an assessment of the conservation benefits fer-in-compromise of a tax case. Requiring nonrefundable
and costs of conservation of both tax benefits. payments with an offer-in-compromise may substan-
Impose liability on shareholders to collect unpaid tially reduce access to the offer-in-compromise program.
income taxes of applicable corporations.Certain Reducing access to the offer-in-compromise program
shareholders, corporate officers and directors, and their makes it more difficult and costly for the IRS to obtain the
advisors have engaged in Intermediary Transaction Tax collectable portion of existing tax liabilities. Accordingly,
Shelters. In a typical case, an intermediary entity pur- the Administration proposes eliminating the requirement
portedly purchases the shareholders stock, either after or that an initial offer-in-compromise include a nonrefund-
shortly before the corporation sells its assets. The cash able payment of any portion of the taxpayers offer. The
from the asset sale effectively finances the purchase of proposal would be effective for offers-in-compromise sub-
the shareholders stock and no assets are left to pay the mitted after the date of enactment.
corporate tax liability. Existing law does not adequately Make repeated willful failure to file a tax return
protect the Federal Governments interest in collecting a felony.Current law provides that willful failure to file
the amounts due from selling shareholders as a result a tax return is a misdemeanor punishable by a term of
of these transactions. The Administration therefore pro- imprisonment for not more than one year, a fine of not
poses to add a new section to the Internal Revenue Code more than $25,000 ($100,000 in the case of a corpora-
that would impose on the shareholders who sell stock of tion), or both. The Administration would modify this rule
an applicable C corporation secondary liability (without such that any person who willfully fails to file tax returns
resort to any State law) for payment of such corporations in any three years within any period of five consecutive
unpaid corporate taxes. Shareholders would be liable to years, if the aggregate tax liability for such period is at
the extent they received proceeds, directly or indirectly, least $50,000, would be subject to a new aggravated fail-
for their shares in an applicable C corporation. This pro- ure to file criminal penalty. The proposal would classify
posal would be effective for sales of stock of applicable C such failure as a felony and, upon conviction, impose a
corporations occurring on or after April 10, 2013. term of imprisonment for not more than five years, a fine
Implement a program integrity statutory cap ad- of not more than $250,000 ($500,000 in the case of a cor-
justment for tax administration.The Administration poration), or both. The proposal would be effective for
proposes an adjustment to the discretionary spending returns required to be filed after December 31, 2016.
limits, as established in the BBEDCA, as amended, for Facilitate tax compliance with local jurisdic-
IRS tax enforcement, compliance, and related activities, tions.Although Federal tax returns and return
including tax administration activities at the Alcohol information (FTI) generally are confidential, the IRS and
and Tobacco Tax and Trade Bureau (TTB). In general, Department of the Treasury may share FTI with States
such cap adjustments help protect increases above a base as well as certain local government entities that are treat-
level for activities that generate benefits that exceed ed as States for this purpose. IRS and Department of the
programmatic costs. The proposed fiscal year 2017 cap Treasury compliance activity, especially with respect to
adjustment for the IRS and TTB will fund $515 million in alcohol, tobacco, and fuel excise taxes, may necessitate
enforcement and compliance initiatives and investments information sharing with Indian Tribal Governments
above current levels of enforcement and compliance ac- (ITGs). The Administrations proposal would specify that
tivity. Beyond 2017, the Administration proposes further ITGs that impose alcohol, tobacco, or fuel excise taxes, or
increases in additional new tax enforcement initiatives income or wage taxes, would be treated as States for pur-
each fiscal year from 2018 through 2021 and to sustain all poses of information sharing to the extent necessary for
of the new initiatives plus inflationary costs via adjust- ITG tax administration. The ITG that receives FTI would
ments through fiscal year 2026. The total cost of starting be required to safeguard it according to prescribed proto-
and sustaining the new initiatives above current levels of cols. The proposal would be effective for disclosures made
enforcement and compliance activity would be $18 billion after enactment.
over the 10-year budget window, and is estimated to gen- Improve investigative disclosure statute.
erate an additional $64 billion in revenue over that same Generally, tax return information is confidential, unless
period for a net savings of $46 billion. These resources a specific exception in the Internal Revenue Code applies.
will help the IRS and TTB continue to work on closing the In the case of tax administration, the Internal Revenue
tax gap, defined as the difference between taxes owed and Code permits the Department of the Treasury and IRS
those paid on time and estimated at $450 billion in 2006. officers and employees to disclose return information to
Enforcement funds provided through the 2017 cap adjust- the extent necessary to obtain information not otherwise
ment will continue to target international tax compliance reasonably available, in the course of an audit or inves-
and restore previously reduced enforcement levels. tigation, as prescribed by regulation. Department of the
Revise offer-in-compromise application rules. Treasury regulations effective since 2003 state that the
Current law provides that the IRS may compromise term necessary in this context does not mean essential
with a taxpayer to settle any civil or criminal case aris- or indispensable, but rather appropriate and helpful in
ing under the Internal Revenue Code prior to a referral obtaining the information sought. Determining if an in-
to the Department of Justice for prosecution or defense. vestigative disclosure is necessary is inherently factual,
leading to inconsistent opinions by the courts. Eliminating Treasury and the IRS issue final regulations addressing
this uncertainty from the statute would facilitate investi- correctable errors.
gations by IRS officers and employees, while setting forth Enhance electronic filing of returns.Generally,
clear guidance for taxpayers, thus enhancing compliance regulations may require businesses and tax-exempt or-
with the Internal Revenue Code. The Administration pro- ganizations that file at least 250 returns and information
poses to clarify the taxpayer privacy law by stating that returns during the calendar year to file electronically
it does not prohibit Department of the Treasury and IRS (e-File). Partnerships with more than 100 partners are
officers and employees from identifying themselves, their required to e-File, regardless of how many returns they
organizational affiliation, and the nature and subject of an file. A tax return preparer that expects to file more than
investigation, when contacting third parties in connection 10 individual income tax returns (Forms 1040 and 1041)
with a civil or criminal tax investigation. The proposal is generally required to e-File these tax returns. Certain
would be effective for disclosures made after enactment. pension plans are required to electronically file certain
Allow the IRS to absorb credit and debit card pro- information with the Department of Labor, which shares
cessing fees for certain tax payments.Taxpayers the information with the IRS. However, certain tax-only
may make credit or debit card payments by phone information is not required to be e-filed to the IRS. The
through IRS-designated third-party service providers, proposal would strengthen the requirements for entities
who charge taxpayers a convenience fee for processing to e-File, expand the preparer e-File mandate for individ-
the payment over and above the taxes due. Under cur- ual returns to apply to entity returns, require scannable
rent law, if the IRS were to accept credit or debit card codes on paper returns prepared using software, expand
payments directly from taxpayers, the IRS would be pro- regulatory authority related to information returns, and
hibited from absorbing credit and debit card processing add a specific penalty for failure to e-File when required
fees. The Administration recognizes that it is inefficient to do so. Regulatory authority would be expanded to allow
for both the IRS and taxpayers to require credit and debit reduction of the 250-return threshold for certain other in-
card payments to be made through a third-party service formation returns and disclosure of returns electronically
provider, and that charging an additional convenience fee filed by tax-exempt organizations would be required to be
increases taxpayers costs. The proposal would permit the in a machine readable format. The proposal would gener-
IRS to accept credit and debit card payments directly from ally be effective for taxable years beginning after the date
taxpayers and to absorb the credit and debit card process- of enactment, with transition relief available for certain
ing fees, but only in situations authorized by regulations. taxpayers.
The proposal would be effective for payments made after Improve the whistleblower program.Under cur-
the date of enactment. rent law, the Internal Revenue Code does not protect
Provide the IRS with greater flexibility to ad- whistleblowers from retaliatory actions; therefore, po-
dress correctable errors.The IRS may correct certain tential whistleblowers may be discouraged from filing
mathematical or clerical errors made on tax returns to claims with the IRS. The Administration proposes to
reflect the taxpayers correct tax liability without fol- amend the Internal Revenue Code to protect whistleblow-
lowing the regular deficiency procedures (this authority ers from retaliation, which should incentivize potential
is generally referred to as math error authority). The whistleblowers to file claims and increase the tax admin-
Internal Revenue Code specifically identifies a list of cir- istration benefit of the whistleblower program. The IRS
cumstances where the IRS has math error authority. The Whistleblower Office may disclose tax return informa-
Administration proposes to remove the existing specific tion, which is generally confidential, to whistleblowers
grants of math error authority, and provide that math er- and their legal representatives as part of a whistleblower
ror authority will refer only to computational errors and administrative proceeding. Although whistleblowers and
the incorrect use of any table provided by the IRS. In ad- their legal representatives must sign a confidentiality
dition, the proposal will add a new category of correctable agreement before tax return information is shared, the
errors. Under this new category, the Department of the statutory prohibitions on redisclosure of tax return in-
Treasury would have regulatory authority to permit the formation and safeguarding requirements do not apply.
IRS to correct errors in cases where: (1) the information The Administration proposes to amend the whistleblower
provided by the taxpayer does not match the information rules to explicitly protect whistleblowers from retaliatory
contained in government databases; (2) the taxpayer has actions, consistent with the protections currently avail-
exceeded the lifetime limit for claiming a deduction or able to whistleblowers under the False Claims Act. In
credit; or (3) the taxpayer has failed to include with his addition, the Administration proposes to amend the tax-
or her return documentation that is required by statute. payer information protections to extend the safeguarding
The proposal would increase efficiency by eliminating the requirements and prohibition on redisclosure of tax
need to enact legislation specifically extending math error return information to whistleblowers and their legal rep-
authority to the IRS on a case-by-case basis, and would resentatives. In addition, the Administration proposes
promote the efficient use of IRS and taxpayer resources. to extend penalties for unauthorized redisclosure of tax
The proposal would be effective on the date of enactment. return information to whistleblowers and their legal rep-
However, the IRS current grant of math error author- resentatives. This proposal will improve the efficiency
ity would continue to apply until the Department of the of the whistleblower award determination proceedings,
while increasing the protection available to taxpayers. reported, and the due date for filing information returns
The proposal would be effective upon enactment. with IRS is generally extended until March 31 if the
Index all civil tax penalties for inflation. returns are filed electronically. Recent legislation accel-
Currently, the amount of a tax penalty that is a set dollar erated the filing due date for Forms W-2, W-3, and returns
amount is established when the penalty is added to the and statements reporting nonemployee compensation to
Internal Revenue Code and is only increased by amend- January 31 and eliminated the March 31 electronic fil-
ments to the Internal Revenue Code. As a result, under ing due date for these forms. The IRS uses third-party
current practices, the amount of the penalty is often not information to determine a taxpayers compliance with
increased until significant time has passed and the pen- Federal tax obligations and therefore accelerating the
alty amount is too low to continue serving as an effective IRS receipt of third-party information will facilitate de-
deterrent. The Administration proposes to index all pen- tection of non-compliance earlier in the filing season. The
alties for inflation and round the indexed amount to the Administration proposes to accelerate the date for filing
next hundred dollars. This proposal would increase the most information returns (other than Forms W-2, W-3,
penalty regimes effectiveness in deterring negative be- and returns reporting nonemployee compensation) with
havior and would increase efficiency by eliminating the the IRS to January 31 and eliminate the extended due
need to enact increases to individual penalties. While date for electronically filed returns for these forms. The
recent amendments to the Internal Revenue Code index proposal would be effective for returns required to be filed
select penalty provisions to inflation and resolve these after December 31, 2016.
issues for those few penalties, a more comprehensive ap- Increase oversight of paid tax return preparers.
proach is needed to achieve increased effectiveness and Paid tax return preparers have an important role in tax
efficiency of tax penalties. The proposal would be effec- administration because they assist taxpayers in comply-
tive upon enactment. ing with their obligations under the tax laws. Incompetent
Combat tax-related identity theft.Tax refund-re- and dishonest tax return preparers increase collection
lated identity theft has expanded exponentially in recent costs, reduce revenues, disadvantage taxpayers by poten-
years. The Aggravated Identity Theft Statute contains a tially subjecting them to penalties and interest as a result
list of felony violations that constitute predicate offenses of incorrect returns, and undermine confidence in the tax
for aggravated identity theft but the list does not current- system. To promote high quality services from paid tax
ly include any tax offenses. The Administration proposes return preparers, the proposal would explicitly provide
to add tax-related offenses to the list of predicate offenses that the Secretary of the Treasury has the authority to
contained in the Aggravated Identity Theft Statute. The regulate all paid tax return preparers. This proposal
Administration also proposes to impose a $5,000 civil would be effective on or after the date of enactment.
penalty (indexed) in tax identity theft cases. The proposal Enhance administrability of the appraiser pen-
would be effective upon enactment. alty.Current law imposes a penalty on preparers of
Allow States to send notices of intent to offset appraisals that result in a substantial or gross valuation
Federal tax refunds to collect State tax obligations misstatement. There is an exception to the penalty if the
by regular first-class mail instead of certified mail. value in the appraisal is more likely than not the proper
Under current law, the Department of the Treasury, value. Valuations of property are generally provided as
Bureau of Fiscal Service, may offset Federal tax refunds a specific value or a range of values that are applicable,
to collect delinquent State income tax obligations only not as a value that is more likely than not the proper
after the State sends the delinquent debtor a notice by value. Further, there is no coordination between this pen-
certified mail. With respect to all other types of debts, alty and the preparer understatement penalty in cases
including Federal nontax, child support, and State un- where the person providing the appraisal is also treated
employment insurance compensation debts, the statute as a paid tax return preparer with respect to the position
is silent as to the notice delivery method. However, the on the return or claim for refund relying on the valuation
regulations require that for all debts other than State in- in the appraisal. The proposal would increase adminis-
come tax obligations, Federal and State creditor agencies trability of the appraiser penalty by replacing the existing
send notices by regular first class mail. Similarly, notice more likely than not exception with a reasonable cause
requirements for other debt collection actions, including exception. In addition, under the proposal, an appraiser
administrative wage garnishment, do not require delivery would not be subject to both penalties for the same con-
by certified mail. The Administrations proposal would duct. The proposal would be effective for returns required
remove the statutory requirement to use certified mail, to be filed after December 31, 2016.
thereby allowing States to send notices for delinquent Enhance UI program integrity.The Administration
State income tax obligations by first class mail, saving proposes a broad package of proposals aimed at improving
States certified mail costs and standardizing notice proce- the integrity of the UI program. Included in this package
dures across debt types. The proposal would be effective are proposals to: allow for data disclosure to contractors
upon enactment. for the Treasury Offset Program; expand State use of the
Accelerate information return filing due dates. Separation Information Data Exchange System (SIDES),
Under current law, many information returns are which already improves program integrity by allowing
required to be filed with the IRS by February 28 of the States and employers to exchange information on reasons
year following the year for which the information is being for a claimants separation from employment and thereby
helping States to determine UI eligibility; mandate the foundation. To simplify the tax laws and encourage in-
use of the National Directory of New Hires to conduct creased charitable activity, the Administration proposes
cross-matches for program integrity purposes; allow the to replace the two rates of tax on the net investment in-
Secretary to set corrective action measures for poor State come of private foundations that are exempt from Federal
performance; require States to cross-match claimants income tax with a single tax rate of 1.35 percent. The ex-
against the Prisoner Update Processing System (PUPS), cise tax on private foundations not exempt from Federal
which is currently used by some States; and allow States income tax would be equal to the excess of the sum of the
to retain five percent of overpayment and tax investiga- 1.35-percent excise tax that would have been imposed if
tion recoveries to fund program integrity activities. In the foundation were tax exempt and the amount of the
general, these proposals will reduce UI benefit payments, unrelated business income tax that would have been im-
thereby reducing State UI taxes. posed if the foundation were tax exempt, over the income
Request a program integrity cap adjustment for tax imposed on the foundation. The proposed change
the RESEA program.The Administration proposes would be effective for taxable years beginning after the
a program integrity cap adjustment for 2017 to fund date of enactment.
RESEAs for approximately one-third of claimants identi- Simplify arbitrage investment restrictions.
fied as most likely to exhaust benefits. These assessments Current law arbitrage investment restrictions imposed
and supplemental services help ensure that benefits go on investments of tax-exempt bond proceeds create un-
only to eligible claimants and that they get the services necessary complexity and compliance burdens for State
they need to return to work. In general, reduced outlays and local governments. These restrictions generally lim-
allow States to keep UI taxes lower, reducing overall reit investment returns that exceed the effective interest
ceipts to the UI trust funds. rate on the tax-exempt bonds. One type of restriction,
called yield restriction, limits arbitrage earnings in the
SIMPLIFY THE TAX SYSTEM first instance, and the second type of restriction, called
rebate, requires repayment of arbitrage earnings to the
Modify adoption credit to allow tribal determi- Federal Government at periodic intervals. The two types
nation of special needs.Current law allows a more of arbitrage restrictions are duplicative and overlapping
generous credit for the adoption of children with special and they address the same tax policy goal to limit arbi-
needs. To claim this credit, a State must have made a trage profit incentives for excess use of tax-exempt bonds.
determination that the child has special needs. Like The Administration proposes to simplify the arbitrage
States, many ITGs facilitate adoptions involving special investment restrictions on tax-exempt bonds in several
needs children; however, currently, a tribe is not permit- respects. First, the Administration proposes to unify
ted to make the determination of special needs. The the arbitrage restrictions to rely primarily on the rebate
Administration proposes to allow ITGs to make this de- requirement and to repeal yield restriction in most cir-
termination, effective for taxable years beginning after cumstances. Second, recognizing that limited arbitrage
December 31, 2016. potential exists if issuers spend bond proceeds fairly
Repeal non-qualified preferred stock designa- promptly, the Administration proposes a streamlined
tion.In 1997, a provision was added to the Internal broad three-year prompt spending exception to the arbi-
Revenue Code that treats as taxable boot the receipt of trage rebate requirement on tax-exempt bonds. Finally,
certain types of preferred stock known as non-qualified recognizing the particular compliance burdens for small
preferred stock (NQPS), where NQPS is issued in a cor- issuers, the Administration proposes to increase the small
porate organization or reorganization exchange. Since issuer exception to the arbitrage rebate requirement from
enactment, taxpayers have often exploited the hybrid $5 million to $10 million, index the size limit for infla-
nature of NQPS, issuing NQPS in transactions that are tion, and remove the general taxing power constraint on
inconsistent with the purpose of the 1997 provision. The small issuer eligibility. The proposal would be effective
Administration proposes to repeal the NQPS designation, for bonds issued after the date of enactment.
and no longer treat the receipt of such stock as taxable Simplify single-family housing mortgage bond
boot. The proposal would be effective for stock issued af- targeting requirements.Current law allows use of
ter December 31, 2016. tax-exempt private activity bonds to finance qualified
Reform excise tax based on investment income mortgages for single-family residences, subject to a num-
of private foundations.Under current law, private ber of targeting requirements, including, among others:
foundations that are exempt from Federal income tax are (1) a mortgagor income limitation (generally not more
subject to a two-percent excise tax on their net invest- than 115 percent of applicable median family income, in-
ment income (one-percent if certain requirements are creased to 140 percent of such income for certain targeted
met). The excise tax on private foundations that are not areas, and also increased for certain high-cost areas); (2)
exempt from Federal income tax, such as certain chari- a purchase price limitation (generally not more than 90
table trusts, is equal to the excess of the sum of the excise percent of average area purchase prices, increased to 110
tax that would have been imposed if the foundation were percent in targeted areas); (3) a refinancing limitation
tax exempt and the amount of the unrelated business (generally permitting only new mortgages for first-time
income tax that would have been imposed if the founda- homebuyers); and (4) a targeted area availability re-
tion were tax exempt, over the income tax imposed on the quirement. The Administration proposes to simplify the
targeting requirements for tax-exempt qualified mortgage potential application. The Administration proposes elimi-
bonds by repealing the purchase price limitation and the nating the anti-churning rules effective for acquisitions
refinancing limitation. This proposal would be effective after December 31, 2016.
for bonds issued after the date of enactment. Repeal special estimated tax payment provision
Streamline private activity limits on governmental for certain insurance companies.The deductible un-
bonds.Tax-exempt bonds issued by State and local gov- paid loss reserves of insurance companies are required
ernments are treated as governmental bonds if the issuer to be computed on a discounted basis to reflect the time
limits private business use and other private involvement value of money. However, a taxpayer may elect to deduct
sufficiently to avoid treatment as private activity bonds. an additional amount equal to the difference between
Bonds generally are classified as private activity bonds discounted and undiscounted reserves, if it also makes a
under a two-part test if more than 10 percent of the bond special estimated tax payment equal to the tax benefit
proceeds are both: (1) used for private business use; and (2) attributable to the extra deduction. The special estimat-
payable or secured from property or payments derived from ed tax payments are applied against the companys tax
private business use. Additional restrictions further reduce liability in future years as reserves are released. This
permitted private involvement for governmental bonds in provision requires complex record keeping yet, by design,
several ways, including the following: a five percent unrelat- is approximately revenue neutral. The Administration
ed or disproportionate private business limit; a $15 million proposes to repeal the provision effective for taxable years
cap on private business involvement for governmental out- beginning after December 31, 2016.
put facilities (e.g., electric and gas facilities); and a separate Repeal the telephone excise tax.Current law
private loan limit for the lesser of five percent or $5 million imposes a three-percent excise tax on amounts paid for
of bond proceeds. These additional restrictions are unduly taxable communications services, which include local
complex and increase compliance burdens for State and local telephone service and toll telephone service. Local tele-
governments. The general 10-percent private involvement phone service is defined as access to a local telephone
limit and the bond volume cap requirement for larger gov- system and the privilege of telephonic communication
ernmental bond issues transactions with over $15 million with substantially all persons having telephones in the
in private involvement represent sufficient and workable local system. Taxpayers are no longer required to pay tax
boundaries for private involvement for governmental bonds. on similar services, such as plans that provide bundled
The Administration proposes to streamline these limits on local and long distance service for either a flat monthly
governmental bonds by repealing the five-percent unrelated fee or a charge that varies with the elapsed transmission
or disproportionate private business limit and the $15 mil- time for which the service is used. As a result, the only
lion private business cap on output facilities. As an overall communications services that remain subject to the tax
constraint, the Administration proposes to modify the bond are purely local telephone services, of which the poor and
volume cap requirement for private involvement over $15 the elderly are the primary users. The Administration
million in larger governmental bond issues and apply the proposes to repeal the tax on these services. The proposal
modified cap to both private business use and private loans. would be effective for amounts paid pursuant to bills first
This proposal would be effective for bonds issued after the rendered more than 90 days after the date of enactment.
date of enactment. Increase the standard mileage rate for automo-
Repeal technical terminations of partnerships. bile use by volunteers.Under current law, volunteers
A partnership will terminate when 50 percent or more may take a charitable contribution deduction for the use
of the total interest in partnership capital and profits is of their car in the service of charitable organizations at a
sold or exchanged within a 12-month period. This is re- standard mileage rate of 14 cents per mile driven. This
ferred to as a technical termination. This provision is a rate is set by statute and is not indexed for inflation; it
holdover that addressed the notion common under prior was last increased in 1997. The Administration proposes
State laws that tied the identity of a partnership to its to harmonize the standard mileage rate for the charitable
partners. As this view of partnerships has evolved, the contribution deduction with the rate for miles driven for
utility of the provision has essentially been eliminated, purposes of the medical and moving expense deductions,
and it is now primarily a trap for unwary taxpayers. The which are set annually by the IRS to cover the estimated
Administration proposes eliminating technical termina- variable costs of operating an automobile. The proposal
tions effective for transfers after December 31, 2016. would be effective for contributions made in taxable years
Repeal anti-churning rules of section 197. beginning after December 31, 2016.
Section 197 of the Internal Revenue Code was enacted Consolidate contribution limitations for chari-
in 1993 to allow amortization of certain intangibles (such table deductions and extend the carryforward
as goodwill and going concern value) that had not been period for excess charitable contribution deduction
amortizable under prior law. Anti-churning rules were amounts.The income tax system limits the amount of
enacted at that time to prevent taxpayers from engag- charitable contribution deductions a donor may claim to
ing in transactions with related parties soon after the a share of the donors contribution base (the taxpayers
enactment of section 197 solely to generate amortizable adjusted gross income computed without regard to any
basis. Because it has been 20 years since the enactment net operating loss carryback for the taxable year). An in-
of section 197, the anti-churning rules are no longer nec- dividual taxpayer may generally deduct up to 50 percent
essary, and the complexity of the provision outweighs the of his contribution base for contributions of cash to public
charities, and up to 30 percent for cash contributions to effective date of the proposal, or the date on which the
most private foundations. An individual taxpayer may individual learns that he or she is a U.S. citizen.
generally deduct up to 30 percent of his contribution base
for contributions of appreciated capital gain property to USER FEES
public charities, and up to 20 percent to most private
foundations. Finally, an individual taxpayer may deduct Reform inland waterways funding.The
up to 20 percent of his contribution base for contribu- Administration proposes legislation to reform the laws
tions of capital gain property for the use of a charitable governing the Inland Waterways Trust Fund, includ-
organization. Charitable contributions made to an orga- ing establishing an annual per vessel fee to increase the
nization exceeding these limits may generally be carried amount paid by commercial navigation users of the inland
forward to be deducted in the subsequent five years. waterways. In 1986, the Congress provided that commer-
Special rules apply for contributions of conservation ease- cial traffic on the inland waterways would be responsible
ments. The proposal would simplify this complicated for 50 percent of the capital costs of the locks, dams, and
set of rules regarding deductions of charitable contribu- other features that make barge transportation possible on
tions by individual taxpayers. Under the proposal, the the inland waterways. The additional revenue would help
general contribution base limit would remain at 50 per- finance future capital investments in these waterways,
cent for contributions of cash to public charities. For all as well as 25 percent of the operation and maintenance
other contributions (except contributions of conservation costs, to support economic growth. The current excise tax
easements), a single deduction limit of 30 percent of the on diesel fuel used in inland waterways commerce, which
taxpayers contribution base would apply, irrespective of was recently increased to 29 cents per gallon, will not pro-
the type of property donated, the type of organization reduce the revenue needed to cover these costs.
ceiving the donation, and whether the contribution is to or Reauthorize special assessment on domestic
for the use of the organization. In addition, the proposal nuclear utilities. Established in 1992, the Uranium
would extend the carry-forward period for contributions Enrichment Decontamination and Decommissioning
in excess of these limitations from 5 to 15 years. The pro- Fund pays, subject to appropriation, the decontamina-
posal would be effective for contributions made in taxable tion and decommissioning costs of the Department of
years beginning after December 31, 2016. Energys gaseous diffusion plants in Tennessee, Ohio, and
Exclude from gross income subsidies from public Kentucky. The Administration proposes to reauthorize
utilities for purchase of water runoff management. the special assessment on domestic nuclear utilities, for
Under current law, subsidies for water conservation and deposit in the Uranium Enrichment Decontamination
stormwater management must be included by individu- and Decommissioning Fund due to higher-than-ex-
als in reported income. The Administration proposes to pected cleanup costs. In addition, the Administration
exclude from gross income for individuals the value of any proposes to authorize the use of balances in the United
subsidy provided by a public utility for the purchase of any States Enrichment Corporation Fund for the same pur-
water conservation measure or stormwater management pose as the Uranium Enrichment Decontamination and
measure. The term water conservation measure means Decommissioning Fund. The reauthorization of the
any installation, modification, or water-use evaluation special assessment on domestic nuclear utilities will
primarily designed to reduce consumption of water or to also offset the cost of the United States Enrichment
improve the management of water demand with respect Corporation Fund proposal.
to a dwelling unit. The term stormwater management Establish user fee for the Electronic Visa Update
measure means any installation or modification of prop- System (EVUS).The Administration proposes to estab-
erty to offset or safely manage the amounts of stormwater lish a user fee for EVUS, a new U.S. Customs and Border
runoff associated with a dwelling unit. The term public Protection (CBP) program to collect biographic and trav-
utility means an entity engaged in the sale of water to el-related information from certain non-immigrant visa
customers and includes the Federal government or a state holders prior to traveling to the United States. This pro-
or local government. cess will complement existing visa application process
Provide relief for certain accidental dual citi- and enhance CBPs ability to make pre-travel admissibil-
zens.Individuals who became at birth both a citizen of ity and risk determinations. CBP proposes to establish a
the United States and a citizen of another country may user fee to fund the costs of establishing, providing, and
not have learned until recently that they are U.S. citizens administering the system.
subject to U.S. Federal income tax on their worldwide in-
come, even though they may have had minimal contacts TRADE INITIATIVES
with the United States. Some of these individuals would
like to relinquish their U.S. citizenship (i.e., expatriate), Enact the Trans-Pacific Partnership (TPP) Trade
but doing so would require them to pay significant U.S. Agreement.TPP, negotiated between the United States
tax under current law. The Administrations proposal and 11 countries in the Asia-Pacific region, levels the
would provide relief from these U.S. tax obligations for playing field for U.S. workers, farmers, ranchers, small
certain individuals who relinquish their U.S. citizenship business owners, and manufacturers by eliminating more
within two years after the later of January 1, 2017, the than 18,000 taxes and other trade barriers on American
goods. The Agreement also includes groundbreaking, en-
forceable labor and environmental provisions. Overall, the growth of non-corporate businesses, especially in the
TPP will strengthen strategic relationships with the service sector, the current limitation on BEAs access to
Nations partners and allies in a region that will be vital corporate FTI impedes the measurement of income and
to the 21st century while creating higher-paying jobs for international transactions in the National Accounts. The
middle-class families at home. Administration proposes to give officers and employees
of BEA and BLS access to certain FTI of corporate and
OTHER INITIATIVES non-corporate businesses. Additionally, for the purpose
of synchronizing BLS and Census Bureau business lists,
Allow offset of Federal income tax refunds to col- the proposal would permit employees of State agencies
lect delinquent State income taxes for out-of-state to receive certain business FTI from BLS. No BEA, BLS,
residents.Under current law, Federal tax refunds may or State agency contractor would have access to FTI.
be offset to collect delinquent State income tax obliga- Additionally, the Census Bureau, BEA, BLS, and the State
tions, but only if the delinquent taxpayer resides in the agencies would be subject to the confidentiality safeguard
State collecting the tax. The Administration proposes procedures in the Confidential Information Protection
to allow Federal tax refunds to be offset to collect delin- and Statistical Efficiency Act, as well as taxpayer privacy
quent State tax obligations regardless of where the debtor law and related safeguards and penalties. The proposal
resides. The proposal would be effective on the date of would be effective upon enactment.
enactment. Eliminate certain reviews conducted by the U.S.
Improve disclosure for child support enforce- Treasury Inspector General for Tax Administration
ment.Current law permitting disclosure of tax return (TIGTA).Under current law, TIGTA conducts reviews to
information with respect to child support enforcement comply with reporting requirements. The Administration
is complex and diffused and often crosses jurisdictional proposes to eliminate TIGTAs obligation to report in-
lines, resulting in items of tax return information that formation regarding any administrative or civil actions
may not be shared with parties that are integral to related to Fair Tax Collection Practices violations in one
child support enforcement. The inability to disclose tax of TIGTAs Semiannual Reports, review and certify annu-
return information to these parties and in these circum- ally that the IRS is complying with the requirements of
stances presents challenges to the effective operation of section 6103(e)(8) of the Internal Revenue Code regard-
child support enforcement activities. The proposal would ing information on joint filers, and annually report on the
amend section 6103(l) to: (1) consolidate the child sup- IRSs compliance with requirements that IRS employees
port enforcement disclosure rules into a single provision; stop a taxpayer interview whenever a taxpayer requests
(2) define key terms, (3) permit disclosure to parties in- to consult with a representative and to obtain their im-
tegral to child support enforcement; and (4) update and mediate supervisors approval to contact the taxpayer
streamline the items of tax return information that may instead of the representative if the representative has
be disclosed. The proposal clarifies the use of tax data for unreasonably delayed the completion of an examination
child support purposes and the safeguarding responsibili- or investigation. The proposal would revise the annual
ties of agency and agent recipients. reporting requirement for all remaining provisions in the
Authorize the limited sharing of business tax IRS Restructuring and Reform Act of 1998 to a biennial
return information to improve the accuracy of im- reporting requirement. The proposal would be effective
portant measures of the economy.Synchronization after December 31, 2016.
of business lists among the Bureau of Economic Analysis Modify indexing to prevent deflationary adjust-
(BEA), the Bureau of Labor Statistics (BLS), and the ments.Many parameters of the tax system including
Bureau of the Census (Census Bureau) would signifi- the size of personal exemptions and standard deductions,
cantly improve the consistency and quality of sensitive the width of income tax rate brackets, the amount of
economic statistics including productivity, payroll, em- other deductions and credits, and the maximum amount
ployment, and average hourly earnings. The availability of various saving and retirement deductionsmay be
of accurate economic statistics is crucial to policy makers. adjusted annually for the effects of inflation, based on
Current law authorizes IRS disclosure of certain Federal annual changes in the CPI. Under current law, if price
tax information (FTI) for governmental statistical use. levels decline, most (but not all) of the inflation adjust-
Business FTI may be disclosed to officers and employees ment provisions would permit tax parameters to become
of the Census Bureau for all businesses. Similarly, busi- smaller, so long as they do not decline to less than their
ness FTI may be disclosed to BEA officers and employees, base period values. The Administration proposes to mod-
but only for corporate businesses. Currently, BLS is not ify inflation adjustment provisions to prevent the size of
authorized to receive FTI. The Census Bureaus Business any indexed tax parameters from decreasing from the
Register is constructed using both FTI and non-tax busi- previous years levels if the underlying price index falls.
ness data derived from the Economic Census and current Subsequent inflation-related increases in the price index
economic surveys, so that under current law it is not relevant for adjusting the particular tax parameter would
possible for the Census Bureau to share data with BEA be taken into account only to the extent that the index
and BLS in any meaningful way, making synchroniz- exceeds its highest previous level. The proposal would be
ing of their business lists impossible. In addition, given effective as of the date of enactment.
IMMIGRATION REFORM deficits, and improve the solvency of Social Security. The
Administration supports the approach to immigration
Enact comprehensive immigration reform.The reform in S. 744, which passed the Senate in 2013 with
Administration proposes to enact comprehensive im- bipartisan support. The Congressional Budget Office
migration reform that strengthens the Nations border (CBO) has estimated that comprehensive immigration
security, cracks down on employers who hire undocument- reform along the lines of the Senate-passed bill would re-
ed workers, and provides a pathway to earned citizenship duce the deficit by about $170 billion in the first decade
for individuals who pay a penalty and taxes, learn English, and by nearly $1 trillion over 20 years. The 2017 Budget
pass a background check, and go to the back of the line. includes an allowance for the budget effects of immigra-
Comprehensive immigration reform will contribute to a tion reform based on the CBO cost estimate for this bill.
safer and more just society, boost economic growth, reduce
Table 122. EFFECT OF BUDGET PROPOSALS

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Elements of business tax reform:
Reform the U.S. international tax system:

Restrict deductions for excessive interest of members
of financial reporting groups ......... 2,822 4,986 5,485 6,033 6,637 7,300 8,030 8,833 9,717 10,688 25,963 70,531
Provide tax incentives for locating jobs and business
activity in the United States and remove tax
deductions for shipping jobs overseas ......... 11 18 20 20 21 22 23 24 26 26 90 211
Repeal delay in the implementation of worldwide
interest allocation ......... 1,406 2,400 2,496 2,596 1,055 ......... ......... ......... ......... ......... 9,953 9,953
Impose a 19-percent minimum tax on foreign income ......... 24,201 38,418 35,969 33,192 32,831 34,211 35,651 37,117 38,635 40,166 164,611 350,391
Impose a 14-percent one-time tax on previously
untaxed foreign income 1 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Limit shifting of income through intangible property
transfers ......... 88 167 201 237 275 315 361 413 473 542 968 3,072
Disallow the deduction for excess non-taxed
reinsurance premiums paid to affiliates ......... 411 657 697 731 771 815 848 882 918 958 3,267 7,688
Modify tax rules for dual capacity taxpayers ......... 465 814 878 930 970 992 1,032 1,074 1,121 1,359 4,057 9,635
Tax gain from the sale of a partnership interest on
look-through basis ......... 146 251 264 277 291 305 321 337 354 371 1,229 2,917
Modify sections 338(h)(16) and 902 to limit credits
when non-double taxation exists ......... 59 102 105 105 105 105 105 106 106 107 476 1,005
Close loopholes under subpart F ......... 1,517 2,635 2,821 3,019 3,230 3,453 3,692 3,945 4,215 4,501 13,222 33,028
Restrict the use of hybrid arrangements that create
stateless income ......... 115 201 215 230 247 264 283 304 326 350 1,008 2,535
Limit the ability of domestic entities to expatriate ......... 118 327 556 807 1,083 1,383 1,711 2,068 2,457 2,880 2,891 13,390
Total, reform the U.S. international tax system ......... 28,525 46,140 44,675 42,945 45,364 49,121 52,011 55,055 58,296 61,896 207,649 484,028
Simplification and tax relief for small business:

Expand expensing for small business ......... 2,101 2,863 2,072 1,625 1,335 1,132 1,009 961 971 997 9,996 15,066
Expand simplified accounting for small business and
establish a uniform definition of small business for
accounting methods ......... 6,248 4,874 2,819 1,975 1,814 1,745 1,724 1,819 1,839 1,845 17,730 26,702
Increase the limitations for deductible new business
expenditures and consolidate provisions for start-
up and organizational expenditures ......... 490 484 477 473 471 469 465 461 456 452 2,395 4,698
Expand and simplify the tax credit provided to qualified
small employers for non-elective contributions to
employee health insurance 2 10 170 163 146 131 100 118 80 60 27 14 710 1,009
Total, simplification and tax relief for small business 10 9,009 8,384 5,514 4,204 3,720 3,464 3,278 3,301 3,293 3,308 30,831 47,475
Incentives for job creation, manufacturing, research,

and clean energy:
Enhance and simplify research incentives ......... 959 1,896 2,154 2,409 2,660 2,913 3,166 3,426 3,690 3,964 10,078 27,237
Extend and modify certain employment tax credits,
including incentives for hiring veterans ......... 2 7 9 511 1,062 1,194 1,308 1,406 1,492 1,573 1,591 8,564
Provide new Manufacturing Communities tax credit ......... 97 277 483 619 693 751 788 677 417 107 2,169 4,909
Provide Community College Partnership tax credit ......... 109 277 380 406 405 273 124 96 79 64 1,577 2,213
Designate Promise Zones 2 ......... 301 610 681 829 902 836 786 752 730 723 3,323 7,150
Modify and permanently extend renewable electricity
production tax credit and investment tax credit 2 ......... 122 230 345 587 1,041 1,359 1,633 3,990 6,549 8,287 2,325 24,143
Table 122. EFFECT OF BUDGET PROPOSALSContinued

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Modify and permanently extend the deduction for
energy-efficient commercial building property ......... 159 268 281 285 283 279 277 273 270 272 1,276 2,647
Provide a carbon dioxide investment and
sequestration tax credit 2 ......... 9 34 47 48 388 709 409 791 677 338 526 3,450
Provide additional tax credits for investment in
qualified property used in a qualifying advanced
energy manufacturing project ......... 74 194 1,118 787 111 4 34 28 14 3 2,284 2,209
Extend the tax credit for second generation biofuel
production ......... 87 157 172 175 175 175 153 118 83 48 766 1,343
Provide a tax credit for the production of advanced
technology vehicles ......... 505 503 497 469 386 220 83 161 296 267 2,360 1,939
Provide a tax credit for medium- and heavy-duty
alternative-fuel commercial vehicles ......... 44 78 85 89 93 61 15 ......... ......... ......... 389 465
Modify and extend the tax credit for the construction of
energy-efficient new homes ......... 82 182 238 268 288 306 323 351 382 405 1,058 2,825
Total, incentives for job creation, manufacturing,
research, and clean energy ......... 2,550 4,713 6,490 7,482 8,487 9,080 9,031 11,691 14,059 15,511 29,722 89,094
Incentives to promote regional growth:

Modify and permanently extend the New Markets tax
credit ......... ......... ......... ......... 97 278 483 716 970 1,235 1,505 375 5,284
Reform and expand the Low-Income Housing tax
credit 1 19 99 272 512 769 1,031 1,300 1,576 1,860 2,152 1,671 9,590
Total, incentives to promote regional growth 1 19 99 272 609 1,047 1,514 2,016 2,546 3,095 3,657 2,046 14,874
Incentives for investment in infrastructure:

Provide America Fast Forward Bonds and expand
eligible uses 2 ......... 1 4 10 14 21 26 32 37 44 48 50 237
Allow current refundings of State and local
governmental bonds ......... 1 5 5 5 5 5 5 5 5 5 21 46
Repeal the $150 million non-hospital bond limitation
on all qualified 501(c)(3) bonds ......... ......... 1 3 5 7 9 11 13 16 17 16 82
Increase national limitation amount for qualified
highway or surface freight transfer facility bonds 6 28 60 93 125 153 167 163 136 96 55 459 1,076
Provide a new category of qualified private activity
bonds for infrastructure projects referred to as
qualified public infrastructure bonds ......... 27 121 258 397 534 646 698 714 728 741 1,337 4,864
Modify qualified private activity bonds for public
education facilities ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Modify treatment of banks investing in tax-exempt
bonds ......... 5 38 131 225 317 405 493 574 630 616 716 3,434
Repeal tax-exempt bond financing of professional
sports facilities ......... 3 11 23 35 47 60 72 85 97 109 119 542
Allow more flexible research arrangements for
purposes of private business use limits ......... ......... ......... ......... 1 1 1 3 3 3 4 2 16
Modify tax-exempt bonds for Indian tribal governments ......... 4 12 12 12 12 12 12 12 12 12 52 112
Total, incentives for investment in infrastructure 6 63 230 489 749 1,003 1,211 1,345 1,409 1,437 1,389 2,534 9,325
Eliminate fossil fuel tax preferences:

Treat publicly-traded partnerships for fossil fuels as C
corporations ......... ......... ......... ......... ......... ......... 201 280 295 309 323 ......... 1,408
Eliminate oil and natural gas preferences:
Repeal enhanced oil recovery credit ......... 235 559 792 979 1,070 1,049 1,011 1,010 1,038 1,060 3,635 8,803
Repeal credit for oil and natural gas produced from
marginal wells 3 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Repeal expensing of intangible drilling costs ......... 966 1,541 1,439 1,645 1,526 1,100 733 472 340 288 7,117 10,050
Repeal deduction for tertiary injectants ......... 5 8 8 8 8 8 8 8 8 8 37 77
Repeal exception to passive loss limitations
for working interests in oil and natural gas
properties ......... 9 12 12 12 11 10 10 9 9 9 56 103
Repeal percentage depletion for oil and natural gas
wells ......... 483 770 725 666 589 509 429 350 270 199 3,233 4,990
Repeal domestic manufacturing deduction for oil
and natural gas production ......... 470 836 869 901 932 962 993 1,026 1,062 1,098 4,008 9,149
Increase geological and geophysical amortization
period for independent producers to seven years ......... 54 197 307 296 235 170 103 58 47 48 1,089 1,515

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Subtotal, eliminate oil and natural gas
preferences ......... 2,222 3,923 4,152 4,507 4,371 3,808 3,287 2,933 2,774 2,710 19,175 34,687
Eliminate coal preferences:
Repeal expensing of exploration and development
costs ......... 20 35 35 33 32 30 27 25 24 24 155 285
Repeal percentage depletion for hard mineral fossil
fuels ......... 113 183 177 145 114 99 87 75 66 62 732 1,121
Repeal capital gains treatment for royalties ......... 26 52 52 52 52 52 52 52 52 52 234 494
Repeal domestic manufacturing deduction for the
production of coal and other hard mineral fossil
fuels ......... 11 20 21 22 23 24 25 26 27 28 97 227
Subtotal, eliminate coal preferences ......... 170 290 285 252 221 205 191 178 169 166 1,218 2,127
Total, eliminate fossil fuel tax preferences ......... 2,392 4,213 4,437 4,759 4,592 4,214 3,758 3,406 3,252 3,199 20,393 38,222
Reform the treatment of financial and insurance

industry products:
Require that derivative contracts be marked to market
with resulting gain or loss treated as ordinary ......... 3,674 5,415 4,347 2,743 1,665 1,124 679 466 434 405 17,844 20,952
Modify rules that apply to sales of life insurance
contracts ......... 26 44 46 48 50 54 56 58 61 63 214 506
Modify proration rules for life insurance company
general and separate accounts ......... 345 527 534 551 579 609 628 642 658 681 2,536 5,754
Expand pro rata interest expense disallowance for
corporate-owned life insurance ......... 116 232 337 457 597 753 910 1,075 1,245 1,422 1,739 7,144
Conform net operating loss (NOL) rules of life insurance
companies to those of other corporations ......... 18 28 30 31 33 35 36 38 39 41 140 329
Total, reform the treatment of financial and
insurance industry products ......... 4,179 6,246 5,294 3,830 2,924 2,575 2,309 2,279 2,437 2,612 22,473 34,685
Other business revenue changes and loophole

closers:
Repeal LIFO method of accounting for inventories ......... 5,369 7,647 8,307 8,394 8,611 8,082 8,032 8,455 9,475 8,963 38,328 81,335
Repeal lower-of-cost-or-market inventory accounting
method ......... 878 1,321 1,381 1,390 521 240 250 260 271 283 5,491 6,795
Modify like-kind exchange rules ......... 2,684 7,828 6,889 5,903 4,870 3,986 3,668 3,748 3,831 3,916 28,174 47,323
Modify depreciation rules for purchases of general
aviation passenger aircraft ......... 48 159 260 345 460 511 434 346 286 208 1,272 3,057
Expand the definition of substantial built-in loss for
purposes of partnership loss transfers ......... 7 8 8 8 9 9 10 10 10 10 40 89
Extend partnership basis limitation rules to
nondeductible expenditures ......... 89 122 126 129 132 134 136 139 141 144 598 1,292
Deny deduction for punitive damages ......... 48 70 72 73 76 77 79 80 82 84 339 741
Conform corporate ownership standards ......... 1 16 31 32 33 34 35 36 38 40 113 296
Tax corporate distributions as dividends ......... 48 82 87 91 95 99 104 109 114 119 403 948
Repeal FICA tip credit ......... 729 883 921 961 1,004 1,047 1,092 1,140 1,189 1,241 4,498 10,207
Repeal the excise tax credit for distilled spirits with
flavor and wine additives 4 ......... 82 109 109 109 109 109 109 109 109 109 518 1,063
Total, other business revenue changes and loophole
closers ......... 9,983 18,245 18,191 17,435 15,920 14,328 13,949 14,432 15,546 15,117 79,774 153,146
Total, elements of business tax reform 17 33,438 61,418 59,832 55,925 54,543 54,969 56,357 56,225 57,647 58,959 265,156 549,313
Transition to a reformed business tax system:
Impose a 14-percent one-time tax on previously untaxed
foreign income 1 ......... 35,930 59,883 59,883 59,883 59,883 23,953 ......... ......... ......... ......... 275,462 299,415
Middle-class and pro-work tax reforms:
Reform child care tax incentives 2 ......... 684 3,539 3,720 3,909 4,081 4,277 4,459 4,652 5,009 5,492 15,933 39,822
Simplify and better target tax benefits for education 2 ......... 19 4,518 4,622 4,561 5,089 5,375 5,778 6,090 6,465 6,272 18,809 48,789
Expand the EITC for workers without qualifying children 2 ......... 468 6,255 6,387 6,495 6,628 6,756 6,894 7,028 7,176 7,322 26,233 61,409
Simplify the rules for claiming the EITC for workers
without qualifying children 2 ......... 41 550 540 547 560 572 587 601 615 629 2,238 5,242
Provide a second-earner tax credit 2 ......... 2,037 8,926 9,065 9,160 9,281 9,429 9,563 9,703 9,841 10,016 38,469 87,021

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Extend exclusion from income for cancellation of certain
home mortgage debt ......... 2,467 822 ......... ......... ......... ......... ......... ......... ......... ......... 3,289 3,289
Total, middle-class and pro-work tax reforms ......... 5,716 24,610 24,334 24,672 25,639 26,409 27,281 28,074 29,106 29,731 104,971 245,572
Reforms to retirement and health benefit plans:
Provide for automatic enrollment in IRAs, including a
small employer tax credit, increase the tax credit for
small employer plan start-up costs, and provide an
additional tax credit for small employer plans newly
offering auto-enrollment 2 ......... ......... 959 1,556 1,672 1,722 1,779 1,885 1,989 2,119 2,221 5,909 15,902
Expand penalty-free withdrawals for long-term
unemployed ......... 226 231 235 240 245 250 255 260 265 270 1,177 2,477
Require retirement plans to allow long-term part-time
workers to participate ......... 46 47 49 50 51 52 53 55 56 57 243 516
Facilitate annuity portability ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Simplify minimum required distribution rules ......... 5 6 2 4 19 37 61 91 127 172 10 498
Allow all inherited plan and IRA balances to be rolled over
within 60 days ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Permit unaffiliated employers to maintain a single multi-
employer defined contribution plan ......... 97 137 147 155 169 181 196 209 230 246 705 1,767
Enact changes to the military retirement reform enacted in
the FY 2016 National Defense Authorization Act ......... ......... 53 85 94 110 126 144 154 169 180 342 1,115
Improve the excise tax on high cost employer-sponsored
health coverage ......... ......... ......... ......... 66 112 138 172 209 254 314 178 1,265
Extend CHIP through 2019 2 ......... ......... 846 4,622 1,002 ......... ......... ......... ......... ......... ......... 6,470 6,470
Create State option to provide 12-month continuous
Medicaid eligibility for adults 2 ......... 333 949 2,000 2,427 2,560 2,803 2,944 3,095 3,249 3,405 8,269 23,765
Standardize definition of American Indian and Alaska
Native in the ACA 2 ......... 30 40 50 50 50 50 60 60 60 70 220 520
Subtotal, reforms to retirement and health benefit
plans ......... 71 322 4,498 1,106 120 264 240 250 223 219 5,975 7,171
Reforms to capital gains taxation, upper-income tax
benefits, and the taxation of financial institutions:
Reduce the value of certain tax expenditures ......... 31,092 50,403 54,946 59,515 63,910 68,322 72,776 77,183 81,525 85,866 259,866 645,538
Reform the taxation of capital income ......... 14,757 24,669 20,639 22,015 23,211 23,426 24,696 25,976 27,254 28,565 105,291 235,208
Implement the Buffett Rule by imposing a new Fair Share
Tax ......... 7,848 62 1,317 3,102 4,035 4,136 4,170 4,240 4,334 4,388 16,240 37,508
Impose a financial fee ......... 5,653 11,084 10,949 11,163 11,420 11,683 11,952 12,226 12,508 12,795 50,269 111,433
Total, reforms to capital gains taxation, upper-income tax
benefits, and the taxation of financial institutions ......... 59,350 86,094 87,851 95,795 102,576 107,567 113,594 119,625 125,621 131,614 431,666 1,029,687
Loophole closers:
Require current inclusion in income of accrued market
discount and limit the accrual amount for distressed
debt ......... 4 12 20 28 34 42 50 58 69 79 98 396
Require that the cost basis of stock that is a covered
security must be determined using an average cost
basis method ......... ......... 74 223 377 539 634 657 684 713 744 1,213 4,645
Tax carried (profits) interests as ordinary income ......... 2,619 2,633 2,520 2,420 2,351 1,932 1,472 1,213 1,121 1,029 12,543 19,310
Require non-spouse beneficiaries of deceased IRA
owners and retirement plan participants to take
inherited distributions over no more than five years ......... 111 285 471 660 853 891 841 780 718 654 2,380 6,264
Limit the total accrual of tax-favored retirement benefits ......... 1,616 2,302 2,406 2,639 2,947 3,084 3,465 3,606 3,828 4,085 11,910 29,978
Rationalize net investment income and SECA taxes ......... 16,660 23,276 24,773 25,913 26,943 28,124 29,421 30,816 32,163 33,570 117,565 271,659
Limit Roth conversions to pre-tax dollars ......... ......... 5 10 16 20 20 21 28 32 99 51 251
Eliminate deduction for dividends on stock of publicly-
traded corporations held in ESOPs ......... 702 945 962 978 995 1,011 1,028 1,044 1,062 1,079 4,582 9,806
Repeal exclusion of net unrealized appreciation in
employer securities ......... 16 27 28 13 4 4 12 23 23 24 88 10
Disallow the deduction for charitable contributions that are
a prerequisite for purchasing tickets to college sporting
events ......... 150 237 255 272 290 308 327 348 369 391 1,204 2,947
Total, loophole closers ......... 21,878 29,796 31,668 33,316 34,976 36,050 37,270 38,554 40,052 41,706 151,634 345,266
Modify estate and gift tax provisions:

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Restore the estate, gift, and GST tax parameters in effect
in 2009 ......... ......... 15,717 17,102 18,415 20,027 21,695 23,660 25,815 28,303 31,020 71,261 201,754
Expand requirement of consistency in value for transfer
and income tax purposes ......... ......... 142 143 169 174 185 198 211 228 243 628 1,693
Modify transfer tax rules for grantor retained annuity trusts
(GRATs) and other grantor trusts ......... ......... 1,123 1,241 1,478 1,622 1,969 2,374 2,743 3,194 3,405 5,464 19,149
Limit duration of generation-skipping transfer (GST) tax
exemption ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Extend the lien on estate tax deferrals where estate
consists largely of interest in closely held business ......... ......... 24 25 26 27 28 29 31 34 36 102 260
Modify GST tax treatment of Health and Education
Exclusion Trusts ......... ......... 35 33 30 29 27 26 24 23 20 127 247
Simplify gift tax exclusion for annual gifts ......... ......... 84 160 259 336 413 453 548 657 770 839 3,680
Expand applicability of definition of executor ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Total, modify estate and gift tax provisions ......... ......... 17,055 18,638 20,317 22,157 24,263 26,688 29,324 32,393 35,454 78,167 226,289
Other revenue raisers:
Impose an oil fee 4 ......... 7,221 14,439 21,505 28,450 35,135 41,377 41,989 42,521 42,977 43,456 106,750 319,070
Increase and modify Oil Spill Liability Trust Fund financing4 ......... 94 133 135 138 138 139 141 143 144 147 638 1,352
Reinstate Superfund taxes 4 ......... 1,596 2,087 2,163 2,202 2,276 2,300 2,359 2,399 2,445 2,492 10,324 22,319
Increase tobacco taxes and index for inflation 4 ......... 9,982 12,910 12,715 12,719 12,329 11,880 11,436 10,877 10,399 9,902 60,655 115,149
Make unemployment insurance surtax permanent 4 ......... 1,172 1,604 1,624 1,645 1,667 1,690 1,712 1,737 1,762 1,789 7,712 16,402
Expand Federal Unemployment Tax Act (FUTA) base and
reform FUTA credit reduction rules 4 ......... ......... 3,128 3,185 3,923 4,303 5,424 6,802 6,068 6,346 7,113 14,539 46,292
Modernize the unemployment insurance program 4 ......... ......... ......... 514 468 415 429 410 560 585 604 1,397 3,985
Create a mandatory RESEA program 4 ......... ......... ......... 4 24 65 168 195 216 267 293 93 1,232
Levy a fee on the production of hardrock minerals to
restore abandoned mines ......... ......... 200 200 200 200 200 200 200 200 200 800 1,800
Return fees on the production of coal to pre2006 levels
to restore abandoned mines ......... 49 50 52 53 54 ......... ......... ......... ......... ......... 258 258
Total, other revenue raisers ......... 20,114 34,551 42,089 49,774 56,452 63,271 64,854 64,289 64,591 65,410 202,980 525,395
Reduce the tax gap and make reforms:
Expand information reporting:

Improve information reporting for certain businesses
and contractors ......... 15 36 60 82 85 89 93 97 102 106 278 765
Provide an exception to the limitation on disclosing tax
return information to expand TIN matching beyond
forms where payments are subject to backup
withholding ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Provide for reciprocal reporting of information in
connection with the implementation of FATCA ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Require Form W2 reporting for employer
contributions to defined contribution plans ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Subtotal, expand information reporting ......... 15 36 60 82 85 89 93 97 102 106 278 765
Improve compliance by businesses:

Increase certainty with respect to worker classification 5 93 451 871 1,038 1,127 1,220 1,321 1,428 1,544 1,668 3,580 10,761
Increase information sharing to administer excise
taxes 4 ......... 4 9 13 14 16 17 17 18 18 19 56 145
Provide authority to readily share information about
beneficial ownership information of U.S. companies
with law enforcement ......... ......... 1 2 9 6 4 3 3 3 3 18 34
Subtotal, improve compliance by businesses 5 97 461 886 1,061 1,149 1,241 1,341 1,449 1,565 1,690 3,654 10,940
Strengthen tax administration:

Modify the conservation easement deduction and pilot
a conservation credit ......... 6 22 46 63 72 79 83 89 94 101 209 655
Impose liability on shareholders to collect unpaid
income taxes of applicable corporations ......... 395 423 442 461 481 502 524 546 570 595 2,202 4,939
Implement a program integrity statutory cap
adjustment for tax administration ......... 278 1,585 3,263 5,008 6,763 8,327 9,264 9,590 9,737 9,814 16,897 63,629
Revise offer-in-compromise application rules ......... 1 2 2 2 2 2 2 2 2 2 9 19
Make repeated willful failure to file a tax return a felony ......... ......... ......... ......... 1 1 1 1 2 2 2 2 10

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Facilitate tax compliance with local jurisdictions ......... 1 1 1 2 2 2 2 2 2 2 7 17
Improve investigative disclosure statute ......... ......... ......... ......... 1 1 1 1 2 2 2 2 10
Allow the IRS to absorb credit and debit card
processing fees for certain tax payments ......... 2 2 2 2 2 2 2 2 2 2 10 20
Provide the IRS with greater flexibility to address
correctable errors 2 ......... 31 62 62 63 65 66 68 70 72 74 283 633
Enhance electronic filing of returns ......... ......... ......... ......... 1 1 1 1 2 2 2 2 10
Improve the whistleblower program ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Index all civil tax penalties for inflation ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Combat tax-related identity theft ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Allow States to send notices of intent to offset Federal
tax refunds to collect State tax obligations by
regular first-class mail instead of certified mail ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Accelerate information return filing due dates 2 ......... 3 5 11 12 12 13 13 13 13 14 43 109
Increase oversight of paid tax return preparers 2 ......... 14 31 34 37 41 45 49 54 57 62 157 424
Enhance administrability of the appraiser penalty ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Enhance UI program integrity 4 ......... ......... 1 7 16 29 43 60 96 61 99 53 412
Request a program integrity cap adjustment for the
RESEA program 4 ......... ......... 2 7 10 11 10 9 9 7 5 30 70
Subtotal, strengthen tax administration ......... 731 2,130 3,849 5,627 7,403 8,988 9,941 10,269 10,487 10,568 19,740 69,993
Total, reduce the tax gap and make reforms 5 843 2,627 4,795 6,770 8,637 10,318 11,375 11,815 12,154 12,364 23,672 81,698
Simplify the tax system:
Modify adoption credit to allow tribal determination of
special needs ......... ......... ......... ......... 1 1 1 1 1 1 1 2 7
Repeal non-qualified preferred stock designation ......... 33 55 55 53 50 46 41 36 32 29 246 430
Reform excise tax based on investment income of private
foundations ......... 5 5 6 6 6 6 6 7 7 7 28 61
Simplify arbitrage investment restrictions ......... ......... 2 10 18 28 38 46 58 68 76 58 344
Simplify single-family housing mortgage bond targeting
requirements ......... ......... 1 3 5 7 10 12 17 20 22 16 97
Streamline private activity limits on governmental bonds ......... ......... 1 3 5 7 9 11 13 15 17 16 81
Repeal technical terminations of partnerships ......... 13 19 21 23 25 27 29 30 32 33 101 252
Repeal anti-churning rules of section 197 ......... 24 99 198 281 338 370 378 378 378 378 940 2,822
Repeal special estimated tax payment provision for
certain insurance companies ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Repeal the telephone excise tax 4 ......... 368 327 287 248 209 170 132 94 57 44 1,439 1,936
Increase the standard mileage rate for automobile use by
volunteers ......... 20 62 65 68 69 71 72 74 76 79 284 656
Consolidate contribution limitations for charitable
deductions and extend the carryforward period for
excess charitable contribution deduction amounts ......... ......... 93 51 6 6 6 491 1,188 1,830 2,416 156 6,087
Exclude from gross income subsidies from public utilities
for purchase of water runoff management ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Provide relief for certain accidental dual citizens ......... 63 108 58 23 25 26 28 29 30 32 277 422
Total, simplify the tax system ......... 434 624 605 585 621 634 1,107 1,793 2,418 3,010 2,869 11,831
User fees:
Reform inland waterways funding 4 ......... 3 78 118 156 156 156 156 156 155 155 511 1,289
Reauthorize special assessment on domestic nuclear
utilities ......... 208 212 217 222 227 232 237 243 248 254 1,086 2,300
Establish user fee for Electronic Visa Update System ......... 31 25 27 31 27 31 29 34 24 28 141 287
Total, user fees ......... 242 315 362 409 410 419 422 433 427 437 1,738 3,876
Trade initiatives:
Enact the Trans-Pacific Partnership Trade Agreement 4 ......... ......... 1,690 2,343 2,586 2,858 3,147 3,445 3,724 4,003 4,318 9,477 28,114
Other initiatives:
Allow offset of Federal income tax refunds to collect
delinquent State income taxes for out-of-state
residents ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Improve disclosure for child support enforcement ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........

2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Authorize the limited sharing of business tax return
information to improve the accuracy of important
measures of the economy ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Eliminate certain reviews conducted by the U.S. Treasury
Inspector General for Tax Administration (TIGTA) ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Modify indexing to prevent deflationary adjustments ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Total, other initiatives ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Enact comprehensive immigration reform ......... 1,000 7,000 20,000 30,000 40,000 45,000 55,000 64,000 74,000 84,000 98,000 420,000
Total, effect of budget proposals 12 166,574 272,137 302,334 325,452 350,636 335,884 333,967 350,924 371,581 393,104 1,417,133 3,202,593
1 The Administration believes that this proposal should be enacted in the context of comprehensive business tax reform. However, the proposal generates one-time transition revenue
in the short run, which is shown in the Transition to a reformed business tax system category.
2 This proposal affects both receipts and outlays for refundable tax credits. Both effects are shown above. The outlay effects included in these estimates are listed:
2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Expand and simplify the tax credit provided to qualified
small employers for non-elective contributions to
employee health insurance ......... 21 23 19 17 12 14 10 7 4 2 92 129
Designate Promise Zones ......... 27 29 29 31 31 33 35 37 37 39 147 328
Modify and permanently extend renewable electricity
production tax credit and investment tax credit ......... 58 155 281 453 695 973 1,300 1,695 2,117 2,629 1,642 10,356
Provide a carbon dioxide investment and sequestration
tax credit ......... ......... ......... ......... ......... 142 280 123 338 226 ......... 142 1,109
Provide America Fast Forward Bonds and expand eligible
uses ......... 288 1,306 2,803 4,377 6,022 7,714 9,435 11,176 12,935 14,709 14,796 70,765
Reform child care tax incentives ......... ......... 962 1,009 1,051 1,091 1,147 1,182 1,227 1,264 1,268 4,113 10,201
Simplify and better target tax benefits for education ......... ......... 4,377 4,521 4,479 4,663 5,079 5,255 5,679 5,870 5,833 18,040 45,756
Expand the EITC for workers without qualifying children ......... 273 5,468 5,577 5,677 5,796 5,906 6,020 6,134 6,262 6,383 22,791 53,496
Simplify the rules for claiming the EITC for workers
without qualifying children ......... 24 484 475 481 492 503 516 528 541 553 1,956 4,597
Provide a second-earner tax credit ......... ......... 739 735 735 740 754 758 760 759 754 2,949 6,734
Provide for automatic enrollment in IRAs, including a
small employer tax credit, increase the tax credit for
small employer plan start-up costs, and provide an
additional tax credit for small employer plans newly
offering auto-enrollment ......... ......... 126 198 203 207 215 222 228 230 236 734 1,865
Extend CHIP through 2019 ......... ......... 780 4,168 474 ......... ......... ......... ......... ......... ......... 5,422 5,422
Create State option to provide 12-month continuous
Medicaid eligibility for adults ......... 333 912 1,923 2,269 2,395 2,629 2,763 2,904 3,049 3,196 7,832 22,373
Standardize definition of American Indian and Alaska
Native in the ACA ......... 30 40 50 50 50 50 60 60 60 70 220 520
Provide the IRS with greater flexibility to address
correctable errors ......... 26 53 52 53 54 55 56 58 59 61 238 527
Accelerate information return filing due dates ......... 1 3 6 7 7 8 8 8 8 8 24 64
Increase oversight of tax return preparers ......... 2 14 15 16 18 19 21 23 24 26 65 178
Total, outlay effects of budget proposals ......... 359 11,947 9,533 14,735 17,467 19,957 22,068 24,876 27,165 29,185 54,041 177,292
3 This provision is estimated to have zero receipt effect under the Administrations current economic projections.
4 Net of income offsets.
Table 123. RECEIPTS BY SOURCE

2015 Estimate
Source
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Individual income taxes:

Federal funds 1,540,802 1,627,824 1,724,055 1,793,016 1,878,054 1,987,644 2,094,996 2,205,155 2,318,828 2,436,572 2,559,406 2,688,326
Legislative proposal, not
subject to PAYGO ......... ......... 278 1,585 3,263 5,011 6,770 8,341 9,279 9,608 9,756 9,836
Legislative proposal, subject to
PAYGO ......... 10 63,640 96,693 103,650 113,598 120,161 125,627 132,585 139,744 147,212 155,195
Total, Individual income taxes 1,540,802 1,627,834 1,787,973 1,891,294 1,984,967 2,106,253 2,221,927 2,339,123 2,460,692 2,585,924 2,716,374 2,853,357
Corporation income taxes:

Federal funds:
Federal funds 343,797 292,593 342,676 364,027 400,701 453,989 461,255 466,836 470,900 478,017 485,759 494,534
PAYGO ......... 32 75,138 127,581 123,288 119,465 119,780 85,935 64,689 66,453 69,165 71,791
Total, Federal funds 343,797 292,561 417,814 491,608 523,989 573,454 581,035 552,771 535,589 544,470 554,924 566,325
Trust funds:
PAYGO ......... ......... 920 1,175 1,242 1,273 1,340 1,354 1,402 1,436 1,473 1,507
Total, Corporation income taxes 343,797 292,561 418,734 492,783 525,231 574,727 582,375 554,125 536,991 545,906 556,397 567,832
Social insurance and retirement

receipts (trust funds):
Employment and general
retirement:
Old-age survivors insurance (off-
budget) 658,543 655,143 668,748 698,776 757,783 798,229 840,156 881,186 919,264 963,058 1,005,667 1,056,426
subject to PAYGO ......... ......... ......... ......... 3 7 14 29 33 41 42 50
PAYGO ......... 2 86 529 926 1,651 2,244 2,836 2,896 2,678 2,722 2,968
Disability insurance (off-budget) 111,829 142,512 158,019 165,114 141,506 135,548 142,668 149,635 156,101 163,538 170,774 179,393
subject to PAYGO ......... ......... ......... ......... ......... 1 2 5 6 7 7 9
PAYGO ......... ......... 15 90 157 280 380 481 491 454 462 504
Hospital Insurance 234,189 243,538 253,293 264,355 275,936 287,008 302,270 317,204 331,173 347,008 362,486 380,932
subject to PAYGO ......... ......... ......... ......... ......... 1 3 7 8 11 12 14
PAYGO ......... 8 506 1,048 1,578 1,613 1,561 1,507 1,611 1,796 1,932 2,056
Railroad retirement:
Social security equivalent account 2,530 2,523 2,558 2,625 2,694 2,769 2,846 2,926 3,008 3,092 3,170 3,253
Rail pension & supplemental
annuity 3,336 3,380 3,416 3,500 3,587 3,683 3,782 3,884 3,989 4,098 4,201 4,502
Total, Employment and general
retirement 1,010,427 1,047,106 1,086,641 1,134,799 1,182,004 1,226,928 1,290,678 1,353,066 1,411,806 1,479,517 1,545,107 1,623,163
On-budget (240,055) (249,449) (259,773) (271,528) (283,795) (295,074) (310,462) (325,528) (339,789) (356,005) (371,801) (390,757)
Off-budget (770,372) (797,657) (826,868) (863,271) (898,209) (931,854) (980,216) (1,027,538) (1,072,017) (1,123,512) (1,173,306) (1,232,406)
Unemployment insurance:
Deposits by States1 42,177 41,354 40,570 39,690 39,881 40,494 41,266 41,732 42,837 43,149 44,139 45,301
subject to PAYGO ......... ......... ......... 3 19 59 126 269 316 382 405 475
PAYGO ......... ......... 7 3,940 4,546 4,101 4,437 4,645 4,868 5,139 4,912 5,364
Federal unemployment receipts1 8,926 8,399 8,113 6,020 6,096 6,176 6,259 6,343 6,431 6,523 6,618 6,716
PAYGO ......... ......... 1,466 2,010 2,170 3,513 3,614 4,855 6,358 5,382 6,030 6,588
Railroad unemployment receipts1 75 121 134 149 157 139 111 112 137 153 145 132
Total, Unemployment insurance 51,178 49,874 50,290 51,806 52,831 54,364 55,561 57,418 60,315 59,964 61,439 63,626
Other retirement:
Federal employees retirement-
employee share 3,629 3,794 4,254 4,510 4,822 5,171 5,556 5,977 6,426 6,904 7,405 7,889
Table 123. RECEIPTS BY SOURCEContinued

2015 Estimate
Source
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Non-Federal employees
retirement2 23 22 21 20 19 18 16 15 15 14 13 12
Total, Other retirement 3,652 3,816 4,275 4,530 4,841 5,189 5,572 5,992 6,441 6,918 7,418 7,901
Total, Social insurance and retirement
receipts (trust funds) 1,065,257 1,100,796 1,141,206 1,191,135 1,239,676 1,286,481 1,351,811 1,416,476 1,478,562 1,546,399 1,613,964 1,694,690
On-budget (294,885) (303,139) (314,338) (327,864) (341,467) (354,627) (371,595) (388,938) (406,545) (422,887) (440,658) (462,284)
Off-budget (770,372) (797,657) (826,868) (863,271) (898,209) (931,854) (980,216) (1,027,538) (1,072,017) (1,123,512) (1,173,306) (1,232,406)
Excise taxes:
Federal funds:
Alcohol 9,639 9,583 9,707 9,783 9,875 9,951 10,035 10,112 10,186 10,258 10,322 10,380
PAYGO ......... ......... 109 146 146 146 146 146 146 146 146 146
Tobacco 14,453 14,368 14,252 14,136 14,019 13,903 13,787 13,671 13,554 13,438 13,322 13,205
PAYGO ......... ......... 13,309 17,212 16,955 16,959 16,438 15,839 15,249 14,505 13,865 13,203
Transportation fuels 3,394 3,462 3,383 958 957 955 956 959 962 966 966 969
Telephone and teletype services 607 545 490 436 383 330 278 227 176 126 76 59
PAYGO ......... ......... 490 436 383 330 278 227 176 126 76 59
High-cost health insurance
coverage ......... ......... ......... ......... ......... 1,349 4,955 6,585 8,524 10,715 13,362 16,613
PAYGO ......... ......... ......... ......... ......... 27 48 60 75 91 113 143
Health insurance providers 11,261 11,295 7 14,281 15,065 15,861 16,700 17,573 18,491 19,461 20,479 21,551
Indoor tanning services 85 85 86 86 87 88 88 88 89 90 90 90
Medical devices 1,987 610 10 1,601 2,371 2,537 2,704 2,886 3,060 3,243 3,432 3,629
Other Federal fund excise taxes 3,121 2,605 2,577 2,539 2,581 2,637 2,710 2,792 2,875 2,965 3,050 3,144
PAYGO ......... ......... 3,175 4,493 5,961 7,238 8,396 9,305 9,218 8,577 7,769 7,569
Trust funds:
Transportation 40,813 41,323 41,068 40,988 40,868 40,773 40,755 40,814 40,805 40,824 40,861 40,966
PAYGO ......... ......... 6,454 14,767 22,723 30,713 38,470 45,884 46,787 48,137 49,554 50,392
Airport and airway 14,268 14,351 15,063 15,639 16,123 16,779 17,319 17,620 18,001 18,347 18,907 19,392
Sport fish restoration and boating
safety 574 542 545 548 551 554 558 562 565 569 572 576
Tobacco assessments 49 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Black lung disability insurance 552 525 530 539 340 227 213 208 202 194 194 199
Inland waterway 98 107 106 105 104 103 102 101 100 100 99 98
PAYGO ......... ......... 3 3 3 3 3 3 3 3 2 2
Hazardous substance superfund
(Legislative proposal subject to
PAYGO) ......... ......... 902 1,216 1,227 1,239 1,249 1,261 1,275 1,285 1,297 1,312
Oil spill liability 496 530 585 607 611 616 617 618 622 623 621 624
PAYGO ......... ......... 127 178 180 183 183 187 189 191 192 195
Vaccine injury compensation 275 311 318 325 334 343 349 357 366 376 385 396
Leaking underground storage tank 179 212 211 209 208 205 206 205 204 201 201 199
Supplementary medical insurance 2,991 2,969 3,980 4,098 2,826 2,800 2,800 2,800 2,800 2,800 2,800 2,800
Patient-centered outcomes
research 225 322 339 356 377 399 423 447 471 496 523 552
Total, Trust funds 60,520 61,192 70,231 79,578 86,475 94,937 103,247 111,067 112,390 114,146 116,208 117,703
Total, Excise taxes 98,279 96,821 110,060 142,897 152,578 164,624 178,202 189,045 192,745 196,487 200,966 206,121
Estate and gift taxes:

Federal funds 19,232 21,094 22,399 23,730 25,073 26,421 28,079 29,686 31,493 33,492 35,613 37,869
Table 123. RECEIPTS BY SOURCEContinued

2015 Estimate
Source
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
PAYGO ......... ......... ......... 7,787 8,941 10,258 11,756 13,360 15,254 17,403 19,867 22,329
Total, Estate and gift taxes 19,232 21,094 22,399 31,517 34,014 36,679 39,835 43,046 46,747 50,895 55,480 60,198
Customs duties and fees:

Federal funds:
Federal funds 33,527 35,083 37,779 40,310 42,180 43,781 45,541 47,217 48,871 50,361 51,829 53,588
PAYGO ......... ......... ......... 2,253 3,124 3,448 3,811 4,196 4,593 4,966 5,337 5,758
Trust funds:
Trust funds 1,514 1,638 1,758 1,853 1,935 2,019 2,108 2,187 2,270 2,343 2,422 2,518
Total, Customs duties and fees 35,041 36,721 39,537 39,910 40,991 42,352 43,838 45,208 46,548 47,738 48,914 50,348
Miscellaneous receipts:
Federal funds:
Miscellaneous taxes 528 536 535 526 526 526 525 525 525 525 525 525
Deposit of earnings, Federal
Reserve System 96,468 116,445 64,818 44,492 37,878 41,598 47,924 54,717 60,314 64,870 69,366 74,423
Transfers from the Federal
Reserve 485 565 636 649 663 677 691 706 720 736 751 767
Fees for permits and regulatory
and judicial services 25,349 24,446 23,957 21,602 23,588 24,739 26,309 28,120 28,571 29,991 29,677 30,376
PAYGO ......... ......... 288 487 496 506 508 463 466 477 472 482
Fines, penalties, and forfeitures 23,236 16,190 30,766 32,348 32,389 34,392 35,850 37,454 39,093 40,674 42,364 44,199
PAYGO ......... ......... ......... 1 11 1 6 4 3 3 3 3
Refunds and recoveries 34 35 35 35 35 35 35 35 35 35 35 35
Trust funds:
United Mine Workers of America,
combined benefit fund 25 23 21 19 18 16 15 11 10 9 8 7
Defense cooperation 330 249 353 531 534 536 539 140 142 145 148 151
Inland waterways (Legislative
proposal, subject to PAYGO) ......... ......... ......... 75 115 153 153 153 153 153 153 153
Fines, penalties, and forfeitures 1,091 1,256 1,494 1,396 1,436 1,476 1,517 1,567 1,606 1,622 1,661 1,702
Total, Trust funds 1,446 1,528 1,868 2,021 2,103 2,181 2,224 1,871 1,911 1,929 1,970 2,013
Total, Miscellaneous receipts 147,478 159,675 122,833 102,089 97,597 104,585 114,002 123,825 131,568 139,170 145,093 152,753
Allowance for immigration reform ......... ......... 1,000 7,000 20,000 30,000 40,000 45,000 55,000 64,000 74,000 84,000
Total, budget receipts 3,249,886 3,335,502 3,643,742 3,898,625 4,095,054 4,345,701 4,571,990 4,755,848 4,948,853 5,176,519 5,411,188 5,669,299
On-budget (2,479,514) (2,537,845) (2,816,874) (3,035,354) (3,196,845) (3,413,847) (3,591,774) (3,728,310) (3,876,836) (4,053,007) (4,237,882) (4,436,893)
Off-budget (770,372) (797,657) (826,868) (863,271) (898,209) (931,854) (980,216) (1,027,538) (1,072,017) (1,123,512) (1,173,306) (1,232,406)
1Deposits by States cover the benefit part of the program. Federal unemployment receipts cover administrative costs at both the Federal and State levels. Railroad unemployment
receipts cover both the benefits and administrative costs of the program for the railroads.
2Represents employer and employee contributions to the civil service retirement and disability fund for covered employees of Government-sponsored, privately owned enterprises and
the District of Columbia municipal government.

13. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS
I. INTRODUCTION AND BACKGROUND

The Government records money collected in one of When measured by the magnitude of the dollars col-
two ways. It is either recorded as a governmental re- lected, most offsetting collections and offsetting receipts
ceipt and included in the amount reported on the receipts from the public arise from business-like transactions
side of the budget or it is recorded as an offsetting col- with the public. Unlike governmental receipts, which are
lection or offsetting receipt, which reduces (or offsets) derived from the Governments exercise of its sovereign
the amount reported on the outlay side of the budget. power, these offsetting collections and offsetting receipts
Governmental receipts are discussed in the previous arise primarily from voluntary payments from the public
chapter, Governmental Receipts. The first section of for goods or services provided by the Government. They
this chapter broadly discusses offsetting collections and are classified as offsets to outlays for the cost of producing
offsetting receipts. The second section discusses user the goods or services for sale, rather than as governmen-
charges, which consist of a subset of offsetting collections tal receipts on the receipts side of the budget. Treating
and offsetting receipts and a small share of governmental offsetting collections and offsetting receipts as offsets
receipts. The third and final section of this chapter de- to outlays produces budget totals for receipts and (net)
scribes the Administrations user charge proposals. outlays that reflect the amount of resources allocated by
As discussed below, offsetting collections and offsetting the Government through collective political choice, rather
receipts are cash inflows to a budget account that are usu- than through the marketplace.3 These activities include
ally used to finance Government activities. The spending the sale of postage stamps, land, timber, and electricity;
associated with these activities is included in total or charging fees for services provided to the public (e.g., ad-
gross outlays. For 2015, gross outlays to the public were mission to national parks); and collecting premiums for
$4,204 billion,1 or 23.6 percent of gross domestic product health care benefits (e.g., Medicare Parts B and D).
(GDP). Offsetting collections and offsetting receipts from A relatively small portion ($34.7 billion in 2015) of off-
the public are subtracted from gross outlays to the public setting collections and offsetting receipts from the public
to yield net outlays, which is the most common measure is derived from the Governments exercise of its sover-
of outlays cited and generally referred to as simply out- eign power. From a conceptual standpoint, these should
lays. For 2015, net outlays were $3,688 billion or 20.7 be classified as governmental receipts. However, they are
percent of GDP. Government-wide net outlays reflect classified as offsetting rather than governmental receipts
the Governments net disbursements to the public and either because this classification has been specified in law
are subtracted from governmental receipts to derive the or because these collections have traditionally been classi-
Governments deficit or surplus. For 2015, governmental fied as offsets to outlays. Most of the offsetting collections
receipts were $3,250 billion, or 18.3 percent of GDP, and and offsetting receipts in this category derive from fees
the deficit was $438 billion, or 2.5 percent of GDP. from Government regulatory services or Government li-
There are two sources of offsetting receipts and offset- censes, and include, for example, charges for regulating
ting collections: from the public and from other budget the nuclear energy industry, bankruptcy filing fees, im-
accounts. In 2015, offsetting receipts and offsetting migration fees, food inspection fees, passport fees, and
collections from the public were $516.0 billion, while patent and trademark fees.4
intragovernmental offsetting receipts and offsetting A third source of offsetting collections and offsetting
collections were $1,034 billion. Regardless of how it is re- receipts is intragovernmental transfers. Examples of in-
corded (as governmental receipts, offsetting receipts, or tragovernmental transfers include interest payments to
offsetting collections), money collected from the public funds that hold Government securities (such as the Social
reduces the deficit or increases the surplus. In contrast,
intragovernmental collections from other budget accounts 3 Showing collections from business-type transactions as offsets on
exactly offset the payments made by these accounts, with the spending side of the budget follows the concept recommended by the
no net impact on the deficit or surplus.2 Report of the Presidents Commission on Budget Concepts in 1967 and
is discussed in Chapter 9 of this volume, Budget Concepts.
4 This category of receipts is known as offsetting governmental re-
1 Gross outlays to the public are derived by subtracting intragovern-

ceipts. Some argue that regulatory or licensing fees should be viewed as
payments for a particular service or for the right to engage in a particu-
mental outlays from gross outlays. For 2015, gross outlays were $5,238 lar type of business. However, these fees are conceptually much more
billion. Intragovernmental outlays are payments from one Government similar to taxes because they are compulsory, and they fund activities
account to another Government account. For 2015, intragovernmental that are intended to provide broadly dispersed benefits, such as protect-
outlays totaled $1,034 billion. ing the health of the public. Reclassifying these fees as governmental
2 For the purposes of this discussion, collections from the public receipts could require a change in law, and because of conventions for
include collections from non-budgetary Government accounts, such as scoring appropriations bills, would make it impossible for fees that are
credit financing accounts and deposit funds. For more information on controlled through annual appropriations acts to be scored as offsets to
these non-budgetary accounts, see Chapter 10, Coverage of the Budget. discretionary spending.
211
Table 131. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS FROM THE PUBLIC
Estimate
Actual 2015 2016 2017
Offsetting collections (credited to expenditure accounts):

User charges:
Postal Service stamps and other USPS fees (off-budget) 73.5 74.8 75.3
Defense Commissary Agency 5.5 6.0 5.7
Employee contributions for employees and retired employees health benefits funds 13.9 15.1 16.1
Sale of energy:
Tennessee Valley Authority 43.2 40.9 41.5
Bonneville Power Administration 3.3 4.0 4.2
All other user charges 68.7 65.2 71.8
Subtotal, user charges 208.1 206.0 214.6
Other collections credited to expenditure accounts:
Commodity Credit Corporation fund 5.5 6.8 7.0
Supplemental Security Income (collections from the States) 2.6 2.7 2.7
Other collections 17.6 8.2 7.5
Subtotal, other collections 25.7 17.7 17.2
Subtotal, offsetting collections 233.9 223.7 231.8
Offsetting receipts (deposited in receipt accounts):
User charges:
Medicare premiums 67.1 72.1 79.1
Spectrum auction, relocation, and licenses 30.1 12.9 13.9
Outer Continental Shelf rents, bonuses, and royalties 3.5 2.8 3.2
All other user charges 34.2 35.7 40.1
Subtotal, user charges deposited in receipt accounts 134.9 123.5 136.3
Other collections deposited in receipt accounts:
Military assistance program sales 32.4 36.0 37.4
Interest received from credit financing accounts 38.7 60.0 65.3
Proceeds, GSE equity related transactions 20.7 16.0 18.7
All other collections deposited in receipt accounts 55.5 51.1 44.4
Subtotal, other collections deposited in receipt accounts 147.3 163.1 165.8
Subtotal, offsetting receipts 282.2 286.6 302.2
Total, offsetting collections and offsetting receipts from the public 516.0 510.3 534.0
Total, offsetting collections and offsetting receipts excluding off-budget 442.4 435.4 458.6
ADDENDUM:
User charges that are offsetting collections and offsetting receipts1 343.0 329.5 350.9
Other offsetting collections and offsetting receipts from the public 173.0 180.8 183.1
1 Excludes user charges that are classified on the receipts side of the budget. For total user charges, see Table 13-3.
Security trust funds), general fund transfers to civilian and The final source of offsetting collections and offsetting
military retirement pension and health benefits funds, and receipts is gifts. Gifts are voluntary contributions to the
agency payments to funds for employee health insurance Government to support particular purposes or reduce the
and retirement benefits. Although these intragovernmen- amount of Government debt held by the public.
tal collections exactly offset the payments themselves, Although both offsetting collections and offsetting re-
with no effect on the deficit or surplus, it is important to ceipts are subtracted from gross outlays to derive net
record these transactions in the budget to show how much outlays, they are treated differently when it comes to ac-
the Government is allocating to fund various programs. counting for specific programs and agencies. Offsetting
For example, in the case of civilian retirement pensions, collections are usually authorized to be spent for the
Government agencies make accrual payments to the Civil purposes of an expenditure account and are generally
Service Retirement and Disability Fund on behalf of cur- available for use when collected, without further action by
rent employees to fund their future retirement benefits; the Congress. Therefore, offsetting collections are record-
the receipt of these payments to the Fund is shown in a ed as offsets to spending within expenditure accounts, so
single receipt account. Recording the receipt of these pay- that the account total highlights the net flow of funds.
ments is important because it demonstrates the total cost Like governmental receipts, offsetting receipts are
to the Government today of providing this future benefit. credited to receipt accounts, and any spending of the re-
13. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS 213
Table 132. OFFSETTING RECEIPTS BY TYPE SUMMARY

Estimate
Receipt Type Actual
2015 2016 2017 2018 2019 2020 2021
Intragovernmental 686,493 823,097 770,912 820,655 888,642 922,187 966,150
Receipts from non-Federal sources:
Proprietary 252,655 262,143 273,983 272,422 289,209 306,332 321,718
Offsetting governmental 29,535 24,445 28,181 21,277 14,468 15,033 15,315
Total, receipts from non-Federal sources 282,190 286,588 302,164 293,699 303,677 321,365 337,033
Total, offsetting receipts 968,683 1,109,685 1,073,076 1,114,354 1,192,319 1,243,552 1,303,183
ceipts is recorded in separate expenditure accounts. As electrical power sales, loan repayments to the Commodity
a result, the budget separately displays the flow of funds Credit Corporation for loans made prior to enactment of
into and out of the Government. Offsetting receipts may the Federal Credit Reform Act, and Federal employee pay-
or may not be designated for a specific purpose, depending ments for health insurance. As also shown in the table,
on the legislation that authorizes their collection. If des- major offsetting receipts from the public include premi-
ignated for a particular purpose, the offsetting receipts ums for Medicare Parts B and D, proceeds from military
may, in some cases, be spent without further action by the assistance program sales, rents and royalties from Outer
Congress. When not designated for a particular purpose, Continental Shelf oil extraction, proceeds from auctions
offsetting receipts are credited to the general fund, which of the electromagnetic spectrum, dividends on holdings of
contains all funds not otherwise allocated and which is preferred stock of the Government-sponsored enterprises,
used to finance Government spending that is not financed and interest income.
out of dedicated funds. In some cases where the receipts Tables 132 and 135 provide further detail about off-
are designated for a particular purpose, offsetting re- setting receipts, including both offsetting receipts from
ceipts are reported in a particular agency and reduce or the public (as summarized in Table 131) and intragov-
offset the outlays reported for that agency. In other cases, ernmental transactions. Table 135, formerly printed in
the offsetting receipts are undistributed, which means this chapter, is available on the Internet at www.budget.
they reduce total Government outlays, but not the outlays gov/budget/Analytical_Perspectives and on the Budget
of any particular agency. CD-ROM. In total, offsetting receipts are estimated to
Table 131 summarizes offsetting collections and off- be $1,073.1 billion in 2017; $770.9 billion are from intra-
setting receipts from the public. Note that this table does governmental transactions and $302.2 billion are from
not include intragovernmental transactions. The amounts the public. The offsetting receipts from the public consist
shown in the table are not evident in the commonly cit- of proprietary receipts ($274.0 billion) and those classi-
ed budget measure of (net) outlays. For 2017, the table fied as offsetting receipts by law or long-standing practice
shows that total offsetting collections and offsetting re- ($28.2 billion) and shown as offsetting governmental re-
ceipts from the public are estimated to be $534.0 billion or ceipts in the table. Proprietary receipts from the public
2.8 percent of GDP. Of these, an estimated $231.8 billion result from business-like transactions such as the sale
are offsetting collections and an estimated $302.2 billion of goods or services, or the rental or use of Government
are offsetting receipts. Table 131 also identifies those land. Offsetting governmental receipts are composed of
offsetting collections and offsetting receipts that are con- fees from Government regulatory services or Government
sidered user charges, as defined and discussed below. licenses that, absent a specification in law or a long-
As shown in the table, major offsetting collections from standing practice, would be classified on the receipts side
the public include proceeds from Postal Service sales, of the budget.
II. USER CHARGES

User charges or user fees5 refer generally to those user charges determine whether a user charge is classi-
monies that the Government receives from the public for fied as an offsetting collection, an offsetting receipt, or a
market-oriented activities and regulatory activities. In governmental receipt. Almost all user charges, as defined
combination with budget concepts, laws that authorize below, are classified as offsetting collections or offsetting
receipts; for 2017, only an estimated 1.5 percent of user
5 In this chapter, the term user charge is generally used and has charges are classified as governmental receipts. As sum-
the same meaning as the term user fee. The term user charge is marized in Table 133, total user charges for 2017 are
the one used in OMB Circular No. A11, Preparation, Submission, and estimated to be $356.2 billion with $350.9 billion being
Execution of the Budget; OMB Circular No. A25, User Charges; and
Chapter 9 of this volume, Budget Concepts. In common usage, the offsetting collections or offsetting receipts, and account-
terms user charge and user fee are often used interchangeably, and in ing for more than half of all offsetting collections and
A Glossary of Terms Used in the Federal Budget Process, GAO provides offsetting receipts from the public.
the same definition for both terms.
Table 133. GROSS OUTLAYS, USER CHARGES, OTHER OFFSETTING COLLECTIONS

AND OFFSETTING RECEIPTS FROM THE PUBLIC, AND NET OUTLAYS
Estimate
Actual
2015 2016 2017
Gross outlays to the public 4,204.3 4,461.6 4,681.2
Offsetting collections and offsetting receipts from the public:
User charges1 343.0 329.5 350.9
Other 173.0 180.8 183.1
Subtotal, offsetting collections and offsetting receipts from the public 516.0 510.3 534.0
Net outlays 3,688.3 3,951.3 4,147.2
1 $4.8 billion of the total user charges for 2015 were classified as governmental receipts, and the remainder were classified as offsetting
collections and offsetting receipts. $4.6 billion and $5.3 billion of the total user charges for 2016 and 2017 are classified as governmental
receipts, respectively.
Definition. In this chapter, user charges refer to fees, What is the purpose of user charges? User charges
charges, and assessments levied on individuals or orga- are intended to improve the efficiency and equity of fi-
nizations directly benefiting from or subject to regulation nancing certain Government activities. Charging users
by a Government program or activity, where the payers do for activities that benefit a relatively limited number of
not represent a broad segment of the public such as those people reduces the burden on the general taxpayer, as
who pay income taxes. does charging regulated parties for regulatory activities
Examples of business-type or market-oriented user in a particular sector.
charges and regulatory and licensing user charges include User charges that are set to cover the costs of production
those charges listed in Table 131 for offsetting collections of goods and services can result in more efficient resource
and offsetting receipts. User charges exclude certain off- allocation within the economy. When buyers are charged
setting collections and offsetting receipts from the public, the cost of providing goods and services, they make better
such as payments received from credit programs, interest, cost-benefit calculations regarding the size of their pur-
and dividends, and also exclude payments from one part chase, which in turn signals to the Government how much
of the Federal Government to another. In addition, user of the goods or services it should provide. Prices in pri-
charges do not include dedicated taxes (such as taxes paid vate, competitive markets serve the same purposes. User
to social insurance programs or excise taxes on gasoline) charges for goods and services that do not have special
or customs duties, fines, penalties, or forfeitures. social or distributional benefits may also improve equity
Alternative definitions. The definition for user or fairness by requiring those who benefit from an activity
charges used in this chapter follows the definition used in to pay for it and by not requiring those who do not benefit
OMB Circular No. A25, User Charges, which provides from an activity to pay for it.
policy guidance to Executive Branch agencies on setting When should the Government impose a charge?
the amount for user charges. Alternative definitions may Discussions of whether to finance spending with a tax or
be used for other purposes. Much of the discussion of user a fee often focus on whether the benefits of the activity
charges belowtheir purpose, when they should be lev- accrue to the public in general or to a limited group of peo-
ied, and how the amount should be setapplies to these ple. In general, if the benefits of spending accrue broadly
alternative definitions as well. to the public or include special social or distributional
A narrower definition of user charges could be limited benefits, then the program should be financed by taxes
to proceeds from the sale of goods and services, excluding paid by the public. In contrast, if the benefits accrue to
the proceeds from the sale of assets, and to proceeds that a limited number of private individuals or organizations
are dedicated to financing the goods and services being and do not include special social or distributional benefits,
provided. This definition is similar to one the House of then the program should be financed by charges paid by
Representatives uses as a guide for purposes of commit- the private beneficiaries. For Federal programs where
tee jurisdiction. (See the Congressional Record, January 3, the benefits are entirely public or entirely private, apply-
1991, p. H31, item 8.) The definition of user charges could ing this principle can be relatively easy. For example, the
be even narrower by excluding regulatory fees and focus- benefits from national defense accrue to the public in gen-
ing solely on business-type transactions. Alternatively, eral, and according to this principle should be (and are)
the user charge definition could be broader than the one financed by taxes. In contrast, the benefits of electricity
used in this chapter by including beneficiary- or liability- sold by the Tennessee Valley Authority accrue primarily
based excise taxes.6 to those using the electricity, and should be (and are) fi-
6 Beneficiary- and liability-based taxes are terms taken from the
nanced by user charges.
Congressional Budget Office, The Growth of Federal User Charges, Au-
gust 1993, and updated in October 1995. Gasoline taxes are an example in the Environmental Protection Agency. This tax was paid by industry
of beneficiary-based taxes. An example of a liability-based tax is the ex- groups to finance environmental cleanup activities related to the indus-
cise tax that formerly helped fund the hazardous substance superfund try activity but not necessarily caused by the payer of the fee.
In many cases, however, an activity has benefits that the basis for establishing the fee.7 If the Government is
accrue to both public and private groups, and it may be engaged in a purely business-type transaction and eco-
difficult to identify how much of the benefits accrue to nomic resources are allocated efficiently, then this market
each. Because of this, it can be difficult to know how much price should be equal to or greater than the Governments
of the program should be financed by taxes and how much full cost of production.
by fees. For example, the benefits from recreation areas Classification of user charges in the budget. As
are mixed. Fees for visitors to these areas are appropri- shown in the note to Table 133, most user charges are
ate because the visitors benefit directly from their visit, classified as offsets to outlays on the spending side of the
but the public in general also benefits because these ar- budget, but a few are classified on the receipts side of the
eas protect the Nations natural and historic heritage now budget. An estimated $5.3 billion in 2017 of user charges
and for posterity. For this reason, visitor recreation fees are classified on the receipts side and are included in the
generally cover only part of the cost to the Government of governmental receipts totals described in the previous
maintaining the recreation property. Where a fee may be chapter, Governmental Receipts. They are classified as
appropriate to finance all or part of an activity, the extent receipts because they are regulatory charges collected by
to which a fee can be easily administered must be con- the Federal Government by the exercise of its sovereign
sidered. For example, if fees are charged for entering or powers. Examples include filing fees in the United States
using Government-owned land then there must be clear courts and agricultural quarantine inspection fees.
points of entry onto the land and attendants patrolling The remaining user charges, an estimated $350.9 billion
and monitoring the lands use. in 2017, are classified as offsetting collections and offsetting
What amount should be charged? When the receipts on the spending side of the budget. As discussed
Government is acting in its capacity as sovereign and above in the context of all offsetting collections and offset-
where user charges are appropriate, such as for some ting receipts, some of these user charges are collected by the
regulatory activities, current policy supports setting fees Federal Government by the exercise of its sovereign pow-
equal to the full cost to the Government, including both ers and conceptually should appear on the receipts side of
direct and indirect costs. When the Government is not the budget, but they are required by law or a long-standing
acting in its capacity as sovereign and engages in a pure- practice to be classified on the spending side.
ly business-type transaction (such as leasing or selling 7 Policies for setting user charges are promulgated in OMB Circular
goods, services, or resources), market price is generally No. A25: User Charges (July 8, 1993).
III. USER CHARGE PROPOSALS

As shown in Table 131, an estimated $231.8 billion A. Discretionary User Charge Proposals
of user charges for 2017 will be credited directly to ex-
penditure accounts and will generally be available for 1. Offsetting collections
expenditure when they are collected, without further ac- Department of Agriculture
tion by the Congress. An estimated $302.2 billion of user
charges for 2017 will be deposited in offsetting receipt ac- Forest Service: Grazing administrative processing fee.
counts and will be available to be spent only according to The Budget proposes, beginning on March 1, 2017, and
the legislation that established the charges. in each subsequent year through February 28, 2020, to
As shown in Table 134, the Administration is pro- recover some of the costs of issuing grazing permits and
posing new or increased user charges that would, in leases on Forest Service lands. The Forest Service would
the aggregate, increase collections by an estimated charge a fee of $2.50 per head month for cattle and its
$4.2 billion in 2017 and an average of $11.1 billion per equivalent for other livestock, which would be collected
year from 2018 through 2026. These estimates reflect along with current grazing fees. The fee would allow the
only the amounts to be collected; they do not include Forest Service to more expeditiously address pending ap-
related spending. Each proposal is classified as either plications for grazing permit renewals and perform other
discretionary or mandatory, as those terms are defined necessary grazing activities.
in the Balanced Budget and Emergency Deficit Control
Department of Commerce
Act of 1985, as amended. Discretionary refers to user
charges controlled through annual appropriations acts National Oceanic and Atmospheric Administration
and generally under the jurisdiction of the appropria- (NOAA): Infrastructure permitting fee. The Budget in-
tions committees in the Congress. Mandatory refers cludes a proposal to allow NOAA to collect user fees from
to user charges controlled by permanent laws and private entities for activities related to regulatory per-
under the jurisdiction of the authorizing committees. mitting. This authority would allow NOAA to expedite
These and other terms are discussed further in this studies and data collection supporting decision-making
volume in Chapter 9, Budget Concepts. in collaboration with private entities seeking regulatory
permits. Annual collections are estimated to be $100,000.
Department of Health and Human Services The 2017 Budget proposes to increase the $5.60 fee es-
tablished by the BBA of 2013 to $6.60 for 2017 and by
Food and Drug Administration (FDA): Food facilities an additional 40 cents in 2018, and by an additional 25
registration, inspection, and import fees. The Budget in- cents in 2019 and 2020, resulting in a fee of $7.50 in 2020
cludes a proposed fee to finance activities that support the that will capture 69 percent of the costs of aviation secu-
safety and security of Americas food supply and help meet rity in 2020 and 70 percent by 2026. Under this proposal,
the requirements of the FDA Food Safety Modernization starting in 2018, a portion of the collections would be al-
Act. located between general fund deposits and discretionary
FDA: International courier fees. The volume of imports, offsetting collections. In total, this proposal will increase
predominantly medical products, being brought into the receipts by an estimated $12.3 billion from 2017 through
United States by international couriers is growing sub- 2026. Of that amount, $6.9 billion will be categorized as
stantially. To ensure the safety of these FDA-regulated discretionary offsetting collections to pay for the costs of
products through increased surveillance efforts, the aviation security while the remaining $5.4 billion will be
Budget includes a new charge to international couriers. deposited in the general fund for deficit reduction.
FDA: Cosmetic facility registration fees. FDA promotes TSA: Aviation security infrastructure fee. The aviation
the safety of cosmetics and other health and beauty prod- security infrastructure fee was authorized in 2001 by the
ucts. The Budget includes a new facility registration fee Aviation and Transportation Security Act, requiring air
for cosmetic and other health and beauty product facili- carriers to pay a fee reflecting the aviation industrys share
ties that will improve FDAs capacity to promote greater of the costs for screening passengers and property as well
safety and understanding of these products. as providing other aviation security services. The BBA of
FDA: Food contact substances notification fee. Food 2013 repealed the Aviation Security Infrastructure Fee,
contact substances include components of food packag- effective October 1, 2014, causing offsetting collections to
ing and food processing equipment that come in contact decrease by $4.2 billion over ten years. The 2017 Budget
with food. This new fee will allow FDA to promote greater proposes that TSA continue to collect the aviation security
safety and understanding of the products that come into infrastructure fee, starting in 2017. The Budget also pro-
contact with food when used. poses to reinstate the Aviation Security Infrastructure Fee
FDA: Export certification user fee cap increase. Firms permanently in the future while providing a mechanism
exporting products from the United States are often asked for the agency to more equitably apportion the collection
by foreign customers or foreign governments to supply a of $420 million among air carriers on the basis of current
certificate for products regulated by the FDA to docu- market share. This proposal increases collections by an
ment the products regulatory or marketing status. The estimated $4.2 billion from 2017 through 2026.
proposal increases the maximum user fee cap from $175
Department of Housing and Urban Development
per export certification to $600 to meet FDAs true cost of
issuing export certificates and to ensure better and faster Federal Housing Administration (FHA): Administrative
service for American companies that request the service. support fee. The Budget requests authority to charge
Health Resources and Services Administration: 340B lenders using FHA mortgage insurance an administra-
Pharmacy Affairs fee. To improve the administration and tive support fee, which would generate an estimated $30
oversight of the 340B Drug Discount Program, the Budget million annually in offsetting collections. These addi-
includes a new charge to those entities participating in tional collections will offset the cost of enhancements to
the program. administrative contract support and FHA staffing, includ-
Centers for Medicare and Medicaid Services (CMS): ing increasing the number of loans reviewed annually for
Survey and certification revisit fee. The Budget proposes quality assurance.
a revisit user fee to provide CMS with a greater ability
Department of the Interior (DOI)
to revisit poor performing health care facilities to build
greater accountability by creating an incentive for facili- Bureau of Land Management (BLM): Public lands oil
ties to correct deficiencies and ensure quality of care. and gas lease inspection fees. The Budget proposes new
Department of Homeland Security inspection fees for oil and gas facilities that are subject to
inspection by BLM. The fees would be based on the num-
Transportation Security Administration (TSA): ber of oil and gas wells per facility, providing for costs to
Aviation passenger security fee increase. Since 2001 be shared equitably across the industry. In 2017, BLM
the aviation passenger security fee had been limited to will spend $48 million on managing the compliance in-
$2.50 per passenger enplanement with a maximum fee spection program. Inspection costs include, among other
of $5.00 per one-way trip pursuant to the Aviation and things, the salaries and travel expenses of inspectors. The
Transportation Security Act. Pursuant to the Bipartisan proposed fees will generate approximately $48 million in
Budget Act (BBA) of 2013, starting in July 2014, this fee 2017, thereby fully offsetting the Bureaus cost of com-
was restructured into a single per-trip charge and in- pliance inspections and requiring energy developers on
creased to $5.60 per one-way trip. Over the next 10 years, Federal lands to fund the majority of inspection-related
this restructured fee is projected to provide $40 billion in compliance costs incurred by BLM.
additional discretionary offsetting collections and $13 bil- BLM: Grazing administrative processing fee. The
lion for deficit reduction. Budget proposes a three-year pilot project to allow BLM
to recover some of the costs of issuing grazing permits and ucts out of the hands of U.S. consumers. CPSC proactively
leases on BLM lands. BLM would charge a fee of $2.50 detects and stops hazardous products that do not meet
per animal unit month, which would be collected along safety standards from entering U.S. ports, while expe-
with current grazing fees. The fee would allow BLM to diting compliant trade. The program uses a risk-based
address pending applications for grazing permit renewals methodology as a cost-efficient means to target and in-
more expeditiously. BLM would promulgate regulations spect high risk imports.
for the continuation of the grazing administrative fee as a
Federal Trade Commission
cost recovery fee after the pilot expires.
Bureau of Safety and Environmental Enforcement: Increase Hart-Scott-Rodino fees. See description under
Inspection fees. The Budget proposes to update the ex- Department of Justice.
isting inspection fee structure for offshore oil and gas 2. Offsetting receipts
production facilities to allow fees to be collected for each
inspection that is conducted when a facility is subject to Department of Justice
multiple inspections during a given year. This will re-
duce the need for taxpayer funds to support the program, U.S. Trustee Program (USTP): Chapter 11 quarterly fil-
while more equitably distributing costs among operators ing fee increase. The USTP is responsible for promoting
based on risk factors such as an operators history of com- the integrity and efficiency of the Nations bankruptcy
pliance with safety regulations. The proposed fees are system for the benefit of all stakeholders debtors, credi-
estimated to generate $65 million in 2017, an increase of tors, and the public. Since 1989, the Program has been
approximately $11 million over the amount that would be fully funded through bankruptcy fees paid primarily by
collected under the current fee structure. those who use the bankruptcy system. Bankruptcy filings
Department of Justice have fallen for the last five years, and have not in recent
years followed traditional historical patterns. Unlike oth-
Antitrust Division: Increase Hart-Scott-Rodino fees. er bankruptcy fees that are set administratively by the
The Federal Trade Commission and the Department of Judicial Conference of the United States, USTP quarterly
Justice Antitrust Division are responsible for reviewing fees are set in statute. The Budget proposes to adjust the
corporate mergers to ensure they do not promote anticom- current quarterly fee structure only for those larger chap-
petitive practices. Revenues collected from pre-merger ter 11 debtors in which quarterly disbursements total $1
filing fees, known as Hart-Scott-Rodino (HSR) fees, are million or more, excluding 98% of all debtors. The quar-
split evenly between the two agencies. The Budget pro- terly fees for these large cases would be assessed at 1% of
poses to increase the HSR fees and index them to the the disbursements with a $250,000 per quarter cap.
annual change in the gross national product. The fee
Department of State
proposal would also create a new merger fee category for
mergers valued at over $1 billion. Under the proposal, the Western Hemisphere Travel Initiative surcharge ex-
fee increase would take effect in 2018, and it is estimat- tension. The Administration proposes to extend the
ed that in 2018 HSR fees would total $378 million ($189 authority for the Department of State to collect the
million for each of Federal Trade Commission and DOJ Western Hemisphere Travel Initiative surcharge for one
Antitrust Division), an increase of $118 million per year year, through September 30, 2017. The surcharge was
($59 million for each of Federal Trade Commission and initially enacted by the Passport Services Enhancement
DOJ Antitrust Division). Act of 2005 (P.L. 109167) to cover the Departments costs
Commodity Futures Trading Commission (CFTC) of meeting increased demand for passports, which result-
ed from the implementation of the Western Hemisphere
CFTC fee. The Budget proposes an amendment to the Travel Initiative.
Commodity Exchange Act, effective in 2017, authorizing Border Crossing Card (BCC) fee increase. The Budget
the CFTC to collect fees, like other Federal financial and includes a proposal to allow the fee charged for BCC minor
banking regulators, from its regulated community equal applicants to be set administratively, rather than statuto-
to the agencys annual appropriation. Fee rates would be rily, at one-half the fee charged for processing an adult
designed in a way that supports market access, market border crossing card. Administrative fee setting will al-
liquidity, and the efficiency of the Nations futures, op- low the fee to better reflect the associated cost of service,
tions, and swaps markets. Fee funding would shift the consistent with other fees charged for consular services.
costs of regulatory services provided by the CFTC from As a result of this change, annual BCC fee collections be-
the general taxpayer to the primary beneficiaries of the ginning in 2017 are projected to increase by $1.8 million
CFTCs oversight. Subject to enactment of authorizing (from $0.4 million to $2.2 million).
legislation permitting the CFTC to collect user fees, the
Department of Transportation
Administration proposes that collections begin with the
fiscal year 2018 appropriation. Pipeline and Hazardous Materials Safety
Consumer Product Safety Commission (CPSC) Administration: Pipeline design review fees. The Pipeline
Safety, Regulatory Certainty, and Job Creation Act of 2011
Import surveillance user fee. The fee, effective in 2018, (P.L. 112-90) established a new fee for companies engaged
will expand a CPSC initiative to keep dangerous prod- in the design, permitting, and construction of new pipe-
line projects. The legislation allowed for the collection of financial soundness of PBGC. The PBGC Board would use
the fee as a mandatory receipt with the spending subject this authority to increase premiums in the multiemployer
to appropriations. No fees have been collected to date pur- program by adding a variable rate premium based on plan
suant to this authority. The Consolidated Appropriations underfunding as well as an exit premium, which would be
Act of 2014 and the Consolidated and Further Continuing assessed to employers that leave the system. This propos-
Appropriations Act of 2015 provided the authority to al is estimated to save $15 billion over the next decade.
retain fees collected in 2014 pursuant to P.L. 112-90. Foreign Labor Certification fees. The Budget proposes
However, since the Administration would like to use these legislation to allow DOL to charge fees for new applica-
fees as an offset for discretionary spending and does not tions filed under the Permanent and H-2B foreign labor
wish to collect them as a mandatory receipt in exactly certification programs, to improve the speed and qual-
the manner prescribed in P.L. 112-90, the Administration ity of certification processing. The Budget also proposes
proposes collection of this fee pursuant to appropriations legislation to allow DOL to retain fees for certified appli-
language. cations filed under the H-2A temporary labor certification
program and modify the fee to cover full program costs.
B. Mandatory User Charge Proposals The fees would partially offset Federal costs for adminis-
tering these programs and, once fully implemented, would
1. Offsetting collections eliminate the need for appropriations for this purpose.
Environmental Protection Agency (EPA)
Department of Agriculture (USDA)
Confidential business information (CBI) management
Biobased labeling fee. Biobased products are indus- fee. EPA receives filings under the Toxic Substances
trial products (other than food or feed) that are composed, Control Act that may contain information claimed as CBI.
in whole or in part, of biological products, including re- The Budget proposes to expand EPAs existing authority
newable domestic agricultural materials and forestry to collect fees to recover approximately 40 percent annu-
materials or an intermediate ingredient or feedstock. ally of the costs of reviewing and maintaining the CBI.
USDA issues labels for biobased products through the These costs relate to the management and maintenance
BioPreferred program that producers can use in adver- of headquarters and regional CBI repositories, a stand-
tising their products. To ensure the integrity of the label, alone secure CBI database and communications system,
the Budget requests authority for USDA to: 1) impose physical security, and CBI reviews and sanitizations.
civil penalties on companies who misuse the label, and
2) assess each producer who applies for the label a $500 2. Offsetting receipts
fee to fund a program audit. This fee, which will begin to
Department of Agriculture
be collected once authorizing legislation is enacted, was
broadly supported by potential users who commented on Food Safety and Inspection Service: Performance and
the labels proposed rule, which was issued in May 2010. other charges. This fee would be charged to those meat
Rural Housing Service: Guaranteed Underwriting processing plants that have sample failures that result
System (GUS) fee. The 2017 Budget includes a proposal in retesting, have recalls, or are linked to an outbreak.
that would allow up to a $50 per loan guaranteed under- This arrangement will offset the Federal Governments
writing fee for lenders who participate in the section 502 costs for resampling and retesting, while encouraging bet-
single family housing loan guarantee program, which ter food safety practice for processing plants. This fee is
would become a dedicated funding source to offset the expected to generate $4 million in 2017.
cost of systems upgrades and maintenance for the GUS. Grain Inspection, Packers, and Stockyards
Estimates assume the collections will begin in 2019 with Administration: Standardization and licensing activities.
a charge of $25 per loan generating $4 million per year for These fees would recover the full cost for the development,
the GUS system. review, and maintenance of official U.S. grain standards
Department of Labor (DOL) and also for licensing fees to livestock market agencies,
dealers, stockyards, packers, and swine contractors. The
Pension Benefit Guaranty Corporation (PBGC): fees are expected to generate $30 million in 2017.
Premium increases. PBGC acts as a backstop to protect Animal and Plant Health Inspection Service: Inspection
pension payments for workers whose companies have and licensing charges. The Administration proposes to
failed. Currently, PBGCs pension insurance programs establish charges for: 1) animal welfare inspections for
are underfunded, and its liabilities far exceed its assets. animal research facilities, carriers, and in-transit han-
PBGC receives no taxpayer funds and its premiums are dlers of animals, 2) licenses for individuals or companies
currently much lower than what a private financial in- who seek to market a veterinary biologic, and 3) reviews
stitution would charge for insuring the same risk. The and inspections related to authorized activities to ensure
Budget proposes to give the PBGC Board the authority to that the regulated entities provide sufficient safeguards
adjust premiums and directs PBGC to take into account for regulated products of biotechnology.
the risks that different sponsors pose to their retirees and Natural Resources Conservation Service (NRCS)
to PBGC. This reform will both encourage companies to Conservation user fee: The BBA of 2013 provided NRCS
fully fund their pension benefits and ensure the continued with the authority to establish a modest fee to partially
offset the agencys cost to develop conservation plans. 1985) and the Express Consignment Courier Facilities
While this authority included provisions that would (ECCF) fee created under the Trade Act of 2002. COBRA
exempt beginning, limited resource, and socially dis- created a series of user fees for air and sea passengers,
advantaged farmers, it did not provide NRCS with the commercial trucks, railroad cars, private aircraft and
authority to retain and spend any fees collected. To more vessels, commercial vessels, dutiable mail packages,
closely associate the fee with the service being provided, broker permits, barges and bulk carriers from Canada
the Budget includes language that would allow NRCS to and Mexico, cruise vessel passengers, and ferry vessel
retain and spend any fees collected for the development of passengers. This proposal would increase the customs
conservation plans. inspection fee by $2 and increase other COBRA fees by a
Department of Health and Human Services proportional amount.
The ECCF fee was created to reimburse CBP for in-
CMS: Income-related premium increase under Medicare spection costs related to express consignment and the
Parts B and D. The Budget contains a proposal to increase proposal would increase the fee by $0.36. The additional
income-related premiums under Medicare Parts B and D. revenue raised from increasing the COBRA and ECCF
Beginning in 2020, this proposal would increase premi- user fees will allow CBP to recover more costs associat-
ums for certain high-income beneficiaries and maintains ed with customs related inspections, and reduce waiting
the income thresholds associated with these income-re- times by helping to support the hiring of 840 new CBP
lated premiums until 25 percent of beneficiaries under officers.
Parts B and D are subject to these premiums. This will CBP: Increase immigration inspection user fee (IUF)
help improve the financial stability of the Medicare pro- and lift IUF fee limitation. The Budget proposes to in-
gram by reducing the Federal subsidy of Medicare costs crease the immigration inspection user fee by $2. The
for those who need the subsidy the least. current fees are $7 for air and commercial vessel pas-
CMS: Medicare Provider Enrollment Application Fee. sengers and $3 for partially exempted commercial vessel
The Budget proposes an enrollment application fee for all passengers whose trips originate in Canada, Mexico, U.S.
individuals and groups enrolling as Medicare providers, territories, and adjacent islands. This fee is paid by pas-
to be adjusted by inflation annually. Providers may re- sengers and is used to recover some of the costs related to
quest hardship exemptions where applicable. Amounts determining the admissibility of passengers entering the
collected would cover the costs of conducting required pro- U.S. Specifically, the fees collected support immigration
vider screening and related program integrity efforts. inspections, personnel, the maintenance and updating of
CMS: Medicare Billing Agent Enrollment Application systems to track criminal and illegal aliens in areas with
Fee. The Budget proposes to establish an enrollment and high apprehensions, asylum hearings, and the repair and
registration process for clearinghouses and billing agents maintenance of equipment. CBP has also identified sev-
who act on behalf of Medicare providers and suppliers, eral automation and technology development initiatives
introducing an application fee to be consistent with pro- to improve its business processes related to cruise ship
gram integrity safeguards in place for institutional and processing, should this fee increase be realized, includ-
individual providers. ing mobile devices for passenger processing; automated
CMS: Medicare Provider Fee for Ordering Services or passport control and Global Entry Kiosks; and Entry/
Supplies without Proper Documentation. Improperly doc- Exit Biometric technology development, all for the cruise
umented items and services account for the majority of environment.
Medicare fee-for-service improper payments. The Budget The Budget also proposes to lift the exemption for pas-
proposes a fee for physicians and practitioners when sengers traveling from those partially-exempt regions so
items or services ordered are not supported by sufficient that the same fee will be applied to all sea passengers. As
documentation. Amounts collected would cover the costs noted, each sea passenger arriving in the United States is
of conducting medical claim reviews. currently charged a $7 fee if his or her journey originated
CMS: Refundable Filing Fee for Medicare Parts A & B from a place outside of the United States except for certain
Appeals. The Budget proposes a refundable filing fee on regions. Lifting this fee limitation will bring collections
providers, suppliers, and State Medicaid Agencies to pay more in line with the cost of conducting sea passenger
a per-claim filing fee beginning at the first level of ap- inspections as well as help modernize and create more
peals. The fee will be assessed at each level of appeal and efficient and effective business processes and systems in
is estimated to reflect 30 percent of the applicable admin- the cruise environment. Together, the additional receipts
istrative costs associated with adjudicating claims. If an collected from these increases would fund 1,230 new CBP
appellants appeal receives a favorable determination, the officers, which will reduce wait times at air and sea ports
fee will be refunded. The fee will not apply to beneficiary of entry, especially as cruise volumes continue to grow as
appeals and will be phased in over a three-year period. projected in future years.
Department of Homeland Security TSA: Aviation passenger security fee increase. As dis-
cussed above in the section on discretionary user charge
Customs and Border Protection (CBP): COBRA and proposals, the Budget includes a proposal to increase the
Express Consignment Courier Facilities fees. The Budget aviation passenger security fee incrementally over 2017-
proposes to increase COBRA fees (statutorily set under 2020. The fee would be $7.50 per one-way trip beginning
the Consolidated Omnibus Budget Reconciliation Act of in 2020 and would generate $5.4 billion in mandatory re-
ceipts over the 10-year budget window, which would be The Budget proposes to lift the cap so that EPA can re-
deposited in the general fund for deficit reduction. cover a greater portion of the program cost.
Department of the Interior Federal Communications Commission (FCC)
Federal oil and gas management reforms. The Budget Spectrum license fee authority. To promote efficient
includes a package of legislative reforms to bolster and use of the electromagnetic spectrum, the Administration
backstop administrative actions being taken to reform proposes to provide the FCC with new authority to use
the management of DOIs onshore and offshore oil and other economic mechanisms, such as fees, as a spectrum
gas programs, with a key focus on improving the return management tool. The FCC would be authorized to set
to taxpayers from the sale of these Federal resources. charges for unauctioned spectrum licenses based on
Proposed statutory and administrative changes fall into spectrum-management principles. Fees would be phased
three general categories: 1) advancing royalty reforms, 2) in over time as part of an ongoing rulemaking process to
encouraging diligent development of oil and gas leases, determine the appropriate application and level for fees.
and 3) improving revenue collection processes. Royalty Auction domestic satellite service spectrum licenses. The
reforms include: establishing minimum royalty rates for FCC would be allowed to assign licenses for certain sat-
oil, gas, and similar products; increasing the standard on- ellite services that are predominantly domestic through
shore oil and gas royalty rate; piloting a price-based sliding competitive bidding, as had been done before a 2005 court
scale royalty rate; and repealing legislatively-mandated decision called the practice into question on technical
royalty relief for deep gas wells. Diligent development grounds. The proposal is expected to raise $50 million
requirements include shorter primary lease terms, strict- from 20172026. These receipts would be deposited in the
er enforcement of lease terms, and monetary incentives to general fund for deficit reduction.
move leases into production (e.g., a new statutory per-acre Auction or assign via fee 1675-1680 megahertz. The
fee on nonproducing leases). Revenue collection improve- Budget proposes that the FCC either auction or use
ments include simplification of the royalty valuation fee authority to assign spectrum frequencies between
process and permanent repeal of DOIs authority to ac- 1675-1680 megahertz for flexible use by 2020, subject to
cept in-kind royalty payments. Collectively, these reforms sharing arrangements with Federal weather satellites.
will generate roughly $1.7 billion in net receipts to the Currently, the spectrum is being used for radiosondes
Treasury over 10 years, of which about $1.2 billion would (weather balloons), weather satellite downlinks, and
result from statutory changes. Many States will also ben- data broadcasts, and the band will also support future
efit from higher Federal revenue sharing payments. weather satellite operations. NOAA began transition-
BLM: Reform of hardrock mineral production on ing radiosondes operations out of the band in 2016 as
Federal lands. The Administration proposes to insti- part of the Advanced Wireless Services 3 (AWS-3) relo-
tute a leasing process under the Mineral Leasing Act of cation process. If this proposal is enacted, NOAA would
1920 for certain minerals (gold, silver, lead, zinc, copper, establish limited protection zones for the remaining
uranium, and molybdenum) currently covered by the weather satellite downlinks and develop alternative
General Mining Law of 1872. After enactment, mining data broadcast systems for users of its data products.
for these metals on Federal lands would be governed by Without this proposal, these frequencies are unlikely
the new leasing process and subject to annual rental pay- to be auctioned and repurposed to commercial use. The
ments and a royalty of not less than 5 percent of gross proposal is expected to raise $300 million in receipts
proceeds. Half of the receipts would be distributed to the over 10 years.
States in which the leases are located and the remaining
half would be retained by the Treasury. Existing mining C. User Charge Proposals that are
claims would be exempt from the change to the leasing Governmental Receipts
system, but would be subject to increases in the annual
maintenance fees under the General Mining Law of 1872. Department of Energy
BLM: Reauthorize the Federal Land Transaction
Facilitation Act (FLTFA). The Budget proposes to reau- Reauthorize special assessment on domestic nuclear
thorize the FLTFA, which expired in July 2011, and allow facilities. The Administration proposes to authorize
lands identified as suitable for disposal in recent land use the use of balances in the United States Enrichment
plans to be sold using the FLTFA authority. The FLTFA Corporation Fund for the same purpose as the Uranium
sales revenues would continue to be used to fund the ac- Enrichment Decontamination and Decommissioning
quisition of environmentally sensitive lands and to cover Fund, in order to fund higher-than-expected cleanup
BLMs administrative costs associated with conducting costs. Established in 1992, the Uranium Enrichment
sales. Decontamination and Decommissioning Fund pays,
Environmental Protection Agency (EPA) subject to appropriation, the decontamination and de-
commissioning costs of the Department of Energys
Pre-manufacture notice fee. EPA currently collects gaseous diffusion plants in Tennessee, Ohio, and
fees from chemical manufacturers seeking to market Kentucky. To offset the PAYGO cost of the United
new chemicals. These fees are authorized by the Toxic States Enrichment Corporation Fund proposal, the
Substances Control Act and are subject to a statutory cap.
Budget proposes to reauthorize the special assessment Corps of EngineersCivil Works

on domestic nuclear utilities.
Reform inland waterways funding. The Administration
Department of Homeland Security proposes legislation to reform the laws governing the
Inland Waterways Trust Fund, including establishing
CBP: Establish user fee for Electronic Visa Update an annual per vessel fee to increase the amount paid by
System. The Budget proposes to establish a user fee for commercial navigation users of the inland waterways. In
the Electronic Visa Update System (EVUS), a new CBP 1986, the Congress provided that commercial traffic on
program to collect biographic and travel-related infor- the inland waterways would be responsible for 50 per-
mation from certain non-immigrant visa holders prior to cent of the capital costs of the locks and dams, and other
traveling to the United States. This process will comple- features that make barge transportation possible on the
ment existing visa application process and enhance CBPs inland waterways. The additional revenue would help
ability to make pre-travel admissibility and risk deter- finance future capital investments in these waterways,
minations. CBP proposes to establish a user fee to fund as well as 25 percent of the operation and maintenance
the costs of establishing, providing, and administering the costs, to support economic growth. The current excise tax
system. on diesel fuel used in inland waterways commerce, which
was recently increased to 29 cents per gallon, will not pro-
duce the revenue needed to cover these costs.
Table 134. USER CHARGE PROPOSALS IN THE FY 2017 BUDGET

(Estimated collections in millions of dollars)
2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS

DISCRETIONARY:
Offsetting collections
Forest Service: Grazing administrative processing fee ......... 15 15 15 15 ......... ......... ......... ......... ......... ......... 60 60
Department of Commerce
National Oceanic and Atmospheric Administration: Infrastructure
permitting fee * * * * * * * * * * * * 1
Department of Health and Human Services
Food and Drug Administration (FDA): Food facilities registration,
inspection, and import fees import fees ......... 166 169 172 176 180 183 187 191 194 198 863 1,816
FDA: International courier fees ......... 6 6 6 6 6 7 7 7 7 7 30 65
FDA: Cosmetic facility registration fees ......... 20 20 21 21 22 22 23 23 23 24 104 219
FDA: Food contact substances notification fee ......... 5 5 5 6 6 6 6 6 6 6 27 57
FDA: Export certification user fee cap increase ......... 4 4 4 4 4 4 5 5 5 5 20 44
Health Resources and Services Administration: 340B Pharmacy
Affairs fee ......... 9 9 9 9 9 9 9 9 9 9 45 90
Centers for Medicare and Medicaid Services (CMS): Survey and
certification revisit fee ......... * 5 10 10 20 25 25 25 25 25 45 170
Department of Homeland Security
Transportation Security Administration (TSA): Aviation passenger
security fee increase ......... 489 521 629 764 930 967 1,005 1,043 1,081 520 3,333 6,909
TSA: Aviation security infrastructure fee ......... 420 420 420 420 420 420 420 420 420 420 2,100 4,200
Department of Housing and Urban Development
Federal Housing Administration: Administrative support fee ......... 30 30 30 30 30 30 30 30 30 30 150 300
Department of the Interior
Bureau of Land Management (BLM): Public lands oil and gas lease
inspection fees ......... 48 48 48 48 48 48 48 48 48 48 240 480
BLM: Grazing administrative processing fee ......... 17 17 17 ......... ......... ......... ......... ......... ......... ......... 51 51
Bureau of Safety and Environmental Enforcement: Inspection fee ......... 11 11 11 12 12 12 12 13 13 13 57 120
Department of Justice
Antitrust Division: Increase Hart-Scott-Rodino fees ......... ......... 59 61 62 64 66 67 69 72 74 246 594
Commodity Futures Trading Commission (CFTC)
CFTC fee ......... ......... 337 343 350 357 364 372 379 387 394 1,387 3,283
Consumer Product Safety Commission
Import surveillance user fee ......... ......... 36 36 36 36 36 36 36 36 36 144 324
Federal Trade Commission
Increase Hart-Scott-Rodino fees ......... ......... 59 61 62 64 66 67 69 72 74 246 594
Offsetting receipts
Department of Justice
U.S. Trustee Program: Chapter 11 quarterly filing fee increase ......... 125 128 130 133 135 138 141 144 146 149 651 1,369
Department of State
Western Hemisphere Travel Initiative surcharge extension ......... 461 ......... ......... ......... ......... ......... ......... ......... ......... ......... 461 461
Border Crossing Card fee increase ......... 2 2 2 2 2 2 2 2 2 2 10 20
Department of Transportation
Pipeline and Hazardous Materials Safety Administration: Pipeline
design review fees ......... 2 2 2 2 2 2 2 2 2 2 10 20
Subtotal, discretionary user charge proposals ......... 1,830 1,903 2,032 2,168 2,347 2,407 2,464 2,521 2,578 996 10,280 21,246
MANDATORY:
Offsetting collections
Biobased labeling fee ......... 1 1 1 1 1 1 1 1 1 1 5 10
Table 134. USER CHARGE PROPOSALS IN THE FY 2017 BUDGETContinued

(Estimated collections in millions of dollars)
2017- 2017-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
Rural Housing Service: Guaranteed Underwriting System fee ......... ......... ......... 4 4 4 4 4 4 4 4 12 32
Department of Labor
Pension Benefit Guaranty Corporation: Premium increases ......... 1,220 1,265 1,310 1,401 1,446 1,536 1,581 1,672 2,991 578 6,642 15,000
Foreign Labor Certification fees ......... 38 78 81 85 88 92 96 100 104 109 370 871
Environmental Protection Agency
Confidential Business Information management fee ......... ......... 2 8 8 8 8 8 8 8 8 26 66
Offsetting receipts
Food Safety and Inspection Service: Performance and other charges ......... 4 4 4 5 5 5 5 5 5 5 22 47
Grain, Inspection, Packers, and Stockyards Administration:
Standardization and licensing activities ......... 30 30 30 30 30 30 30 30 30 30 150 300
Animal and Plant Health Inspection Service: Inspection and licensing
charges ......... 20 27 27 28 29 30 31 32 33 34 131 291
Natural Resource Conservation Service: Conservation user fee ......... ......... 4 4 4 4 4 4 4 4 4 16 36
Department of Health and Human Services
CMS: Income-related premium increase under Medicare Parts B and D ......... ......... ......... ......... 1,870 3,370 4,620 6,170 7,950 7,740 9,080 5,240 40,800
CMS: Allow collection of application fees from individual providers ......... 9 9 9 10 10 10 10 10 10 11 47 98
CMS: Establish registration process for clearinghouses and billing
agents ......... 15 16 17 18 19 20 21 22 23 24 85 195
CMS: Medicare provider fee for ordering services or supplies without
proper documentation ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
CMS: Medicare appeals refundable filing fee ......... 9 86 131 131 131 136 141 146 146 151 488 1,208
Customs and Border Protection (CBP): COBRA fee ......... 264 276 292 308 328 344 361 380 400 ......... 1,468 2,953
CBP: Express Consignment Courier Facilities fee ......... 12 12 14 14 16 16 18 18 18 ......... 68 138
CBP: Increase immigration inspection user fee (IUF) and lift IUF
limitation ......... 270 279 316 327 396 408 484 500 550 602 1,588 4,132
TSA: Aviation passenger security fee increase ......... ......... 410 490 550 410 400 390 380 370 2,000 1,860 5,400
Department of the Interior
Federal oil and gas management reforms ......... 20 70 90 110 120 140 150 170 180 190 410 1,240
BLM: Reform of hardrock mineral production on Federal lands ......... ......... 2 4 5 5 6 6 11 17 24 16 80
BLM: Reauthorize the Federal Land Transaction Facilitation Act ......... 5 10 20 30 30 30 30 30 30 30 95 245
Environmental Protection Agency
Pre-manufacture notice fee ......... 4 8 8 8 8 8 8 8 8 8 36 76
Federal Communications Commission
Spectrum license fee authority ......... 200 300 425 550 550 550 550 550 550 550 2,025 4,775
Auction domestic satellite service spectrum licenses ......... 25 25 ......... ......... ......... ......... ......... ......... ......... ......... 50 50
Auction or assign via fee 16751680 megahertz ......... ......... ......... 150 150 ......... ......... ......... ......... ......... ......... 300 300
Subtotal, mandatory user charge proposals ......... 2,146 2,914 3,435 5,647 7,028 8,438 10,169 12,121 13,322 13,553 21,169 78,772
Subtotal, user charge proposals that are offsetting collections and
offsetting receipts ......... 3,976 4,817 5,467 7,815 9,375 10,845 12,633 14,642 15,900 14,549 31,449 100,018
GOVERNMENTAL RECEIPTS
Department of Energy
Reauthorize special assessment on domestic nuclear facilities ......... 208 212 217 222 227 232 237 243 248 254 1,086 2,300
CBP: Establish user fee for Electronic Visa Update System ......... 31 25 27 31 27 31 29 34 24 28 141 287
Corps of Engineers - Civil Works
Reform inland waterways funding ......... 3 78 118 156 156 156 156 156 155 155 511 1,289
Subtotal, governmental receipts user charge proposals ......... 242 315 362 409 410 419 422 433 427 437 1,738 3,876
Total, user charge proposals ......... 4,218 5,132 5,829 8,224 9,785 11,264 13,055 15,075 16,327 14,986 33,187 103,894
* $500,000 or less.
14. TAX EXPENDITURES
The Congressional Budget Act of 1974 (Public Law 93 Tax Code remain unchanged. The estimates would be dif-
344) requires that a list of tax expenditures be included ferent if tax expenditures were changed simultaneously
in the budget. Tax expenditures are defined in the law as because of potential interactions among provisions. For
revenue losses attributable to provisions of the Federal that reason, this document does not present a grand total
tax laws which allow a special exclusion, exemption, or for the estimated tax expenditures.
deduction from gross income or which provide a special Tax expenditures relating to the individual and corpo-
credit, a preferential rate of tax, or a deferral of tax liabil- rate income taxes are estimated for fiscal years 20152025
ity. These exceptions may be viewed as alternatives to using two methods of accounting: current revenue effects
other policy instruments, such as spending or regulatory and present value effects. The present value approach
programs. provides estimates of the revenue effects for tax expen-
Identification and measurement of tax expenditures de- ditures that generally involve deferrals of tax payments
pends crucially on the baseline tax system against which into the future.
the actual tax system is compared. The tax expenditure A discussion of performance measures and economic
estimates presented in this document are patterned on a effects related to the assessment of the effect of tax expen-
comprehensive income tax, which defines income as the ditures on the achievement of program performance goals
sum of consumption and the change in net wealth in a is presented in the Appendix. This section is a comple-
given period of time. ment to the Government-wide performance plan required
An important assumption underlying each tax expen- by the Government Performance and Results Act of 1992.
diture estimate reported below is that other parts of the
TAX EXPENDITURES IN THE INCOME TAX
Tax Expenditure Estimates The total revenue effects for tax expenditures for fiscal
years 20152025 are displayed according to the Budgets
All tax expenditure estimates and their descriptions functional categories in Table 1. Descriptions of the spe-
presented here are based upon current tax law enacted as cific tax expenditure provisions follow the discussion of
of July 1, 2015 and reflect the economic assumptions from general features of the tax expenditure concept.
the Mid-Session Review of the 2016 Budget. In some cases, Two baseline conceptsthe normal tax baseline and
expired or repealed provisions are listed if their revenue the reference tax law baselineare used to identify and
effects occur in fiscal year 2015 or later. The estimates estimate tax expenditures.1 For the most part, the two
and their descriptions do not include the effects of the concepts coincide. However, items treated as tax expendi-
Protecting Americans from Tax Hikes Act of 2015 (PATH) tures under the normal tax baseline, but not the reference
which was enacted on December 17, 2015. Revised esti- tax law baseline, are indicated by the designation normal
mates reflecting the enacted legislation will be included tax method in the tables. The revenue effects for these
in the tax expenditure tables in the 2018 Budget. In par- items are zero using the reference tax rules. The alterna-
ticular, PATH extended and modified expiring provisions tive baseline concepts are discussed in detail below.
in the tax code. In some instances the extensions were Tables 2A and 2B report separately the respective
temporary in nature and are set to expire in a year or portions of the total revenue effects that arise under the
more, while in other instances the provisions were made individual and corporate income taxes. The location of
permanent. Examples of permanent extensions include the estimates under the individual and corporate head-
the research credit, the American Opportunity tax credit, ings does not imply that these categories of filers benefit
the deduction for state and local general sales taxes, the from the special tax provisions in proportion to the re-
expansion in the earned income tax credit, the increase spective tax expenditure amounts shown. Rather, these
in the limitation on expensing of real property, and the breakdowns show the form of tax liability that the various
reduction in the earnings threshold for the refundable provisions affect. The ultimate beneficiaries of corpo-
portion of the child tax credit. Temporary extensions in- rate tax expenditures could be shareholders, employees,
clude bonus depreciation, the work opportunity tax credit, customers, or other providers of capital, depending on eco-
the deduction for mortgage insurance premiums, and the nomic forces.
exclusion for discharge of indebtedness on principal resi-
dence, among others. Expanded descriptions are available
in the Receipts Chapter. 1 These baseline concepts are thoroughly discussed in Special Analy-
sis G of the 1985 Budget, where the former is referred to as the pre-1983
method and the latter the post-1982 method.
225
Table 3 ranks the major tax expenditures by the size of Government because the newly deferred taxes will ulti-
their 20162025 revenue effect. The first column provides mately be received.
the number of the provision in order to cross reference Discounted present-value estimates of revenue effects
this table to Tables 1, 2A, and 2B, as well as to the descrip- are presented in Table 4 for certain provisions that in-
tions below. volve tax deferrals or other long-term revenue effects.
These estimates complement the cash-based tax expendi-
Interpreting Tax Expenditure Estimates ture estimates presented in the other tables.
The present-value estimates represent the revenue
The estimates shown for individual tax expenditures in effects, net of future tax payments, that follow from ac-
Tables 1 through 3 do not necessarily equal the increase tivities undertaken during calendar year 2015 which
in Federal revenues (or the change in the budget balance) cause the deferrals or other long-term revenue effects. For
that would result from repealing these special provisions, instance, a pension contribution in 2015 would cause a
for the following reasons. deferral of tax payments on wages in 2015 and on pension
First, eliminating a tax expenditure may have incen- fund earnings on this contribution (e.g., interest) in later
tive effects that alter economic behavior. These incentives years. In some future year, however, the 2015 pension con-
can affect the resulting magnitudes of the activity or of tribution and accrued earnings will be paid out and taxes
other tax provisions or Government programs. For exam- will be due; these receipts are included in the present-
ple, if capital gains were taxed at ordinary rates, capital value estimate. In general, this conceptual approach is
gain realizations would be expected to decline, resulting similar to the one used for reporting the budgetary effects
in lower tax receipts. Such behavioral effects are not re- of credit programs, where direct loans and guarantees in
flected in the estimates. a given year affect future cash flows.
Second, tax expenditures are interdependent even
without incentive effects. Repeal of a tax expenditure Tax Expenditure Baselines
provision can increase or decrease the tax revenues asso-
ciated with other provisions. For example, even if behavior A tax expenditure is an exception to baseline provisions
does not change, repeal of an itemized deduction could in- of the tax structure that usually results in a reduction in
crease the revenue costs from other deductions because the amount of tax owed. The 1974 Congressional Budget
some taxpayers would be moved into higher tax brackets. Act, which mandated the tax expenditure budget, did not
Alternatively, repeal of an itemized deduction could lower specify the baseline provisions of the tax law. As noted
the revenue cost from other deductions if taxpayers are previously, deciding whether provisions are exceptions,
led to claim the standard deduction instead of itemizing. therefore, is a matter of judgment. As in prior years, most
Similarly, if two provisions were repealed simultaneously, of this years tax expenditure estimates are presented
the increase in tax liability could be greater or less than using two baselines: the normal tax baseline and the
the sum of the two separate tax expenditures, because reference tax law baseline. Tax expenditures may take
each is estimated assuming that the other remains in the form of credits, deductions, special exceptions and
force. In addition, the estimates reported in Table 1 are allowances.
the totals of individual and corporate income tax revenue The normal tax baseline is patterned on a practical
effects reported in Tables 2A and 2B, and do not reflect variant of a comprehensive income tax, which defines in-
any possible interactions between individual and corpo- come as the sum of consumption and the change in net
rate income tax receipts. For this reason, the estimates in wealth in a given period of time. The normal tax baseline
Table 1 should be regarded as approximations. allows personal exemptions, a standard deduction, and
deduction of expenses incurred in earning income. It is
Present-Value Estimates not limited to a particular structure of tax rates, or by a
specific definition of the taxpaying unit.
The annual value of tax expenditures for tax deferrals The reference tax law baseline is also patterned on
is reported on a cash basis in all tables except Table 4. a comprehensive income tax, but it is closer to existing
Cash-based estimates reflect the difference between taxes law. Reference law tax expenditures are limited to special
deferred in the current year and incoming revenues that exceptions from a generally provided tax rule that serve
are received due to deferrals of taxes from prior years. programmatic functions in a way that is analogous to
Although such estimates are useful as a measure of cash spending programs. Provisions under the reference law
flows into the Government, they do not accurately reflect baseline are generally tax expenditures under the normal
the true economic cost of these provisions. For example, tax baseline, but the reverse is not always true.
for a provision where activity levels have changed over Both the normal and reference tax baselines allow sev-
time, so that incoming tax receipts from past deferrals are eral major departures from a pure comprehensive income
greater than deferred receipts from new activity, the cash- tax. For example, under the normal and reference tax
basis tax expenditure estimate can be negative, despite baselines:
the fact that in present-value terms current deferrals Income is taxable only when it is realized in ex-
have a real cost to the Government. Alternatively, in the change. Thus, the deferral of tax on unrealized capi-
case of a newly enacted deferral provision, a cash-based tal gains is not regarded as a tax expenditure. Ac-
estimate can overstate the real effect on receipts to the
14. TAX EXPENDITURES 227
crued income would be taxed under a comprehensive Capital recovery. Under the reference tax law baseline
income tax. no tax expenditures arise from accelerated depreciation.
Under the normal tax baseline, the depreciation allow-
There is a separate corporate income tax. ance for property is computed using estimates of economic
Tax rates on noncorporate business income vary by depreciation.
level of income. Treatment of foreign income. Both the normal and ref-
erence tax baselines allow a tax credit for foreign income
Individual tax rates, including brackets, standard taxes paid (up to the amount of U.S. income taxes that
deduction, and personal exemptions, are allowed to would otherwise be due), which prevents double taxation
vary with marital status. of income earned abroad. Under the normal tax method,
Values of assets and debt are not generally adjust- however, controlled foreign corporations (CFCs) are not
ed for inflation. A comprehensive income tax would regarded as entities separate from their controlling U.S.
adjust the cost basis of capital assets and debt for shareholders. Thus, the deferral of tax on income re-
changes in the general price level. Thus, under a ceived by CFCs is regarded as a tax expenditure under
comprehensive income tax baseline, the failure to this method. In contrast, except for tax haven activities,
take account of inflation in measuring depreciation, the reference law baseline follows current law in treat-
capital gains, and interest income would be regarded ing CFCs as separate taxable entities whose income is
as a negative tax expenditure (i.e., a tax penalty), not subject to U.S. tax until distributed to U.S. taxpayers.
and failure to take account of inflation in measuring Under this baseline, deferral of tax on CFC income is not
interest costs would be regarded as a positive tax a tax expenditure because U.S. taxpayers generally are
expenditure (i.e., a tax subsidy). not taxed on accrued, but unrealized, income.
Although the reference law and normal tax baselines Descriptions of Income Tax Provisions
are generally similar, areas of difference include:
Tax rates. The separate schedules applying to the vari- Descriptions of the individual and corporate income tax
ous taxpaying units are included in the reference law expenditures reported on in this document follow. These
baseline. Thus, corporate tax rates below the maximum descriptions relate to current law as of July 1, 2015.
statutory rate do not give rise to a tax expenditure. The
normal tax baseline is similar, except that, by convention, National Defense
it specifies the current maximum rate as the baseline for
the corporate income tax. The lower tax rates applied to 1. Exclusion of benefits and allowances to armed
the first $10 million of corporate income are thus regarded forces personnel.Under the baseline tax system, all
as a tax expenditure under the normal tax. By conven- compensation, including dedicated payments and in-kind
tion, the Alternative Minimum Tax is treated as part of benefits, should be included in taxable income because
the baseline rate structure under both the reference and they represent accretions to wealth that do not materially
normal tax methods. differ from cash wages. As an example, a rental voucher
Income subject to the tax. Income subject to tax is of $100 is (approximately) equal in value to $100 of cash
defined as gross income less the costs of earning that in- income. In contrast to this treatment, certain housing
come. Under the reference tax rules, gross income does and meals, in addition to other benefits provided military
not include gifts defined as receipts of money or prop- personnel, either in cash or in kind, as well as certain
erty that are not consideration in an exchange nor does amounts of pay related to combat service, are excluded
gross income include most transfer payments from the from income subject to tax.
Government.2 The normal tax baseline also excludes gifts
between individuals from gross income. Under the nor- International Affairs
mal tax baseline, however, all cash transfer payments
from the Government to private individuals are counted 2. Exclusion of income earned abroad by U.S.
in gross income, and exemptions of such transfers from citizens.Under the baseline tax system, all compen-
tax are identified as tax expenditures. The costs of earn- sation received by U.S. citizens and residents is properly
ing income are generally deductible in determining included in their taxable income. It makes no difference
taxable income under both the reference and normal tax whether the compensation is a result of working abroad
baselines.3 or whether it is labeled as a housing allowance. In con-
2 Gross income does, however, include transfer payments associated trast to this treatment, U.S. tax law allows U.S. citizens
with past employment, such as Social Security benefits. and residents who live abroad, work in the private sec-
3 In the case of individuals who hold passive equity interests in tor, and satisfy a foreign residency requirement to exclude
businesses, the pro-rata shares of sales and expense deductions report- up to $80,000, plus adjustments for inflation since 2004,
able in a year are limited. A passive business activity is defined gener- in foreign earned income from U.S. taxes. In addition, if
ally to be one in which the holder of the interest, usually a partnership these taxpayers are provided housing by their employers,
interest, does not actively perform managerial or other participatory
functions. The taxpayer may generally report no larger deductions for a then they may also exclude the cost of such housing from
year than will reduce taxable income from such activities to zero. Deduc- their income to the extent that it exceeds 16 percent of the
tions in excess of the limitation may be taken in subsequent years, or
when the interest is liquidated. In addition, costs of earning income may be limited under the Alternative Minimum Tax.
Table 141. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 20152025
Total from corporations and individuals
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
National Defense
1 Exclusion of benefits and allowances to armed forces personnel
13,680 14,220 13,170 13,310 13,780 14,340 14,970 15,640 16,360 17,130 17,950 150,870
International affairs:
2 Exclusion of income earned abroad by U.S. citizens 5,990 6,280 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 79,050
3 Exclusion of certain allowances for Federal employees abroad 1,240 1,300 1,370 1,430 1,510 1,580 1,660 1,740 1,830 1,920 2,020 16,360
4 Inventory property sales source rules exception 3,890 4,210 4,560 4,940 5,350 5,790 6,270 6,790 7,350 7,960 8,620 61,840
5 Deferral of income from controlled foreign corporations (normal
tax method) 64,560 67,780 71,170 74,730 78,470 82,390 86,510 90,840 95,380 100,150 105,160 852,580
6 Deferred taxes for financial firms on certain income earned
overseas 4,470 0 0 0 0 0 0 0 0 0 0 0
General science, space, and technology:
7 Expensing of research and experimentation expenditures
(normal tax method) 7,900 6,350 5,820 6,270 6,830 7,310 7,600 7,840 8,120 8,450 8,820 73,410
8 Credit for increasing research activities 5,710 3,320 2,980 2,670 2,370 2,090 1,840 1,620 1,420 1,240 1,080 20,630
Energy:
9 Expensing of exploration and development costs, fuels 660 470 460 510 560 600 580 570 600 620 580 5,550
10 Excess of percentage over cost depletion, fuels 650 710 860 1,010 1,150 1,240 1,290 1,400 1,540 1,690 1,810 12,700
11 Exception from passive loss limitation for working interests in oil
and gas properties 40 40 40 40 40 30 30 30 30 30 30 340
12 Capital gains treatment of royalties on coal 110 120 130 130 130 140 140 150 150 160 170 1,420
13 Exclusion of interest on energy facility bonds 20 20 30 30 30 30 40 40 40 40 50 350
14 Energy production credit 1 1,550 1,950 2,250 2,310 2,230 2,120 2,050 1,970 1,840 1,590 1,160 19,470
15 Energy investment credit 1 1,010 1,470 970 250 40 130 320 440 510 530 400 5,060
16 Alcohol fuel credits 2 20 0 0 0 0 0 0 0 0 0 0 0
17 Bio-Diesel and small agri-biodiesel producer tax credits 3 70 30 20 10 0 0 0 0 0 0 0 60
18 Tax credits for clean-fuel burning vehicles and refueling property 540 550 670 820 810 700 500 290 140 130 160 4,770
19 Exclusion of utility conservation subsidies 430 450 470 490 520 540 570 590 620 650 680 5,580
20 Credit for holding clean renewable energy bonds 4 70 70 70 70 70 70 70 70 70 70 70 700
21 Deferral of gain from dispositions of transmission property to
implement FERC restructuring 120 220 180 150 130 110 70 20 0 0 0 880
22 Credit for investment in clean coal facilities 40 160 400 440 230 30 20 20 20 10 10 1,180
23 Temporary 50% expensing for equipment used in the refining of
liquid fuels 2,250 2,050 1,820 1,500 1,220 970 680 420 200 40 0 8,900
24 Natural gas distribution pipelines treated as 15-year property 160 160 160 170 170 170 150 80 20 120 230 690
25 Amortize all geological and geophysical expenditures over 2
years 90 100 100 90 90 90 90 100 100 100 100 960
26 Allowance of deduction for certain energy efficient commercial
building property 30 10 30 30 30 30 30 30 30 30 30 280
27 Credit for construction of new energy efficient homes 60 20 0 0 0 0 0 0 0 0 0 20
28 Credit for energy efficiency improvements to existing homes 270 0 0 0 0 0 0 0 0 0 0 0
29 Credit for residential energy efficient property 850 770 460 180 40 0 0 0 0 0 0 1,450
30 Qualified energy conservation bonds 5 30 30 30 30 30 30 30 30 30 30 30 300
31 Advanced energy property credit 60 10 30 30 30 10 0 0 0 0 0 90
32 Advanced nuclear power production credit 0 140 140 140 340 620 690 690 690 580 550 4,580
33 Reduced tax rate for nuclear decommissioning funds 160 170 200 220 240 250 270 280 290 300 320 2,540
Natural resources and environment:
34 Expensing of exploration and development costs, nonfuel
minerals 10 0 10 30 50 60 60 70 70 50 50 450
35 Excess of percentage over cost depletion, nonfuel minerals 520 530 540 540 550 520 470 470 460 450 440 4,970
36 Exclusion of interest on bonds for water, sewage, and hazardous
waste facilities 450 490 550 620 690 730 780 860 920 980 1,060 7,680
37 Capital gains treatment of certain timber income 110 120 130 130 130 140 140 150 150 160 170 1,420
38 Expensing of multiperiod timber growing costs 320 330 350 370 380 400 420 420 430 430 450 3,980
39 Tax incentives for preservation of historic structures 450 460 470 470 480 490 510 520 530 540 540 5,010
40 Industrial CO2 capture and sequestration tax credit 80 110 150 190 80 0 0 0 0 0 0 530
41 Deduction for endangered species recovery expenditures 20 30 30 30 30 40 50 50 50 50 70 430
Table 141. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 20152025Continued
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
Agriculture:
42 Expensing of certain capital outlays 220 210 230 240 250 270 280 290 310 330 350 2,760
43 Expensing of certain multiperiod production costs 350 370 390 410 440 460 490 520 550 590 630 4,850
44 Treatment of loans forgiven for solvent farmers 40 40 40 40 40 40 40 40 40 40 40 400
45 Capital gains treatment of certain income 1,150 1,240 1,280 1,300 1,320 1,360 1,410 1,470 1,530 1,590 1,670 14,170
46 Income averaging for farmers 130 140 140 140 140 140 140 140 140 140 140 1,400
47 Deferral of gain on sale of farm refiners 20 20 20 20 20 20 30 30 30 30 30 250
48 Expensing of reforestation expenditures 50 50 60 60 60 70 70 80 80 80 80 690
Commerce and housing:
Financial institutions and insurance:
49 Exemption of credit union income 1,690 2,300 2,200 2,200 2,350 2,440 2,700 2,890 2,980 3,120 3,570 26,750
50 Exclusion of interest on life insurance savings 17,450 18,870 23,380 28,950 33,790 37,820 41,010 43,550 45,750 47,820 49,900 370,840
51 Special alternative tax on small property and casualty
insurance companies 30 30 40 40 40 40 50 50 50 50 60 450
52 Tax exemption of certain insurance companies owned by tax-
exempt organizations 670 700 730 760 800 850 890 910 940 960 980 8,520
53 Small life insurance company deduction 30 30 30 40 40 40 40 40 40 50 50 400
54 Exclusion of interest spread of financial institutions 380 420 450 470 480 500 510 530 540 550 560 5,010
Housing:
55 Exclusion of interest on owner-occupied mortgage subsidy
bonds 1,250 1,350 1,530 1,700 1,900 2,020 2,190 2,380 2,550 2,730 2,940 21,290
56 Exclusion of interest on rental housing bonds 1,050 1,120 1,270 1,420 1,590 1,690 1,820 1,990 2,140 2,280 2,450 17,770
57 Deductibility of mortgage interest on owner-occupied homes 58,850 62,440 68,610 75,980 83,760 91,380 98,930 106,150 113,320 120,560 127,360 948,490
58 Deductibility of State and local property tax on owner-
occupied homes 31,120 33,080 35,580 38,330 41,150 43,850 46,580 49,280 52,060 55,010 57,890 452,810
59 Deferral of income from installment sales 1,570 1,620 1,640 1,650 1,670 1,720 1,770 1,840 1,920 2,000 2,090 17,920
60 Capital gains exclusion on home sales 37,220 40,580 43,460 46,560 49,870 53,420 57,230 61,300 65,670 70,340 75,350 563,780
61 Exclusion of net imputed rental income 97,920 101,100 104,950 108,460 111,480 114,070 118,400 122,900 127,570 132,420 137,450 1,178,800
62 Exception from passive loss rules for $25,000 of rental loss 6,810 7,210 7,540 7,870 8,240 8,600 8,880 9,170 9,490 9,850 10,160 87,010
63 Credit for low-income housing investments 7,990 7,880 8,130 8,350 8,520 8,660 8,800 8,960 9,160 9,420 9,690 87,570
64 Accelerated depreciation on rental housing (normal tax
method) 1,230 1,650 2,270 3,000 3,770 4,570 5,510 6,480 7,350 8,160 8,930 51,690
65 Discharge of mortgage indebtedness 1,100 0 0 0 0 0 0 0 0 0 0 0
Commerce:
66 Discharge of business indebtedness 160 120 50 10 0 10 30 40 50 50 50 50
67 Exceptions from imputed interest rules 40 50 60 60 60 70 70 80 80 80 90 700
68 Treatment of qualified dividends 25,650 25,530 26,470 27,490 28,590 29,760 31,030 32,380 33,810 35,310 36,880 307,250
69 Capital gains (except agriculture, timber, iron ore, and coal) 85,710 92,820 95,870 96,790 98,660 101,520 105,170 109,410 114,070 119,080 124,380 1,057,770
70 Capital gains exclusion of small corporation stock 220 380 620 800 780 680 580 490 430 390 360 5,510
71 Step-up basis of capital gains at death 54,850 58,270 61,910 65,770 69,870 74,220 78,850 83,770 88,990 94,540 100,440 776,630
72 Carryover basis of capital gains on gifts 2,490 2,740 3,010 3,300 3,620 3,970 4,340 4,750 5,170 5,530 5,820 42,250
73 Ordinary income treatment of loss from small business
corporation stock sale 50 50 50 50 50 50 50 50 50 50 50 500
74 Deferral of gains from like-kind exchanges 6,980 7,320 7,700 8,090 8,480 8,920 9,360 9,830 10,320 10,830 11,380 92,230
75 Accelerated depreciation of buildings other than rental
housing (normal tax method) 9,300 9,170 9,390 9,790 10,440 11,200 11,930 12,630 13,350 14,160 14,690 116,750
76 Accelerated depreciation of machinery and equipment
77 Expensing of certain small investments (normal tax method) 1,180 2,290 790 90 720 1,120 1,530 1,850 2,020 2,160 2,280 8,690
78 Graduated corporation income tax rate (normal tax method) 3,860 3,770 3,670 3,540 3,610 3,570 3,660 3,780 3,940 3,800 3,740 37,080
79 Exclusion of interest on small issue bonds 170 170 200 220 250 260 280 310 330 350 380 2,750
80 Deduction for US production activities 15,230 15,680 16,440 17,220 17,980 18,770 19,580 20,440 21,320 22,250 23,210 192,890
81 Special rules for certain film and TV production 190 110 60 30 10 0 0 0 0 0 0 210
Transportation:
82 Tonnage tax 70 70 80 80 90 90 90 100 100 100 110 910
83 Deferral of tax on shipping companies 20 20 20 20 20 20 20 20 20 20 20 200
84 Exclusion of reimbursed employee parking expenses 2,790 2,900 3,000 3,100 3,220 3,340 3,440 3,550 3,670 3,790 3,870 33,880
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
85 Exclusion for employer-provided transit passes 730 770 820 860 920 980 1,030 1,100 1,170 1,220 1,290 10,160
86 Tax credit for certain expenditures for maintaining railroad tracks 100 0 0 0 0 0 0 0 0 0 0 0
87 Exclusion of interest on bonds for Highway Projects and rail-
truck transfer facilities 220 210 200 190 170 170 160 160 140 140 130 1,670
Community and regional development:
88 Investment credit for rehabilitation of structures (other than
historic) 20 20 20 20 20 20 20 20 20 20 20 200
89 Exclusion of interest for airport, dock, and 740 800 900 1,010 1,130 1,200 1,300 1,410 1,510 1,610 1,730 12,600
90 Exemption of certain mutuals and cooperatives 140 140 150 150 150 160 160 160 170 170 170 1,580
91 Empowerment zones 100 40 30 30 30 20 10 10 10 10 10 200
92 New markets tax credit 1,200 1,230 1,130 910 640 420 230 20 110 160 180 4,130
93 Credit to holders of Gulf Tax Credit Bonds. 240 250 290 310 360 370 410 440 480 510 550 3,970
94 Recovery Zone Bonds 6 130 140 150 180 190 210 220 240 250 280 290 2,150
95 Tribal Economic Development Bonds 40 40 50 60 60 70 70 80 80 80 90 680
Education, training, employment, and social services:
Education:
96 Exclusion of scholarship and fellowship income (normal tax
method) 3,130 3,250 3,360 3,450 3,510 3,640 3,770 3,900 4,040 4,190 4,340 37,450
97 HOPE tax credit 0 0 0 670 6,740 6,880 7,290 7,380 7,500 7,880 7,960 52,300
98 Lifetime Learning tax credit 2,270 2,450 2,460 2,660 4,340 4,410 4,500 4,530 4,590 4,660 4,690 39,290
99 American Opportunity Tax Credit 7 13,470 13,430 13,500 12,190 0 0 0 0 0 0 0 39,120
100 Education Individual Retirement Accounts 30 30 40 40 40 40 40 40 50 50 50 420
101 Deductibility of student-loan interest 1,800 1,800 1,780 1,780 1,790 1,820 1,820 1,810 1,840 1,830 1,820 18,090
102 Deduction for higher education expenses 390 0 0 0 0 0 0 0 0 0 0 0
103 Qualified tuition programs 1,680 1,870 2,080 2,290 2,510 2,760 3,020 3,310 3,610 3,960 4,330 29,740
104 Exclusion of interest on student-loan bonds 490 530 600 670 750 800 860 940 1,000 1,080 1,150 8,380
105 Exclusion of interest on bonds for private nonprofit educational
facilities 2,270 2,440 2,760 3,090 3,450 3,660 3,960 4,320 4,630 4,940 5,310 38,560
106 Credit for holders of zone academy bonds 8 160 130 120 110 100 100 90 90 80 80 80 980
107 Exclusion of interest on savings bonds redeemed to finance
educational expenses 30 30 30 30 30 30 40 40 40 40 40 350
108 Parental personal exemption for students age 19 or over 4,400 4,400 4,420 4,460 4,590 4,710 4,840 4,950 5,050 5,140 5,250 47,810
109 Deductibility of charitable contributions (education) 4,820 5,180 5,560 5,970 6,400 6,790 7,170 7,550 7,930 8,300 8,680 69,530
110 Exclusion of employer-provided educational assistance 800 850 890 940 980 1,030 1,080 1,130 1,190 1,240 1,300 10,630
111 Special deduction for teacher expenses 210 0 0 0 0 0 0 0 0 0 0 0
112 Discharge of student loan indebtedness 90 90 90 90 90 90 90 90 90 90 90 900
113 Qualified school construction bonds 9 650 650 650 650 650 650 650 650 650 650 650 6,500
Training, employment, and social services:
114 Work opportunity tax credit 720 420 240 180 140 100 70 60 40 30 30 1,310
115 Employer provided child care exclusion 900 930 980 1,050 1,120 1,180 1,250 1,330 1,410 1,500 1,590 12,340
116 Employer-provided child care credit 10 10 10 10 20 20 20 20 20 20 20 170
117 Assistance for adopted foster children 560 540 560 580 610 630 650 680 710 740 770 6,470
118 Adoption credit and exclusion 10 270 250 260 290 270 320 310 320 320 320 330 2,990
119 Exclusion of employee meals and lodging (other than military)
4,410 4,500 4,600 4,710 4,840 4,970 5,100 5,230 5,360 5,490 5,620 50,420
120 Credit for child and dependent care expenses 4,500 4,520 4,560 4,650 4,760 4,900 5,000 5,120 5,220 5,330 5,440 49,500
121 Credit for disabled access expenditures 10 10 10 10 20 20 20 20 20 20 20 170
122 Deductibility of charitable contributions, other than education
and health 40,910 44,240 47,630 51,380 55,250 58,830 62,180 65,530 68,810 72,130 75,410 601,390
123 Exclusion of certain foster care payments 430 460 480 500 510 520 530 550 560 570 580 5,260
124 Exclusion of parsonage allowances 690 730 770 810 850 900 940 990 1,050 1,100 1,160 9,300
125 Indian employment credit 40 30 30 20 10 10 10 10 10 10 0 140
Health:
126 Exclusion of employer contributions for medical insurance
premiums and medical care 11 201,450 210,980 220,550 229,620 243,160 259,520 275,600 293,420 313,810 336,070 359,590 2,742,320
127 Self-employed medical insurance premiums 6,690 7,060 7,440 7,680 7,980 8,400 8,820 9,240 9,690 10,210 10,770 87,290
128 Medical Savings Accounts / Health Savings Accounts 4,810 5,730 6,830 8,060 9,560 11,390 13,550 16,130 19,190 22,830 27,150 140,420
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
129 Deductibility of medical expenses 7,660 8,260 8,700 9,530 10,980 12,850 14,810 16,840 19,380 22,350 25,460 149,160
130 Exclusion of interest on hospital construction bonds 3,570 3,840 4,350 4,870 5,420 5,760 6,230 6,810 7,290 7,780 8,360 60,710
131 Refundable Premium Assistance Tax Credit 12 1,960 2,340 3,870 4,880 6,880 7,580 7,810 8,140 8,430 8,730 9,090 67,750
132 Credit for employee health insurance expenses of small business
13 513 544 543 517 453 395 301 358 242 181 78 3,612
133 Deductibility of charitable contributions (health) 4,620 4,990 5,390 5,810 6,240 6,640 7,030 7,400 7,770 8,150 8,520 67,940
134 Tax credit for orphan drug research 1,460 1,760 2,120 2,570 3,090 3,730 4,490 5,430 6,540 7,890 9,520 47,140
135 Special Blue Cross/Blue Shield deduction 250 250 260 270 280 290 300 320 330 340 350 2,990
136 Tax credit for health insurance purchased by certain displaced
and retired individuals 14 0 30 30 20 10 0 0 0 0 0 0 90
137 Distributions from retirement plans for premiums for health and
long-term care insurance 400 440 460 480 500 520 540 560 580 600 620 5,300
Income security:
138 Child credit 15 23,980 24,000 24,290 24,700 25,190 25,080 24,770 24,440 24,040 23,600 23,180 243,290
139 Exclusion of railroad retirement system benefits 300 300 300 290 280 270 250 240 220 190 170 2,510
140 Exclusion of workers compensation benefits 9,720 9,820 9,920 10,010 10,110 10,220 10,320 10,420 10,530 10,630 10,730 102,710
141 Exclusion of public assistance benefits (normal tax method) 560 570 590 600 630 650 670 680 710 730 680 6,510
142 Exclusion of special benefits for disabled coal miners 30 30 20 20 20 10 10 10 10 10 0 140
143 Exclusion of military disability pensions 220 220 240 250 260 270 290 300 310 330 340 2,810
Net exclusion of pension contributions and earnings:
144 Defined benefit employer plans 66,620 66,600 66,760 67,020 66,180 64,820 63,190 60,910 58,470 55,930 52,650 622,530
145 Defined contribution employer plans 62,070 64,710 65,620 68,120 73,930 78,960 98,370 107,980 114,420 121,240 128,130 921,480
146 Individual Retirement Accounts 16,400 16,850 16,970 17,240 18,080 19,270 19,680 20,630 21,780 22,840 24,080 197,420
147 Low and moderate income savers credit 1,280 1,280 1,270 1,270 1,300 1,310 1,310 1,330 1,340 1,350 1,360 13,120
148 Self-Employed plans 25,490 28,030 30,800 33,760 37,030 40,480 44,020 47,870 52,060 56,610 61,560 432,220
Exclusion of other employee benefits:
149 Premiums on group term life insurance 2,340 2,450 2,560 2,610 2,700 2,800 2,900 3,000 3,110 3,240 3,350 28,720
150 Premiums on accident and disability insurance 310 320 320 330 330 330 340 340 340 350 350 3,350
151 Income of trusts to finance supplementary unemployment
benefits 20 20 30 40 40 50 50 60 60 60 60 470
152 Special ESOP rules 1,890 2,000 2,100 2,210 2,320 2,450 2,580 2,710 2,860 3,010 3,160 25,400
153 Additional deduction for the blind 40 40 40 40 40 50 50 50 60 60 60 490
154 Additional deduction for the elderly 2,890 3,080 3,310 3,560 3,760 4,010 4,210 4,500 4,870 5,170 5,530 42,000
155 Tax credit for the elderly and disabled 10 10 10 10 10 10 10 0 0 0 0 60
156 Deductibility of casualty losses 350 370 390 410 430 450 460 470 490 500 520 4,490
157 Earned income tax credit 16 2,120 2,820 2,340 3,040 1,820 1,910 1,980 2,080 2,180 2,280 2,380 22,830
Social Security:
Exclusion of social security benefits:
158 Social Security benefits for retired workers 25,780 26,900 28,280 29,490 30,730 31,760 32,510 33,130 33,690 34,340 34,590 315,420
159 Social Security benefits for disabled workers 8,280 8,490 8,580 8,730 8,970 9,210 9,500 9,840 10,190 10,540 10,870 94,920
160 Social Security benefits for spouses, dependents and
survivors 4,060 4,160 4,310 4,440 4,610 4,750 4,870 5,000 5,140 5,310 5,420 48,010
161 Credit for certain employer contributions to social security 980 1,010 1,060 1,110 1,160 1,210 1,260 1,320 1,370 1,440 1,500 12,440
Veterans benefits and services:
162 Exclusion of veterans death benefits and disability compensation
6,150 6,760 7,250 7,590 7,870 8,170 8,460 8,770 9,080 9,400 9,740 83,090
163 Exclusion of veterans pensions 420 450 490 510 530 560 580 600 630 650 680 5,680
164 Exclusion of GI bill benefits 1,530 1,690 1,830 1,960 2,070 2,190 2,310 2,440 2,580 2,720 2,880 22,670
165 Exclusion of interest on veterans housing bonds 10 10 10 10 10 10 10 10 10 10 30 120
General purpose fiscal assistance:
166 Exclusion of interest on public purpose State and local bonds 29,430 31,700 35,900 40,180 44,810 47,550 51,430 56,190 60,140 64,220 69,030 501,150
167 Build America Bonds 17 0 0 0 0 0 0 0 0 0 0 0 0
168 Deductibility of nonbusiness State and local taxes other than on
owner-occupied homes 48,430 51,380 55,130 59,030 62,870 66,730 70,830 75,060 79,410 83,920 88,280 692,640
Interest:
169 Deferral of interest on U.S. savings bonds 1,020 1,010 1,000 990 980 970 960 950 940 930 920 9,650
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
Addendum: Aid to State and local governments:

Deductibility of:
Property taxes on owner-occupied homes 31,120 33,080 35,580 38,330 41,150 43,850 46,580 49,280 52,060 55,010 57,890 452,810
Nonbusiness State and local taxes other than on owner-
occupied homes 48,430 51,380 55,130 59,030 62,870 66,730 70,830 75,060 79,410 83,920 88,280 692,640
Exclusion of interest on State and local bonds for:
Public purposes 29,430 31,700 35,900 40,180 44,810 47,550 51,430 56,190 60,140 64,220 69,030 501,150
Energy facilities 20 20 30 30 30 30 40 40 40 40 50 350
Water, sewage, and hazardous waste disposal facilities 450 490 550 620 690 730 780 860 920 980 1,060 7,680
Small-issues 170 170 200 220 250 260 280 310 330 350 380 2,750
Owner-occupied mortgage subsidies 1,250 1,350 1,530 1,700 1,900 2,020 2,190 2,380 2,550 2,730 2,940 21,290
Rental housing 1,050 1,120 1,270 1,420 1,590 1,690 1,820 1,990 2,140 2,280 2,450 17,770
Airports, docks, and similar facilities 740 800 900 1,010 1,130 1,200 1,300 1,410 1,510 1,610 1,730 12,600
Student loans 490 530 600 670 750 800 860 940 1,000 1,080 1,150 8,380
Private nonprofit educational facilities 2,270 2,440 2,760 3,090 3,450 3,660 3,960 4,320 4,630 4,940 5,310 38,560
Hospital construction 3,570 3,840 4,350 4,870 5,420 5,760 6,230 6,810 7,290 7,780 8,360 60,710
Veterans housing 10 10 10 10 10 10 10 10 10 10 30 120
1 Firms can take an energy grant in lieu of the energy production credit or the energy investment credit for facilities placed in service in 2009 and 2010 or whose construction
commenced in 2009 and 2010. The effect of the grant on outlays (in millions of dollars) is as follows: 2015 $2,300; 2016 $1,200; 2017 $650; and $0 thereafter.
2 The alternative fuel mixture credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2015 $630; and $0 thereafter.
3 In addition, the biodiesel producer tax credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2015 $1,870; and $0 thereafter.
4 In addition, the inventory property sales source rules exception has outlay effects of (in millions of dollars):
2015 $30; 2016 $30; 2017 $30; 2018 $30; 2019 $30; 2020 $30; 2021 $30; 2022 $30; 2023 $30; 2024 $30; and 2025 $30.
5 In addition, the deferral of income from controlled foreign corporations (normal tax method) has outlay effects of (in millions of dollars):
2015 $30; 2016 $30; 2017 $30; 2018 $30; 2019 $30; 2020 $30; 2021 $30; 2022 $30; 2023 $30; 2024 $30; 2025 $30.
6 In addition, recovery zone bonds have outlay effects (in millions of dollars) as follows:
2015 $220; 2016 $220; 2017 $220; 2018 $220; 2019 $220; 2020 $220; 2021 $220; 2022 $220; 2023 $220; 2024 $220; and 2025 $220.
7 In addition, the expensing of research and experimentation expenditures has outlay effects of (in millions of dollars):
2015 $4,200; 2016 $4,360; 2017 $4,490; 2018 $4,630; and 2019 $2,620.
8 In addition, the credit for holders of zone academy bonds has outlay effects of (in millions of dollars):
2015 $50; 2016 $50; 2017 $50; 2018 $50; 2019 $50; 2020 $50; 2021 $50; 2022 $50; 2023 $50; 2024 $50; and 2025 $50.
9 In addition, the provision for school construction bonds has outlay effects of (in millions of dollars):
2015 $740; 2016 $740; 2017 $740; 2018 $740; 2019 $740; 2020 $740; 2021 $740; 2022 $740; 2023 $740; 2024 $740; and 2025 $740.
10 In addition, the adoption tax credit has outlay effects of (in millions of dollars): 2015 $30 and $0 thereafter.
11 In addition, the employer contributions for health have effects on payroll tax receipts (in millions of dollars) as follows: 2015 $127,500; 2016 $131,380; 2017 $135,470;
2018 $140,080; 2019 $147,360; 2020 $156,090; 2021 $164,510; 2022 $172,600; 2023 $181,400; 2024 $190,900; and 2025 $200,930.
12 In addition, the premium assistance credit provision has outlay effects (in millions of dollars) as follows:
2015 $20,730; 2016 $38,030; 2017 $53,030; 2018 $75,400; 2019 $88,990; 2020 $95,320; 2021 $100,580; 2022 $106,400; 2023 $110,970; 2024 $115,910; and 2025 $121,040.
13 In addition, the small business credit provision has outlay effects (in millions of dollars) as follows:
2015 $70; 2016 $80; 2017 $70; 2018 $70; 2019 $60; 2020 $50; 2021 $30; 2022 $30; 2023 $20; 2024 $20; and 2025 $10.
14 In addition, the effect of the health coverage tax credit on receipts has outlay effects of (in millions of dollars)
2015 $0; 2016 $10; 2017 $20; 2018 $30; 2019 $30; 2020 $10; and $0 thereafter.
15 In addition, the effect of the child tax credit on receipts has outlay effects of (in millions of dollars):
2015 $26,990; 2016 $27,060; 2017 $27,050; 2018 $26,890; 2019 $ 15,330; 2020 $15,240; 2021 $15,340; 2022 $15,340; 2023 $15,390; 2024 $15,430; and 2025 $15,400.
16 In addition, the earned income tax credit on receipts has outlay effects of (in millions of dollars):
2015 $61,880; 2016 $63,370; 2017 $63,100; 2018 $63,380; 2019 $ 61,620; 2020 $63,670; 2021 $63,040; 2022 $64,520; 2023 $66,090; 2024 $67,700; and 2025 $69,120.
17 In addition, the Build America Bonds have outlay effects of (in millions of dollars):
2015 $3,800; 2016 $3,800; 2017 $3,800; 2018 $3,800, 2019 $3,800; 2020 $3,800; 2021 $3,800; 2022 $3,800; 2023 $3,800; 2024 $3,800; and 2025 $3,800.
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.
Table 142A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 20152025
Total from corporations
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
National Defense
1 Exclusion of benefits and allowances to armed forces personnel 0 0 0 0 0 0 0 0 0 0 0 0
2 Exclusion of income earned abroad by U.S. citizens 0 0 0 0 0 0 0 0 0 0 0 0
3 Exclusion of certain allowances for Federal employees abroad 0 0 0 0 0 0 0 0 0 0 0 0
4 Inventory property sales source rules exception 3,890 4,210 4,560 4,940 5,350 5,790 6,270 6,790 7,350 7,960 8,620 61,840
tax method) 64,560 67,780 71,170 74,730 78,470 82,390 86,510 90,840 95,380 100,150 105,160 852,580
overseas 4,470 0 0 0 0 0 0 0 0 0 0 0
8 Credit for increasing research activities 5,420 3,160 2,840 2,540 2,250 1,990 1,750 1,540 1,350 1,180 1,020 19,620
Energy:
10 Excess of percentage over cost depletion, fuels 520 570 690 810 920 990 1,030 1,120 1,230 1,350 1,450 10,160
12 Capital gains treatment of royalties on coal 0 0 0 0 0 0 0 0 0 0 0 0
14 Energy production credit 1 1,160 1,460 1,690 1,730 1,670 1,590 1,540 1,480 1,380 1,190 870 14,600
15 Energy investment credit 1 810 1,180 780 200 30 100 260 350 410 420 320 4,050
18 Tax credits for clean-fuel burning vehicles and refueling property 210 220 280 310 280 220 130 50 20 30 50 1,590
19 Exclusion of utility conservation subsidies 30 30 30 30 30 30 30 30 30 30 30 300
implement FERC restructuring policy 120 220 180 150 130 110 70 20 0 0 0 880
22 Credit for investment in clean coal facilities 40 140 360 400 210 30 20 20 20 10 10 1,060
liquid fuels 2,250 2,050 1,820 1,500 1,220 970 680 420 200 40 0 8,900
years 70 80 80 70 70 70 70 80 80 80 80 760
29 Credit for residential energy efficient property 0 0 0 0 0 0 0 0 0 0 0 0
32 Advanced nuclear power production credit 0 140 140 140 340 620 690 690 690 580 550 4,580
33 Reduced tax rate for nuclear decommissioning funds 160 170 200 220 240 250 270 280 290 300 320 2,540
minerals 10 0 10 30 50 60 60 60 60 50 50 430
35 Excess of percentage over cost depletion, nonfuel minerals 490 500 510 510 520 490 450 450 440 430 420 4,720
36 Exclusion of interest on bonds for water, sewage, and
hazardous waste facilities 130 170 190 200 210 200 200 220 230 240 270 2,130
37 Capital gains treatment of certain timber income 0 0 0 0 0 0 0 0 0 0 0 0
39 Tax incentives for preservation of historic structures 380 390 400 400 410 420 430 440 450 460 460 4,260
Table 142A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 20152025Continued
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
Agriculture:
42 Expensing of certain capital outlays 10 10 20 20 20 20 20 20 20 30 30 210
43 Expensing of certain multiperiod production costs 20 20 30 30 30 30 40 40 40 50 50 360
45 Capital gains treatment of certain income 0 0 0 0 0 0 0 0 0 0 0 0
46 Income averaging for farmers 0 0 0 0 0 0 0 0 0 0 0 0
49 Exemption of credit union income 1,690 2,300 2,200 2,200 2,350 2,440 2,700 2,890 2,980 3,120 3,570 26,750
51 Special alternative tax on small property and casualty
insurance companies 30 30 40 40 40 40 50 50 50 50 60 450
52 Tax exemption of certain insurance companies owned by
tax-exempt organizations 670 700 730 760 800 850 890 910 940 960 980 8,520
54 Exclusion of interest spread of financial institutions 0 0 0 0 0 0 0 0 0 0 0 0
Housing:
bonds 360 460 530 550 580 550 570 610 640 680 750 5,920
56 Exclusion of interest on rental housing bonds 300 380 440 460 490 460 470 510 540 570 620 4,940
57 Deductibility of mortgage interest on owner-occupied homes 0 0 0 0 0 0 0 0 0 0 0 0
58 Deductibility of State and local property tax on owner-
occupied homes 0 0 0 0 0 0 0 0 0 0 0 0
59 Deferral of income from installment sales 0 0 0 0 0 0 0 0 0 0 0 0
60 Capital gains exclusion on home sales 0 0 0 0 0 0 0 0 0 0 0 0
61 Exclusion of net imputed rental income 0 0 0 0 0 0 0 0 0 0 0 0
62 Exception from passive loss rules for $25,000 of rental loss 0 0 0 0 0 0 0 0 0 0 0 0
63 Credit for low-income housing investments 7,590 7,490 7,720 7,930 8,090 8,230 8,360 8,510 8,700 8,950 9,210 83,190
64 Accelerated depreciation on rental housing (normal tax
method) 190 260 370 500 630 770 920 1,080 1,220 1,350 1,470 8,570
65 Discharge of mortgage indebtedness 0 0 0 0 0 0 0 0 0 0 0 0
Commerce:
68 Treatment of qualified dividends 0 0 0 0 0 0 0 0 0 0 0 0
69 Capital gains (except agriculture, timber, iron ore, and coal) 0 0 0 0 0 0 0 0 0 0 0 0
70 Capital gains exclusion of small corporation stock 0 0 0 0 0 0 0 0 0 0 0 0
71 Step-up basis of capital gains at death 0 0 0 0 0 0 0 0 0 0 0 0
72 Carryover basis of capital gains on gifts 0 0 0 0 0 0 0 0 0 0 0 0
75 Accelerated depreciation of buildings other than rental
housing (normal tax method) 3,890 3,850 4,020 4,280 4,620 5,000 5,330 5,630 5,940 6,290 6,520 51,480
76 Accelerated depreciation of machinery and equipment
77 Expensing of certain small investments (normal tax method) 230 380 200 80 10 70 130 180 200 220 230 380
78 Graduated corporation income tax rate (normal tax method) 3,860 3,770 3,670 3,540 3,610 3,570 3,660 3,780 3,940 3,800 3,740 37,080
79 Exclusion of interest on small issue bonds 50 60 70 70 80 70 70 80 80 90 100 770
Transportation:
82 Tonnage tax 70 70 80 80 90 90 90 100 100 100 110 910
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
84 Exclusion of reimbursed employee parking expenses 0 0 0 0 0 0 0 0 0 0 0 0
85 Exclusion for employer-provided transit passes 0 0 0 0 0 0 0 0 0 0 0 0
86 Tax credit for certain expenditures for maintaining railroad tracks 90 0 0 0 0 0 0 0 0 0 0 0
truck transfer facilities 50 50 50 50 40 40 40 40 30 30 30 400
historic) 10 10 10 10 10 10 10 10 10 10 10 100
89 Exclusion of interest for airport, dock, and similar bonds 210 270 310 330 350 330 340 360 380 400 440 3,510
90 Exemption of certain mutuals and cooperatives income 140 140 150 150 150 160 160 160 170 170 170 1,580
92 New markets tax credit 1,170 1,200 1,110 890 620 410 220 20 110 160 180 4,020
94 Recovery Zone Bonds 6 40 50 50 60 60 60 60 60 60 70 70 600
Education:
method) 0 0 0 0 0 0 0 0 0 0 0 0
97 HOPE tax credit 0 0 0 0 0 0 0 0 0 0 0 0
98 Lifetime Learning tax credit 0 0 0 0 0 0 0 0 0 0 0 0
99 American Opportunity Tax Credit 7 0 0 0 0 0 0 0 0 0 0 0 0
101 Deductibility of student-loan interest 0 0 0 0 0 0 0 0 0 0 0 0
103 Qualified tuition programs 0 0 0 0 0 0 0 0 0 0 0 0
104 Exclusion of interest on student-loan bonds 140 180 210 220 230 220 220 240 250 270 290 2,330
105 Exclusion of interest on bonds for private nonprofit
educational facilities 650 830 960 1,000 1,060 1,000 1,030 1,110 1,160 1,230 1,350 10,730
108 Parental personal exemption for students age 19 or over 0 0 0 0 0 0 0 0 0 0 0 0
109 Deductibility of charitable contributions (education) 860 900 940 980 1,030 1,070 1,120 1,170 1,220 1,270 1,320 11,020
110 Exclusion of employer-provided educational assistance 0 0 0 0 0 0 0 0 0 0 0 0
114 Work opportunity tax credit 540 300 170 130 100 70 50 40 30 20 20 930
115 Employer provided child care exclusion 0 0 0 0 0 0 0 0 0 0 0 0
117 Assistance for adopted foster children 0 0 0 0 0 0 0 0 0 0 0 0
118 Adoption credit and exclusion 10 0 0 0 0 0 0 0 0 0 0 0 0
119 Exclusion of employee meals and lodging (other than
military) 0 0 0 0 0 0 0 0 0 0 0 0
120 Credit for child and dependent care expenses 0 0 0 0 0 0 0 0 0 0 0 0
and health 1,800 1,890 1,970 2,060 2,150 2,250 2,340 2,450 2,550 2,650 2,750 23,060
123 Exclusion of certain foster care payments 0 0 0 0 0 0 0 0 0 0 0 0
124 Exclusion of parsonage allowances 0 0 0 0 0 0 0 0 0 0 0 0
Health:
premiums and medical care 11 0 0 0 0 0 0 0 0 0 0 0 0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
127 Self-employed medical insurance premiums 0 0 0 0 0 0 0 0 0 0 0 0
128 Medical Savings Accounts / Health Savings Accounts 0 0 0 0 0 0 0 0 0 0 0 0
129 Deductibility of medical expenses 0 0 0 0 0 0 0 0 0 0 0 0
131 Refundable Premium Assistance Tax Credit 12 0 0 0 0 0 0 0 0 0 0 0 0
132 Credit for employee health insurance expenses of small
business 13 137 154 162 160 149 129 113 118 82 56 25 1,148
133 Deductibility of charitable contributions (health) 240 250 270 280 290 300 320 330 340 360 380 3,120
134 Tax credit for orphan drug research 1,450 1,750 2,110 2,550 3,070 3,710 4,470 5,400 6,510 7,850 9,480 46,900
135 Special Blue Cross/Blue Shield deduction 250 250 260 270 280 290 300 320 330 340 350 2,990
long-term care insurance 0 0 0 0 0 0 0 0 0 0 0 0
Income security:
138 Child credit 15 0 0 0 0 0 0 0 0 0 0 0 0
139 Exclusion of railroad retirement system benefits 0 0 0 0 0 0 0 0 0 0 0 0
140 Exclusion of workers compensation benefits 0 0 0 0 0 0 0 0 0 0 0 0
141 Exclusion of public assistance benefits (normal tax method) 0 0 0 0 0 0 0 0 0 0 0 0
143 Exclusion of military disability pensions 0 0 0 0 0 0 0 0 0 0 0 0
144 Defined benefit employer plans 0 0 0 0 0 0 0 0 0 0 0 0
145 Defined contribution employer plans 0 0 0 0 0 0 0 0 0 0 0 0
146 Individual Retirement Accounts 0 0 0 0 0 0 0 0 0 0 0 0
147 Low and moderate income savers credit 0 0 0 0 0 0 0 0 0 0 0 0
148 Self-Employed plans 0 0 0 0 0 0 0 0 0 0 0 0
149 Premiums on group term life insurance 0 0 0 0 0 0 0 0 0 0 0 0
150 Premiums on accident and disability insurance 0 0 0 0 0 0 0 0 0 0 0 0
benefits 0 0 0 0 0 0 0 0 0 0 0 0
152 Special ESOP rules 1,780 1,880 1,980 2,090 2,200 2,320 2,450 2,580 2,720 2,870 3,020 24,110
154 Additional deduction for the elderly 0 0 0 0 0 0 0 0 0 0 0 0
156 Deductibility of casualty losses 0 0 0 0 0 0 0 0 0 0 0 0
157 Earned income tax credit 16 0 0 0 0 0 0 0 0 0 0 0 0
Social Security:
158 Social Security benefits for retired workers 0 0 0 0 0 0 0 0 0 0 0 0
159 Social Security benefits for disabled workers 0 0 0 0 0 0 0 0 0 0 0 0
160 Social Security benefits for spouses, dependents and
survivors 0 0 0 0 0 0 0 0 0 0 0 0
161 Credit for certain employer contributions to social security 430 440 460 490 510 530 550 580 600 630 660 5,450
162 Exclusion of veterans death benefits and disability
compensation 0 0 0 0 0 0 0 0 0 0 0 0
163 Exclusion of veterans pensions 0 0 0 0 0 0 0 0 0 0 0 0
164 Exclusion of GI bill benefits 0 0 0 0 0 0 0 0 0 0 0 0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 201625
owner-occupied homes 0 0 0 0 0 0 0 0 0 0 0 0
Interest:
169 Deferral of interest on U.S. savings bonds 0 0 0 0 0 0 0 0 0 0 0 0
Deductibility of:
Property taxes on owner-occupied homes 0 0 0 0 0 0 0 0 0 0 0 0
occupied homes 0 0 0 0 0 0 0 0 0 0 0 0
Public purposes 8,410 10,750 12,450 13,030 13,750 13,020 13,350 14,430 15,070 15,940 17,560 139,350
Water, sewage, and hazardous waste disposal facilities 130 170 190 200 210 200 200 220 230 240 270 2,130
Small-issues 50 60 70 70 80 70 70 80 80 90 100 770
Owner-occupied mortgage subsidies 360 460 530 550 580 550 570 610 640 680 750 5,920
Rental housing 300 380 440 460 490 460 470 510 540 570 620 4,940
Airports, docks, and similar facilities 210 270 310 330 350 330 340 360 380 400 440 3,510
Student loans 140 180 210 220 230 220 220 240 250 270 290 2,330
Private nonprofit educational facilities 650 830 960 1,000 1,060 1,000 1,030 1,110 1,160 1,230 1,350 10,730
See Table 1 footnotes for specific table information
Table 142B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 20152025
Total from individuals
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20162025
National Defense
1 Exclusion of benefits and allowances to armed forces personnel
13,680 14,220 13,170 13,310 13,780 14,340 14,970 15,640 16,360 17,130 17,950 150,870
2 Exclusion of income earned abroad by U.S. citizens 5,990 6,280 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 79,050
3 Exclusion of certain allowances for Federal employees abroad 1,240 1,300 1,370 1,430 1,510 1,580 1,660 1,740 1,830 1,920 2,020 16,360
4 Inventory property sales source rules exception 0 0 0 0 0 0 0 0 0 0 0 0
tax method) 0 0 0 0 0 0 0 0 0 0 0 0
overseas 0 0 0 0 0 0 0 0 0 0 0 0
(normal tax method) 770 620 410 430 470 500 530 540 560 580 610 5,250
8 Credit for increasing research activities 290 160 140 130 120 100 90 80 70 60 60 1,010
Energy:
10 Excess of percentage over cost depletion, fuels 130 140 170 200 230 250 260 280 310 340 360 2,540
12 Capital gains treatment of royalties on coal 110 120 130 130 130 140 140 150 150 160 170 1,420
14 Energy production credit 1 390 490 560 580 560 530 510 490 460 400 290 4,870
15 Energy investment credit 1 200 290 190 50 10 30 60 90 100 110 80 1,010
18 Tax credits for clean-fuel burning vehicles and refueling property
330 330 390 510 530 480 370 240 120 100 110 3,180
19 Exclusion of utility conservation subsidies 400 420 440 460 490 510 540 560 590 620 650 5,280
implement FERC restructuring policy 0 0 0 0 0 0 0 0 0 0 0 0
22 Credit for investment in clean coal facilities 0 20 40 40 20 0 0 0 0 0 0 120
liquid fuels 0 0 0 0 0 0 0 0 0 0 0 0
years 20 20 20 20 20 20 20 20 20 20 20 200
29 Credit for residential energy efficient property 850 770 460 180 40 0 0 0 0 0 0 1,450
32 Advanced nuclear power production credit 0 0 0 0 0 0 0 0 0 0 0 0
33 Reduced tax rate for nuclear decommissioning funds 0 0 0 0 0 0 0 0 0 0 0 0
minerals 0 0 0 0 0 0 0 10 10 0 0 20
35 Excess of percentage over cost depletion, nonfuel minerals 30 30 30 30 30 30 20 20 20 20 20 250
36 Exclusion of interest on bonds for water, sewage, and
hazardous waste facilities 320 320 360 420 480 530 580 640 690 740 790 5,550
37 Capital gains treatment of certain timber income 110 120 130 130 130 140 140 150 150 160 170 1,420
39 Tax incentives for preservation of historic structures 70 70 70 70 70 70 80 80 80 80 80 750
Table 142B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 20152025Continued
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20162025
Agriculture:
42 Expensing of certain capital outlays 210 200 210 220 230 250 260 270 290 300 320 2,550
43 Expensing of certain multiperiod production costs 330 350 360 380 410 430 450 480 510 540 580 4,490
45 Capital gains treatment of certain income 1,150 1,240 1,280 1,300 1,320 1,360 1,410 1,470 1,530 1,590 1,670 14,170
46 Income averaging for farmers 130 140 140 140 140 140 140 140 140 140 140 1,400
49 Exemption of credit union income 0 0 0 0 0 0 0 0 0 0 0 0
51 Special alternative tax on small property and casualty insurance
companies 0 0 0 0 0 0 0 0 0 0 0 0
52 Tax exemption of certain insurance companies owned by tax-
exempt organizations 0 0 0 0 0 0 0 0 0 0 0 0
54 Exclusion of interest spread of financial institutions 380 420 450 470 480 500 510 530 540 550 560 5,010
Housing:
bonds 890 890 1,000 1,150 1,320 1,470 1,620 1,770 1,910 2,050 2,190 15,370
56 Exclusion of interest on rental housing bonds 750 740 830 960 1,100 1,230 1,350 1,480 1,600 1,710 1,830 12,830
57 Deductibility of mortgage interest on owner-occupied homes 58,850 62,440 68,610 75,980 83,760 91,380 98,930 106,150 113,320 120,560 127,360 948,490
58 Deductibility of State and local property tax on owner-occupied
homes 31,120 33,080 35,580 38,330 41,150 43,850 46,580 49,280 52,060 55,010 57,890 452,810
59 Deferral of income from installment sales 1,570 1,620 1,640 1,650 1,670 1,720 1,770 1,840 1,920 2,000 2,090 17,920
60 Capital gains exclusion on home sales 37,220 40,580 43,460 46,560 49,870 53,420 57,230 61,300 65,670 70,340 75,350 563,780
61 Exclusion of net imputed rental income 97,920 101,100 104,950 108,460 111,480 114,070 118,400 122,900 127,570 132,420 137,450 1,178,800
62 Exception from passive loss rules for $25,000 of rental loss 6,810 7,210 7,540 7,870 8,240 8,600 8,880 9,170 9,490 9,850 10,160 87,010
63 Credit for low-income housing investments 400 390 410 420 430 430 440 450 460 470 480 4,380
64 Accelerated depreciation on rental housing (normal tax method)
1,040 1,390 1,900 2,500 3,140 3,800 4,590 5,400 6,130 6,810 7,460 43,120
65 Discharge of mortgage indebtedness 1,100 0 0 0 0 0 0 0 0 0 0 0
Commerce:
68 Treatment of qualified dividends 25,650 25,530 26,470 27,490 28,590 29,760 31,030 32,380 33,810 35,310 36,880 307,250
69 Capital gains (except agriculture, timber, iron ore, and coal) 85,710 92,820 95,870 96,790 98,660 101,520 105,170 109,410 114,070 119,080 124,380 1,057,770
70 Capital gains exclusion of small corporation stock 220 380 620 800 780 680 580 490 430 390 360 5,510
71 Step-up basis of capital gains at death 54,850 58,270 61,910 65,770 69,870 74,220 78,850 83,770 88,990 94,540 100,440 776,630
72 Carryover basis of capital gains on gifts 2,490 2,740 3,010 3,300 3,620 3,970 4,340 4,750 5,170 5,530 5,820 42,250
75 Accelerated depreciation of buildings other than rental housing
76 Accelerated depreciation of machinery and equipment (normal
tax method) 1,660 1,620 5,770 10,340 13,310 15,140 16,070 16,560 16,800 17,570 18,440 128,380
77 Expensing of certain small investments (normal tax method) 950 1,910 590 170 710 1,050 1,400 1,670 1,820 1,940 2,050 8,310
78 Graduated corporation income tax rate (normal tax method) 0 0 0 0 0 0 0 0 0 0 0 0
79 Exclusion of interest on small issue bonds 120 110 130 150 170 190 210 230 250 260 280 1,980
Transportation:
82 Tonnage tax 0 0 0 0 0 0 0 0 0 0 0 0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20162025
84 Exclusion of reimbursed employee parking expenses 2,790 2,900 3,000 3,100 3,220 3,340 3,440 3,550 3,670 3,790 3,870 33,880
85 Exclusion for employer-provided transit passes 730 770 820 860 920 980 1,030 1,100 1,170 1,220 1,290 10,160
86 Tax credit for certain expenditures for maintaining railroad tracks
10 0 0 0 0 0 0 0 0 0 0 0
truck transfer facilities 170 160 150 140 130 130 120 120 110 110 100 1,270
historic) 10 10 10 10 10 10 10 10 10 10 10 100
89 Exclusion of interest for airport, dock, and similar bonds 530 530 590 680 780 870 960 1,050 1,130 1,210 1,290 9,090
90 Exemption of certain mutuals and cooperatives income 0 0 0 0 0 0 0 0 0 0 0 0
92 New markets tax credit 30 30 20 20 20 10 10 0 0 0 0 110
94 Recovery Zone Bonds 6 90 90 100 120 130 150 160 180 190 210 220 1,550
Education:
method) 3,130 3,250 3,360 3,450 3,510 3,640 3,770 3,900 4,040 4,190 4,340 37,450
97 HOPE tax credit 0 0 0 670 6,740 6,880 7,290 7,380 7,500 7,880 7,960 52,300
98 Lifetime Learning tax credit 2,270 2,450 2,460 2,660 4,340 4,410 4,500 4,530 4,590 4,660 4,690 39,290
99 American Opportunity Tax Credit 7 13,470 13,430 13,500 12,190 0 0 0 0 0 0 0 39,120
101 Deductibility of student-loan interest 1,800 1,800 1,780 1,780 1,790 1,820 1,820 1,810 1,840 1,830 1,820 18,090
103 Qualified tuition programs 1,680 1,870 2,080 2,290 2,510 2,760 3,020 3,310 3,610 3,960 4,330 29,740
104 Exclusion of interest on student-loan bonds 350 350 390 450 520 580 640 700 750 810 860 6,050
105 Exclusion of interest on bonds for private nonprofit educational
facilities 1,620 1,610 1,800 2,090 2,390 2,660 2,930 3,210 3,470 3,710 3,960 27,830
108 Parental personal exemption for students age 19 or over 4,400 4,400 4,420 4,460 4,590 4,710 4,840 4,950 5,050 5,140 5,250 47,810
109 Deductibility of charitable contributions (education) 3,960 4,280 4,620 4,990 5,370 5,720 6,050 6,380 6,710 7,030 7,360 58,510
110 Exclusion of employer-provided educational assistance 800 850 890 940 980 1,030 1,080 1,130 1,190 1,240 1,300 10,630
114 Work opportunity tax credit 180 120 70 50 40 30 20 20 10 10 10 380
115 Employer provided child care exclusion 900 930 980 1,050 1,120 1,180 1,250 1,330 1,410 1,500 1,590 12,340
117 Assistance for adopted foster children 560 540 560 580 610 630 650 680 710 740 770 6,470
118 Adoption credit and exclusion 10 270 250 260 290 270 320 310 320 320 320 330 2,990
119 Exclusion of employee meals and lodging (other than military) 4,410 4,500 4,600 4,710 4,840 4,970 5,100 5,230 5,360 5,490 5,620 50,420
120 Credit for child and dependent care expenses 4,500 4,520 4,560 4,650 4,760 4,900 5,000 5,120 5,220 5,330 5,440 49,500
and health 39,110 42,350 45,660 49,320 53,100 56,580 59,840 63,080 66,260 69,480 72,660 578,330
123 Exclusion of certain foster care payments 430 460 480 500 510 520 530 550 560 570 580 5,260
124 Exclusion of parsonage allowances 690 730 770 810 850 900 940 990 1,050 1,100 1,160 9,300
Health:
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20162025
premiums and medical care 11 201,450 210,980 220,550 229,620 243,160 259,520 275,600 293,420 313,810 336,070 359,590 2,742,320
127 Self-employed medical insurance premiums 6,690 7,060 7,440 7,680 7,980 8,400 8,820 9,240 9,690 10,210 10,770 87,290
128 Medical Savings Accounts / Health Savings Accounts 4,810 5,730 6,830 8,060 9,560 11,390 13,550 16,130 19,190 22,830 27,150 140,420
129 Deductibility of medical expenses 7,660 8,260 8,700 9,530 10,980 12,850 14,810 16,840 19,380 22,350 25,460 149,160
131 Refundable Premium Assistance Tax Credit 12 1,960 2,340 3,870 4,880 6,880 7,580 7,810 8,140 8,430 8,730 9,090 67,750
132 Credit for employee health insurance expenses of small
business 13 376 390 381 357 304 266 188 240 160 125 53 2,464
133 Deductibility of charitable contributions (health) 4,380 4,740 5,120 5,530 5,950 6,340 6,710 7,070 7,430 7,790 8,140 64,820
134 Tax credit for orphan drug research 10 10 10 20 20 20 20 30 30 40 40 240
135 Special Blue Cross/Blue Shield deduction 0 0 0 0 0 0 0 0 0 0 0 0
long-term care insurance 400 440 460 480 500 520 540 560 580 600 620 5,300
Income security:
138 Child credit 15 23,980 24,000 24,290 24,700 25,190 25,080 24,770 24,440 24,040 23,600 23,180 243,290
139 Exclusion of railroad retirement system benefits 300 300 300 290 280 270 250 240 220 190 170 2,510
140 Exclusion of workers compensation benefits 9,720 9,820 9,920 10,010 10,110 10,220 10,320 10,420 10,530 10,630 10,730 102,710
141 Exclusion of public assistance benefits (normal tax method) 560 570 590 600 630 650 670 680 710 730 680 6,510
143 Exclusion of military disability pensions 220 220 240 250 260 270 290 300 310 330 340 2,810
144 Defined benefit employer plans 66,620 66,600 66,760 67,020 66,180 64,820 63,190 60,910 58,470 55,930 52,650 622,530
145 Defined contribution employer plans 62,070 64,710 65,620 68,120 73,930 78,960 98,370 107,980 114,420 121,240 128,130 921,480
146 Individual Retirement Accounts 16,400 16,850 16,970 17,240 18,080 19,270 19,680 20,630 21,780 22,840 24,080 197,420
147 Low and moderate income savers credit 1,280 1,280 1,270 1,270 1,300 1,310 1,310 1,330 1,340 1,350 1,360 13,120
148 Self-Employed plans 25,490 28,030 30,800 33,760 37,030 40,480 44,020 47,870 52,060 56,610 61,560 432,220
149 Premiums on group term life insurance 2,340 2,450 2,560 2,610 2,700 2,800 2,900 3,000 3,110 3,240 3,350 28,720
150 Premiums on accident and disability insurance 310 320 320 330 330 330 340 340 340 350 350 3,350
benefits 20 20 30 40 40 50 50 60 60 60 60 470
152 Special ESOP rules 110 120 120 120 120 130 130 130 140 140 140 1,290
154 Additional deduction for the elderly 2,890 3,080 3,310 3,560 3,760 4,010 4,210 4,500 4,870 5,170 5,530 42,000
156 Deductibility of casualty losses 350 370 390 410 430 450 460 470 490 500 520 4,490
157 Earned income tax credit 16 2,120 2,820 2,340 3,040 1,820 1,910 1,980 2,080 2,180 2,280 2,380 22,830
Social Security:
158 Social Security benefits for retired workers 25,780 26,900 28,280 29,490 30,730 31,760 32,510 33,130 33,690 34,340 34,590 315,420
159 Social Security benefits for disabled workers 8,280 8,490 8,580 8,730 8,970 9,210 9,500 9,840 10,190 10,540 10,870 94,920
160 Social Security benefits for spouses, dependents and survivors 4,060 4,160 4,310 4,440 4,610 4,750 4,870 5,000 5,140 5,310 5,420 48,010
161 Credit for certain employer contributions to social security 550 570 600 620 650 680 710 740 770 810 840 6,990
162 Exclusion of veterans death benefits and disability
compensation 6,150 6,760 7,250 7,590 7,870 8,170 8,460 8,770 9,080 9,400 9,740 83,090
163 Exclusion of veterans pensions 420 450 490 510 530 560 580 600 630 650 680 5,680
164 Exclusion of GI bill benefits 1,530 1,690 1,830 1,960 2,070 2,190 2,310 2,440 2,580 2,720 2,880 22,670
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20162025
owner-occupied homes 48,430 51,380 55,130 59,030 62,870 66,730 70,830 75,060 79,410 83,920 88,280 692,640
Interest:
169 Deferral of interest on U.S. savings bonds 1,020 1,010 1,000 990 980 970 960 950 940 930 920 9,650
Deductibility of:
Property taxes on owner-occupied homes 31,120 33,080 35,580 38,330 41,150 43,850 46,580 49,280 52,060 55,010 57,890 452,810
occupied homes 48,430 51,380 55,130 59,030 62,870 66,730 70,830 75,060 79,410 83,920 88,280 692,640
Public purposes 21,020 20,950 23,450 27,150 31,060 34,530 38,080 41,760 45,070 48,280 51,470 361,800
Water, sewage, and hazardous waste disposal facilities 320 320 360 420 480 530 580 640 690 740 790 5,550
Small-issues 120 110 130 150 170 190 210 230 250 260 280 1,980
Owner-occupied mortgage subsidies 890 890 1,000 1,150 1,320 1,470 1,620 1,770 1,910 2,050 2,190 15,370
Rental housing 750 740 830 960 1,100 1,230 1,350 1,480 1,600 1,710 1,830 12,830
Airports, docks, and similar facilities 530 530 590 680 780 870 960 1,050 1,130 1,210 1,290 9,090
Student loans 350 350 390 450 520 580 640 700 750 810 860 6,050
Private nonprofit educational facilities 1,620 1,610 1,800 2,090 2,390 2,660 2,930 3,210 3,470 3,710 3,960 27,830
See Table 1 footnotes for specific table information
Table 143. INCOME TAX EXPENDITURES RANKED BY TOTAL FISCAL YEAR 2016-2025 PROJECTED REVENUE EFFECT
2016-
Provision 2016 2017 2025
126 Exclusion of employer contributions for medical insurance premiums and medical care 210,980 220,550 2,742,320
61 Exclusion of net imputed rental income 101,100 104,950 1,178,800
69 Capital gains (except agriculture, timber, iron ore, and coal) 92,820 95,870 1,057,770
57 Deductibility of mortgage interest on owner-occupied homes 62,440 68,610 948,490
145 Defined contribution employer plans 64,710 65,620 921,480
5 Deferral of income from controlled foreign corporations (normal tax method) 67,780 71,170 852,580
71 Step-up basis of capital gains at death 58,270 61,910 776,630
168 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes 51,380 55,130 692,640
144 Defined benefit employer plans 66,600 66,760 622,530
122 Deductibility of charitable contributions, other than education and health 44,240 47,630 601,390
60 Capital gains exclusion on home sales 40,580 43,460 563,780
166 Exclusion of interest on public purpose State and local bonds 31,700 35,900 501,150
58 Deductibility of State and local property tax on owner-occupied homes 33,080 35,580 452,810
148 Self-Employed plans 28,030 30,800 432,220
50 Exclusion of interest on life insurance savings 18,870 23,380 370,840
76 Accelerated depreciation of machinery and equipment (normal tax method) -8,870 12,180 356,330
158 Social Security benefits for retired workers 26,900 28,280 315,420
68 Treatment of qualified dividends 25,530 26,470 307,250
136 Child credit 24,000 24,290 243,290
146 Individual Retirement Accounts 16,850 16,970 197,420
80 Deduction for US production activities 15,680 16,440 192,890
1 Exclusion of benefits and allowances to armed forces personnel 14,220 13,170 150,870
129 Deductibility of medical expenses 8,260 8,700 149,160
128 Medical Savings Accounts / Health Savings Accounts 5,730 6,830 140,420
140 Exclusion of workers compensation benefits 9,820 9,920 102,710
159 Social Security benefits for disabled workers 8,490 8,580 94,920
74 Deferral of gains from like-kind exchanges 7,320 7,700 92,230
63 Credit for low-income housing investments 7,880 8,130 87,570
127 Self-employed medical insurance premiums 7,060 7,440 87,290
62 Exception from passive loss rules for $25,000 of rental loss 7,210 7,540 87,010
162 Exclusion of veterans death benefits and disability compensation 6,760 7,250 83,090
2 Exclusion of income earned abroad by U.S. citizens 6,280 6,600 79,050
7 Expensing of research and experimentation expenditures (normal tax method) 6,350 5,820 73,410
109 Deductibility of charitable contributions (education) 5,180 5,560 69,530
133 Deductibility of charitable contributions (health) 4,990 5,390 67,940
131 Refundable Premium Assistance Tax Credit 2,340 3,870 67,750
4 Inventory property sales source rules exception 4,210 4,560 61,840
130 Exclusion of interest on hospital construction bonds 3,840 4,350 60,710
97 HOPE tax credit 0 0 52,300
64 Accelerated depreciation on rental housing (normal tax method) 1,650 2,270 51,690
119 Exclusion of employee meals and lodging (other than military) 4,500 4,600 50,420
120 Credit for child and dependent care expenses 4,520 4,560 49,500
160 Social Security benefits for spouses, dependents and survivors 4,160 4,310 48,010
108 Parental personal exemption for students age 19 or over 4,400 4,420 47,810
134 Tax credit for orphan drug research 1,760 2,120 47,140
72 Carryover basis of capital gains on gifts 2,740 3,010 42,250
154 Additional deduction for the elderly 3,080 3,310 42,000
98 Lifetime Learning tax credit 2,450 2,460 39,290
99 Lifetime Learning tax credit 13,430 13,500 39,120
105 Exclusion of interest on bonds for private nonprofit educational facilities 2,440 2,760 38,560
96 Exclusion of scholarship and fellowship income (normal tax method) 3,250 3,360 37,450
78 Graduated corporation income tax rate (normal tax method) 3,770 3,670 37,080
84 Exclusion of reimbursed employee parking expenses 2,900 3,000 33,880
103 Qualified Tuition Programs 1,870 2,080 29,740
149 Premiums on group term life insurance 2,450 2,560 28,720
Table 143. INCOME TAX EXPENDITURES RANKED BY TOTAL FISCAL YEAR 2016-2025 PROJECTED REVENUE EFFECTContinued
2016-
Provision 2016 2017 2025
49 Exemption of credit union income 2,300 2,200 26,750
152 Special ESOP rules 2,000 2,100 25,400
157 Earned income tax credit 2,820 2,340 22,830
164 Exclusion of GI bill benefits 1,690 1,830 22,670
55 Exclusion of interest on owner-occupied mortgage subsidy bonds 1,350 1,530 21,290
8 Credit for increasing research activities 3,320 2,980 20,630
14 New technology credit 1,950 2,250 19,470
101 Deductibility of student-loan interest 1,800 1,780 18,090
59 Deferral of income from installment sales 1,620 1,640 17,920
56 Exclusion of interest on rental housing bonds 1,120 1,270 17,770
3 Exclusion of certain allowances for Federal employees abroad 1,300 1,370 16,360
45 Capital gains treatment of certain income 1,240 1,280 14,170
147 Low and moderate income savers credit 1,280 1,270 13,120
10 Excess of percentage over cost depletion, fuels 710 860 12,700
89 Exclusion of interest for airport, dock, and similar bonds 800 900 12,600
161 Credit for certain employer contributions to social security 1,010 1,060 12,440
115 Employer provided child care exclusion 930 980 12,340
110 Exclusion of employer-provided educational assistance 850 890 10,630
85 Exclusion for employer-provided transit passes 770 820 10,160
169 Deferral of interest on U.S. savings bonds 1,010 1,000 9,650
124 Exclusion of parsonage allowances 730 770 9,300
77 Expensing of certain small investments (normal tax method) -2,290 -790 8,690
52 Tax exemption of certain insurance companies owned by tax-exempt organizations 700 730 8,520
104 Exclusion of interest on student-loan bonds 530 600 8,380
36 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities 490 550 7,680
141 Exclusion of public assistance benefits (normal tax method) 570 590 6,510
113 Qualified school construction bonds 650 650 6,500
117 Assistance for adopted foster children 540 560 6,470
163 Exclusion of veterans pensions 450 490 5,680
19 Exclusion of utility conservation subsidies 450 470 5,580
9 Expensing of exploration and development costs, fuels 470 460 5,550
70 Capital gains exclusion of small corporation stock 380 620 5,510
138 Distributions from retirement plans for premiums for health and long-term care insurance 440 460 5,300
123 Exclusion of certain foster care payments 460 480 5,260
15 Energy investment credit 1,470 970 5,060
39 Tax incentives for preservation of historic structures 460 470 5,010
54 Exclusion of interest spread of financial institutions 420 450 5,010
35 Excess of percentage over cost depletion, nonfuel minerals 530 540 4,970
43 Expensing of certain multiperiod production costs 370 390 4,850
18 Tax credits for clean-fuel burning vehicles 550 670 4,770
32 Advanced nuclear power production credit 140 140 4,580
156 Deductibility of casualty losses 370 390 4,490
92 New markets tax credit 1,230 1,130 4,130
38 Expensing of multiperiod timber growing costs 330 350 3,980
93 Credit to holders of Gulf Tax Credit Bonds. 250 290 3,970
132 Credit for employee health insurance expenses of small business. 544 543 3,612
150 Premiums on accident and disability insurance 320 320 3,350
118 Adoption credit and exclusion 250 260 2,990
135 Special Blue Cross/Blue Shield deduction 250 260 2,990
143 Exclusion of military disability pensions 220 240 2,810
42 Expensing of certain capital outlays 210 230 2,760
79 Exclusion of interest on small issue bonds 170 200 2,750
33 Advanced nuclear power production credit 170 200 2,540
139 Exclusion of railroad retirement system benefits 300 300 2,510
94 Recovery Zone Bonds 140 150 2,150
2016-
Provision 2016 2017 2025
87 Exclusion of interest on bonds for Financing of Highway Projects and rail-truck transfer facilities 210 200 1,670
90 Exemption of certain mutuals and cooperatives income 140 150 1,580
29 30% credit for residential purchases/installations of solar and fuel cells 770 460 1,450
12 Capital gains treatment of royalties on coal 120 130 1,420
37 Capital gains treatment of certain timber income 120 130 1,420
46 Income averaging for farmers 140 140 1,400
114 Work opportunity tax credit 420 240 1,310
22 Credit for investment in clean coal facilities 160 400 1,180
106 Credit for holders of zone academy bonds 130 120 980
25 Amortize all geological and geophysical expenditures over 2 years 100 100 960
82 Tonnage tax 70 80 910
112 Discharge of student loan indebtedness 90 90 900
20 Credit for holding clean renewable energy bonds 70 70 700
67 Exceptions from imputed interest rules 50 60 700
24 Natural gas distribution pipelines treated as 15-year property 160 160 690
48 Expensing of reforestation expenditures 50 60 690
95 Tribal Economic Development Bonds 40 50 680
40 Industrial CO2 capture and sequestration tax credit 110 150 530
73 Ordinary income treatment of loss from small business corporation stock sale 50 50 500
153 Additional deduction for the blind 40 40 490
151 Income of trusts to finance supplementary unemployment benefits 20 30 470
34 Expensing of exploration and development costs, nonfuel minerals 0 10 450
51 Special alternative tax on small property and casualty insurance companies 30 40 450
41 Deduction for endangered species recovery expenditures 30 30 430
100 Education Individual Retirement Accounts 30 40 420
44 Treatment of loans forgiven for solvent farmers 40 40 400
53 Small life insurance company deduction 30 30 400
13 Exclusion of interest on energy facility bonds 20 30 350
107 Exclusion of interest on savings bonds redeemed to finance educational expenses 30 30 350
11 Exception from passive loss limitation for working interests in oil and gas properties 40 40 340
30 Qualified energy conservation bonds 30 30 300
47 Deferral of gain on sale of farm refiners 20 20 250
81 Special rules for certain film and TV production 110 60 210
83 Deferral of tax on shipping companies 20 20 200
88 Investment credit for rehabilitation of structures (other than historic) 20 20 200
91 Empowerment zones 40 30 200
116 Employer-provided child care credit 10 10 170
121 Credit for disabled access expenditures 10 10 170
125 Indian employment credi 30 30 140
142 Exclusion of special benefits for disabled coal miners 30 20 140
165 Exclusion of interest on veterans housing bonds 10 10 120
137 Tax credit for health insurance purchased by certain displaced and retired individuals 30 30 90
17 Bio-Diesel and small agri-biodiesel producer tax credits 30 20 60
155 Tax credit for the elderly and disabled 10 10 60
66 Discharge of business indebtedness -120 -50 50
27 Credit for construction of new energy efficient homes 20 0 20
6 Deferred taxes for financial firms on certain income earned overseas 0 0 0
16 Alcohol fuel credits 0 0 0
28 Credit for energy efficiency improvements to existing homes 0 0 0
65 Discharge of mortgage indebtedness 0 0 0
86 Tax credit for certain expenditures for maintaining railroad tracks 0 0 0
102 Deduction for higher education expenses 0 0 0
111 Special deduction for teacher expenses 0 0 0
167 Build America Bonds 0 0 0
31 Advanced Energy Property Credit 10 -30 -90
2016-
Provision 2016 2017 2025
26 Allowance of deduction for certain energy efficient commercial building property -10 -30 -280
21 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy -220 -180 -880
23 Temporary 50% expensing for equipment used in the refining of liquid fuels -2,050 -1,820 -8,900
75 Accelerated depreciation of buildings other than rental housing (normal tax method) -9,170 -9,390 -116,750
earned income exclusion limit. This housing exclusion is amount of controlled foreign corporation income not yet
capped at 30 percent of the earned income exclusion limit, distributed to a U.S. shareholder as tax-deferred income.
with geographical adjustments. If taxpayers do not re- 6. Deferred taxes for financial firms on certain
ceive a specific allowance for housing expenses, they may income earned overseas.The United States generally
deduct housing expenses up to the amount by which for- taxes the worldwide income of U.S. persons and business
eign earned income exceeds their foreign earned income entities. The baseline tax system would not allow the
exclusion. deferral of tax or other relief targeted at particular in-
3. Exclusion of certain allowances for Federal dustries or activities. In contrast, the Tax Code allowed
employees abroad.In general, all compensation re- financial firms to defer taxes on income earned overseas
ceived by U.S. citizens and residents is properly included in an active business. This provision expired at the end
in their taxable income. It makes no difference whether of 2014.
the compensation is a result of working abroad or wheth-
er it is labeled as an allowance for the high cost of living General Science, Space, and Technology
abroad. In contrast to this treatment, U.S. Federal civilian
employees and Peace Corps members who work outside 7. Expensing of research and experimentation
the continental United States are allowed to exclude expenditures (normal tax method).The baseline tax
from U.S. taxable income certain special allowances they system allows a deduction for the cost of producing income.
receive to compensate them for the relatively high costs It requires taxpayers to capitalize the costs associated
associated with living overseas. The allowances supple- with investments over time to better match the streams
ment wage income and cover expenses such as rent, of income and associated costs. Research and experi-
education, and the cost of travel to and from the United mentation (R&E) projects can be viewed as investments
States. because, if successful, their benefits accrue for several
4. Inventory property sales source rules excep- years. It is often difficult, however, to identify whether a
tion.The United States generally taxes the worldwide specific R&E project is successful and, if successful, what
income of U.S. persons and business entities. Under the its expected life will be. Because of this ambiguity, the
baseline tax system, taxpayers receive a credit for foreign reference law baseline tax system would allow expensing
taxes paid which is limited to the pre-credit U.S. tax on of R&E expenditures. In contrast, under the normal tax
the foreign source income. In contrast, the sales source method, the expensing of R&E expenditures is viewed as
rules for inventory property under current law allow U.S. a tax expenditure. The baseline assumed for the normal
exporters to use more foreign tax credits by allowing the tax method is that all R&E expenditures are successful
exporters to attribute a larger portion of their earnings to and have an expected life of five years.
foreign sources than would be the case if the allocation of 8. Credit for increasing research activities.
earnings was based on actual economic activity. The baseline tax system would uniformly tax all returns
5. Deferral of income from controlled foreign to investments and not allow credits for particular activi-
corporations (normal tax method).Under the base- ties, investments, or industries. In contrast, the Tax Code
line tax system, the United States generally taxes the allowed an R&E credit of up to 20 percent of qualified re-
worldwide income of U.S. persons and business entities. search expenditures in excess of a base amount. The base
In contrast, certain active income of foreign corporations amount of the credit was generally determined by multi-
controlled by U.S. shareholders is not subject to U.S. taxa- plying a fixed-base percentage by the average amount of
tion when it is earned. The income becomes taxable only the companys gross receipts for the prior four years. The
when the controlling U.S. shareholders receive dividends taxpayers fixed base percentage generally was the ratio
or other distributions from their foreign stockholding. of its research expenses to gross receipts for 1984 through
The reference law tax baseline reflects this tax treatment 1988. Taxpayers could elect the alternative simplified
where only realized income is taxed. Under the normal credit regime, which equaled 14 percent of qualified re-
tax method, however, the currently attributable foreign search expenses that exceeded 50 percent of the average
source pre-tax income from such a controlling interest is qualified research expenses for the three preceding tax-
considered to be subject to U.S. taxation, whether or not able years. The credit does not apply to expenses paid or
distributed. Thus, the normal tax method considers the incurred after December 31, 2014.
Table 144. PRESENT VALUE OF SELECTED TAX EXPENDITURES

FOR ACTIVITY IN CALENDAR YEAR 2015
2015
Present
Provision Value of
Revenue
Loss
5 Deferral of income from controlled foreign corporations (normal tax method) 44,630
7 Expensing of research and experimentation expenditures (normal tax method) 3,030
20 Credit for holding clean renewable energy bonds 0
9 Expensing of exploration and development costs - fuels 338
35 Expensing of exploration and development costs - nonfuels 63
39 Expensing of multiperiod timber growing costs 110
44 Expensing of certain multiperiod production costs - agriculture -80
43 Expensing of certain capital outlays - agriculture -30
49 Expensing of reforestation expenditures 20
51 Deferral of income on life insurance and annuity contracts 1/ 13,920
65 Accelerated depreciation on rental housing 14,780
76 Accelerated depreciation of buildings other than rental 11,280
77 Accelerated depreciation of machinery and equipment 12,130
78 Expensing of certain small investments (normal tax method) 550
107 Credit for holders of zone academy bonds 160
64 Credit for low-income housing investments 5,760
104 Deferral for state prepaid tuition plans 3,790
145 Defined benefit employer plans 24,960
146 Defined contribution employer plans 67,150
147 Exclusion of IRA contributions and earnings 1,350
147 Exclusion of Roth earnings and distributions 4,720
147 Exclusion of non-deductible IRA earnings 420
149 Exclusion of contributions and earnings for Self-Employed plans 4,960
167 Exclusion of interest on public-purpose bonds 12,420
Exclusion of interest on non-public purpose bonds 4,170
170 Deferral of interest on U.S. savings bonds 250
1 Estimate is for annuities only. Life insurance earnings are mostly excluded from taxable income.
Energy depletion. Cost depletion is similar in concept to depre-

ciation, in that the costs of developing or acquiring the
9. Expensing of exploration and develop- asset are capitalized and then gradually reduced over an
ment costs.Under the baseline tax system, the costs estimate of the assets economic life, as is appropriate for
of exploring and developing oil and gas wells would be measuring net income. In contrast, the Tax Code gener-
capitalized and then amortized (or depreciated) over an ally allows independent fuel and mineral producers and
estimate of the economic life of the well. This insures that royalty owners to take percentage depletion deductions
the net income from the well is measured appropriately rather than cost depletion on limited quantities of output.
each year. In contrast to this treatment, current law al- Under percentage depletion, taxpayers deduct a percent-
lows intangible drilling costs for successful investments age of gross income from mineral production. In certain
in domestic oil and gas wells (such as wages, the cost of cases the deduction is limited to a fraction of the assets
using machinery for grading and drilling, and the cost of net income. Over the life of an investment, percentage de-
unsalvageable materials used in constructing wells) to be pletion deductions can exceed the cost of the investment.
deducted immediately, i.e., expensed. Because it allows Consequently, percentage depletion offers more generous
recovery of costs sooner, expensing is more generous for tax treatment than would cost depletion, which would
the taxpayer than would be amortization. Integrated oil limit deductions to an investments cost.
companies may deduct only 70 percent of such costs and 11. Exception from passive loss limitation for
must amortize the remaining 30 percent over five years. working interests in oil and gas properties.The
Non-integrated oil companies may expense all such costs. baseline tax system accepts current laws general rule
The same rule applies to the exploration and development limiting taxpayers ability to deduct losses from passive
costs of surface stripping and the construction of shafts activities against nonpassive income (e.g., wages, interest,
and tunnels for other fuel minerals. and dividends). Passive activities generally are defined as
10. Excess of percentage over cost depletion. those in which the taxpayer does not materially partici-
The baseline tax system would allow recovery of the costs pate, and there are numerous additional considerations
of developing certain oil and mineral properties using cost brought to bear on the determination of which activities
are passive for a given taxpayer. Losses are limited in an ty placed in service before January 1, 2017. A permanent
attempt to limit tax sheltering activities. Passive losses 10 percent credit is available for qualified solar and geo-
that are unused may be carried forward and applied thermal property placed in service after this date. Owners
against future passive income. An exception from the of renewable power facilities that qualify for the energy
passive loss limitation is provided for a working interest production credit may instead elect to take an energy in-
in an oil or gas property that the taxpayer holds directly vestment credit.
or through an entity that does not limit the liability of 16. Alcohol fuel credits.The baseline tax system
the taxpayer with respect to the interest. Thus, taxpay- would not allow credits for particular activities, invest-
ers can deduct losses from such working interests against ments, or industries. Instead, it generally would seek to
nonpassive income without regard to whether they mate- tax uniformly all returns from investment-like activities.
rially participate in the activity. In contrast, the Tax Code provided an income tax credit
12. Capital gains treatment of royalties on for qualified cellulosic biofuel production which was re-
coal.The baseline tax system generally would tax all named the Second generation biofuel producer credit.
income under the regular tax rate schedule. It would not This provision expired on December 31, 2014.
allow preferentially low tax rates to apply to certain types 17. Bio-diesel and small agri-biodiesel producer
or sources of income. For individuals, tax rates on regu- tax credits.The baseline tax system would not allow
lar income vary from 10 percent to 39.6 percent (plus a credits for particular activities, investments, or indus-
3.8-percent surtax on high income taxpayers), depending tries. Instead, it generally would seek to tax uniformly
on the taxpayers income. In contrast, current law allows all returns from investment-like activities. However, the
capital gains realized by individuals to be taxed at a pref- Tax Code allowed an income tax credit for Bio-diesel and
erentially low rate that is no higher than 20 percent (plus for Bio-diesel derived from virgin sources. In lieu of the
the 3.8-percent surtax). Certain sales of coal under roy- Bio-diesel credit, the taxpayer could claim a refundable
alty contracts qualify for taxation as capital gains rather excise tax credit. In addition, small agri-biodiesel pro-
than ordinary income, and so benefit from the preferen- ducers were eligible for a separate income tax credit for
tially low 20 percent maximum tax rate on capital gains. biodiesel production and a separate credit was available
13. Exclusion of interest on energy facility for qualified renewable diesel fuel mixtures. This provi-
bonds.The baseline tax system generally would tax all sion expired on December 31, 2014.
income under the regular tax rate schedule. It would not 18. Tax credits for clean-fuel burning vehicles
allow preferentially low (or zero) tax rates to apply to cer- and refueling property.The baseline tax system
tain types or sources of income. In contrast, the Tax Code would not allow credits for particular activities, invest-
allows interest earned on State and local bonds used to ments, or industries. Instead, it generally would seek to
finance construction of certain energy facilities to be ex- tax uniformly all returns from investment-like activi-
empt from tax. These bonds are generally subject to the ties. In contrast, the Tax Code allows a credit for plug-in
State private-activity-bond annual volume cap. electric-drive motor vehicles. Credits for alternative fuel
14. Energy production credit.The baseline tax vehicle refueling property and fuel cell vehicles expired
system would not allow credits for particular activities, on December 31, 2014.
investments, or industries. Instead, it generally would 19. Exclusion of utility conservation subsidies.
seek to tax uniformly all returns from investment-like The baseline tax system generally takes a comprehensive
activities. In contrast, the Tax Code provides a credit for view of taxable income that includes a wide variety of
certain electricity produced from wind energy, biomass, (measurable) accretions to wealth. In certain circumstanc-
geothermal energy, solar energy, small irrigation power, es, public utilities offer rate subsidies to non-business
municipal solid waste, or qualified hydropower and sold customers who invest in energy conservation measures.
to an unrelated party. Qualified facilities must have be- These rate subsidies are equivalent to payments from
gun construction before January 1, 2015. In addition to the utility to its customer, and so represent accretions
the electricity production credit, an income tax credit is to wealth, income that would be taxable to the customer
allowed for the production of refined coal for facilities under the baseline tax system. In contrast, the Tax Code
placed in service before January 1, 2012. The Tax Code exempts these subsidies from the non-business custom-
also provided an income tax credit for Indian coal facili- ers gross income.
ties placed in service before January 1, 2009. The Indian 20. Credit for holding clean renewable energy
coal facilities credit expired on December 31, 2014. bonds.The baseline tax system would uniformly tax all
15. Energy investment credit.The baseline tax returns to investments and not allow credits for particu-
system would not allow credits for particular activities, lar activities, investments, or industries. In contrast, the
investments, or industries. Instead, it generally would Tax Code provides for the issuance of Clean Renewable
seek to tax uniformly all returns from investment-like Energy Bonds which entitles the bond holder to a Federal
activities. However, the Tax Code provides credits for income tax credit in lieu of interest. As of March 2010, is-
investments in solar and geothermal energy property, suers of the unused authorization of such bonds could opt
qualified fuel cell power plants, stationary microturbine to receive direct payment with the yield becoming fully
power plants, geothermal heat pumps, small wind prop- taxable.
erty and combined heat and power property. A temporary 21. Deferral of gain from dispositions of trans-
credit of up to 30 percent is available for qualified proper- mission property to implement FERC restructuring
policy.The baseline tax system generally would tax nual consumption under the 2006 International Energy
gains from sale of property when realized. It would not Conservation Code. The credit equaled $1,000 in the case
allow an exception for particular activities or individu- of a new manufactured home that met a 30 percent stan-
als. However, the Tax Code allowed electric utilities to dard or requirements for EPAs Energy Star homes. This
defer gains from the sale of their transmission assets to a provision expired on December 31, 2014.
FERC-approved independent transmission company. The 28. Credit for energy efficiency improvements
sale of property must have been made prior to January 1, to existing homes.The baseline tax system would not
2015. allow credits for particular activities, investments, or in-
22. Credit for investment in clean coal facili- dustries. However, the Tax Code provided an investment
ties.The baseline tax system would uniformly tax all tax credit for expenditures made on insulation, exterior
returns to investments and not allow credits for particu- windows, and doors that improved the energy efficiency
lar activities, investments, or industries. In contrast, the of homes and met certain standards. The Tax Code also
Tax Code provides investment tax credits for clean coal provided a credit for purchases of advanced main air cir-
facilities producing electricity and for industrial gasifica- culating fans, natural gas, propane, or oil furnaces or hot
tion combined cycle projects. water boilers, and other qualified energy efficient prop-
23. Temporary 50 percent expensing for equip- erty. This provision expired on December 31, 2014.
ment used in the refining of liquid fuels.The 29. Credit for residential energy efficient prop-
baseline tax system allows the taxpayer to deduct the erty.The baseline tax system would uniformly tax all
decline in the economic value of an investment over its returns to investments and not allow credits for partic-
economic life. However, the Tax Code provided for an ac- ular activities, investments, or industries. However, the
celerated recovery of the cost of certain investments in Tax Code provides a credit for the purchase of a qualified
refineries by allowing partial expensing of the cost, there- photovoltaic property and solar water heating property, as
by giving such investments a tax advantage. Qualified well as for fuel cell power plants, geothermal heat pumps
refinery property must have been placed in service before and small wind property.
January 1, 2014. 30. Credit for qualified energy conservation
24. Natural gas distribution pipelines treated bonds.The baseline tax system would uniformly tax
as 15-year property.The baseline tax system allows all returns to investments and not allow credits for par-
taxpayers to deduct the decline in the economic value of ticular activities, investments, or industries. However,
an investment over its economic life. However, the Tax the Tax Code provides for the issuance of energy conser-
Code allows depreciation of natural gas distribution pipe- vation bonds which entitle the bond holder to a Federal
lines (placed in service between 2005 and 2011) over a 15 income tax credit in lieu of interest. As of March 2010, is-
year period. These deductions are accelerated relative to suers of the unused authorization of such bonds could opt
deductions based on economic depreciation. to receive direct payment with the yield becoming fully
25. Amortize all geological and geophysical ex- taxable.
penditures over two years.The baseline tax system 31. Advanced energy property credit.The base-
allows taxpayers to deduct the decline in the economic line tax system would not allow credits for particular
value of an investment over its economic life. However, activities, investments, or industries. However, the Tax
the Tax Code allows geological and geophysical expendi- Code provides a 30 percent investment credit for prop-
tures incurred in connection with oil and gas exploration erty used in a qualified advanced energy manufacturing
in the United States to be amortized over two years for project. The Treasury Department may award up to $2.3
non-integrated oil companies, a span of time that is gen- billion in tax credits for qualified investments.
erally shorter than the economic life of the assets. 32. Advanced nuclear power facilities produc-
26. Allowance of deduction for certain energy ef- tion credit.The baseline tax system would not allow
ficient commercial building property.The baseline credits or deductions for particular activities, invest-
tax system would not allow deductions in addition to nor- ments, or industries. Instead, it generally would seek to
mal depreciation allowances for particular investments in tax uniformly all returns from investment-like activities.
particular industries. Instead, it generally would seek to In contrast, the Tax Code allows a tax credit equal to 1.8
tax uniformly all returns from investment-like activities. cents times the number of kilowatt hours of electricity pro-
In contrast, the Tax Code allowed a deduction, per square duced at a qualifying advanced nuclear power facility. A
foot, for certain energy efficient commercial buildings. taxpayer may claim no more than $125 million per 1,000
This provision expired on December 31, 2014. megawatts of capacity. The Treasury Department may al-
27. Credit for construction of new energy effi- locate up to 6,000 megawatts of credit-eligible capacity.
cient homes.The baseline tax system would not allow 33. Reduced tax rate for nuclear decommission-
credits for particular activities, investments, or indus- ing funds.The baseline tax system would uniformly
tries. Instead, it generally would seek to tax uniformly tax all returns to investments and not allow special rates
all returns from investment-like activities. However, for particular activities, investments, or industries. In
the Tax Code allowed contractors a tax credit of $2,000 contrast, the Tax Code provides a special 20% tax rate for
for the construction of a qualified new energy-efficient investments made by Nuclear Decommissioning Reserve
home that had an annual level of heating and cooling Funds.
energy consumption at least 50 percent below the an-
Natural Resources and Environment 40. Industrial CO2 capture and sequestration
tax credit.The baseline tax system would uniformly
34. Expensing of exploration and development tax all returns to investments and not allow credits for
costs.The baseline tax system allows the taxpayer to particular activities, investments, or industries. In con-
deduct the depreciation of an asset according to the de- trast, the Tax Code allows a credit for qualified carbon
cline in its economic value over time. However, certain dioxide captured at a qualified facility and disposed of in
capital outlays associated with exploration and develop- secure geological storage. In addition, the provision al-
ment of nonfuel minerals may be expensed rather than lows a credit for qualified carbon dioxide that is captured
depreciated over the life of the asset. at a qualified facility and used as a tertiary injectant in
35. Excess of percentage over cost depletion. a qualified enhanced oil or natural gas recovery project.
The baseline tax system allows the taxpayer to deduct the 41. Deduction for endangered species recovery
decline in the economic value of an investment over time. expenditures.The baseline tax system would not allow
Under current law, however, most nonfuel mineral extrac- deductions in addition to normal depreciation allowanc-
tors may use percentage depletion (whereby the deduction es for particular investments in particular industries.
is fixed as a percentage of revenue) rather than cost de- Instead, it generally would seek to tax uniformly all re-
pletion, with percentage depletion rates ranging from 22 turns from investment-like activities. In contrast, under
percent for sulfur to 5 percent for sand and gravel. Over current law farmers can deduct up to 25 percent of their
the life of an investment, percentage depletion deduc- gross income for expenses incurred as a result of site and
tions can exceed the cost of the investment. Consequently, habitat improvement activities that will benefit endan-
percentage depletion offers more generous tax treatment gered species on their farm land, in accordance with site
than would cost depletion, which would limit deductions specific management actions included in species recovery
to an investments cost. plans approved pursuant to the Endangered Species Act
36. Exclusion of interest on bonds for water, sew- of 1973.
age, and hazardous waste facilities.The baseline
tax system generally would tax all income under the regu- Agriculture
lar tax rate schedule. It would not allow preferentially low
(or zero) tax rates to apply to certain types or sources of 42. Expensing of certain capital outlays.The
income. In contrast, the Tax Code allows interest earned baseline tax system requires the taxpayer to capital-
on State and local bonds used to finance construction of ize costs associated with investment property. However,
sewage, water, or hazardous waste facilities to be exempt farmers may expense certain expenditures for feed and
from tax. These bonds are generally subject to the State fertilizer, for soil and water conservation measures and
private-activity-bond annual volume cap. certain other capital improvements under current law.
37. Capital gains treatment of certain timber. 43. Expensing of certain multiperiod production
The baseline tax system generally would tax all income costs.The baseline tax system requires the taxpayer to
under the regular tax rate schedule. It would not allow capitalize costs associated with an investment over time.
preferentially low tax rates to apply to certain types However, the production of livestock and crops with a pro-
or sources of income. However, under current law cer- duction period greater than two years (e.g., establishing
tain timber sales can be treated as a capital gain rather orchards or constructing barns) is exempt from the uni-
than ordinary income and therefore subject to the lower form cost capitalization rules, thereby accelerating cost
capital-gains tax rate. For individuals, tax rates on regu- recovery.
lar income vary from 10 percent to 39.6 percent (plus a 44. Treatment of loans forgiven for solvent farm-
3.8-percent surtax on high income taxpayers), depending ers.Because loan forgiveness increases a debtors net
on the taxpayers income. In contrast, current law allows worth the baseline tax system requires debtors to include
capital gains to be taxed at a preferentially low rate that the amount of loan forgiveness as income or else reduce
is no higher than 20 percent (plus the 3.8-percent surtax). their recoverable basis in the property related to the loan.
38. Expensing of multi-period timber growing If the amount of forgiveness exceeds the basis, the excess
costs.The baseline tax system requires the taxpayer forgiveness is taxable if the taxpayer is not insolvent. For
to capitalize costs associated with investment property. bankrupt debtors, the amount of loan forgiveness reduces
However, most of the production costs of growing timber carryover losses, unused credits, and then basis, with the
may be expensed under current law rather than capi- remainder of the forgiven debt excluded from taxation.
talized and deducted when the timber is sold, thereby Qualified farm debt that is forgiven, however, is excluded
accelerating cost recovery. from income even when the taxpayer is solvent.
39. Tax incentives for preservation of historic 45. Capital gains treatment of certain income.
structures.The baseline tax system would not allow For individuals, tax rates on regular income vary from 10
credits for particular activities, investments, or industries. percent to 39.6 percent (plus a 3.8-percent surtax on high
However, expenditures to preserve and restore certified income taxpayers), depending on the taxpayers income.
historic structures qualify for an investment tax credit The baseline tax system generally would tax all income
of 20 percent under current law for certified rehabilita- under the regular tax rate schedule. It would not allow
tion activities. The taxpayers recoverable basis must be preferentially low tax rates to apply to certain types or
reduced by the amount of the credit. sources of income. In contrast, current law allows capi-
tal gains to be taxed at a preferentially low rate that is under the regular tax rate schedule. The baseline tax
no higher than 20 percent (plus the 3.8-percent surtax). system would not allow preferentially low (or zero) tax
Certain agricultural income, such as unharvested crops, rates to apply to certain types or sources of income. Under
qualify for taxation as capital gains rather than ordinary current law, however, stock non-life insurance compa-
income, and so benefit from the preferentially low 20 per- nies are generally exempt from tax if their gross receipts
cent maximum tax rate on capital gains. for the taxable year do not exceed $600,000 and more
46. Income averaging for farmers.The baseline than 50 percent of such gross receipts consist of premi-
tax system generally taxes all earned income each year at ums. Mutual non-life insurance companies are generally
the rate determined by the income tax. However, taxpay- tax-exempt if their annual gross receipts do not exceed
ers may average their taxable income from farming and $150,000 and more than 35 percent of gross receipts con-
fishing over the previous three years. sist of premiums. Also, non-life insurance companies with
47. Deferral of gain on sales of farm refiners. no more than $1.2 million of annual net premiums may
The baseline tax system generally subjects capital gains elect to pay tax only on their taxable investment income.
to taxes the year that they are realized. However, the Tax 52. Tax exemption of certain insurance compa-
Code allows a taxpayer who sells stock in a farm refiner nies owned by tax-exempt organizations.Under
to a farmers cooperative to defer recognition of the gain the baseline tax system, corporations pay taxes on their
if the proceeds are re-invested in a qualified replacement profits under the regular tax rate schedule. The baseline
property. tax system would not allow preferentially low (or zero)
48. Expensing of reforestation expenditures. tax rates to apply to certain types or sources of income.
The baseline tax system requires the taxpayer to capitalize Generally the income generated by life and property and
costs associated with an investment over time. In con- casualty insurance companies is subject to tax, albeit by
trast, the Tax Code provides for the expensing of the first special rules. Insurance operations conducted by such
$10,000 in reforestation expenditures with 7-year amorti- exempt organizations as fraternal societies, voluntary
zation of the remaining expenses. employee benefit associations, and others, however, are
exempt from tax.
Commerce and Housing 53. Small life insurance company deduction.
Under the baseline tax system, corporations pay taxes
This category includes a number of tax expenditure on their profits under the regular tax rate schedule. The
provisions that also affect economic activity in other baseline tax system would not allow preferentially low
functional categories. For example, provisions related to (or zero) tax rates to apply to certain types or sources of
investment, such as accelerated depreciation, could be income. However, under current law, small life insurance
classified under the energy, natural resources and envi- companies (with gross assets of less than $500 million)
ronment, agriculture, or transportation categories. can deduct 60 percent of the first $3 million of otherwise
49. Exemption of credit union income.Under taxable income. The deduction phases out for otherwise
the baseline tax system, corporations pay taxes on their taxable income between $3 million and $15 million.
profits under the regular tax rate schedule. However, in 54. Exclusion of interest spread of financial in-
the Tax Code the earnings of credit unions not distributed stitutions.The baseline tax system generally would tax
to members as interest or dividends are exempt from the all income under the regular tax rate schedule. It would
income tax. not allow preferentially low (or zero) tax rates to apply to
50. Exclusion of interest on life insurance sav- certain types or sources of income. Consumers and non-
ings.Under the baseline tax system, individuals and profit organizations pay for some deposit-linked services,
corporations generally pay taxes on their income when such as check cashing, by accepting a below-market in-
it is (actually or constructively) received or accrued, de- terest rate on their demand deposits. If they received a
pending on their method of accounting. Nevertheless, the market rate of interest on those deposits and paid explicit
Tax Code provides favorable tax treatment for invest- fees for the associated services, they would pay taxes on
ment income earned within qualified life insurance and the full market rate and (unlike businesses) could not de-
annuity contracts. In general, investment income earned duct the fees. The Government thus foregoes tax on the
on qualified life insurance contracts held until death is difference between the risk-free market interest rate and
permanently exempt from income tax. Investment income below-market interest rates on demand deposits, which
distributed prior to the death of the insured is tax-exempt under competitive conditions should equal the value add-
to the extent that investment in the contract is overstated of deposit services.
ed (because premiums paid for the cost of life insurance 55. Exclusion of interest on owner-occupied
protection are credited to investment in the contract).The mortgage subsidy bonds.The baseline tax system
remaining distributed amounts are tax-deferred because generally would tax all income under the regular tax rate
income is not taxed on a current basis, but is recognized schedule. It would not allow preferentially low (or zero)
only when distributed from the contract. Investment in- tax rates to apply to certain types or sources of income.
come earned on annuities benefits from tax deferral. In contrast, the Tax Code allows interest earned on State
51. Special alternative tax on small property and local bonds used to finance homes purchased by first-
and casualty insurance companies.Under the base- time, low-to-moderate-income buyers to be exempt from
line tax system, corporations pay taxes on their profits
tax. These bonds are generally subject to the State pri- emptions for certain types of income. In contrast, the Tax
vate-activity-bond annual volume cap. Code allows homeowners to exclude from gross income up
56. Exclusion of interest on rental housing to $250,000 ($500,000 in the case of a married couple fil-
bonds.The baseline tax system generally would tax ing a joint return) of the capital gains from the sale of
all income under the regular tax rate schedule. It would a principal residence. To qualify, the taxpayer must have
not allow preferentially low (or zero) tax rates to apply to owned and used the property as the taxpayers principal
certain types or sources of income. In contrast, the Tax residence for a total of at least two of the five years pre-
Code allows interest earned on State and local govern- ceding the date of sale. In addition, the exclusion may not
ment bonds used to finance multifamily rental housing be used more than once every two years.
projects to be tax-exempt. 61. Exclusion of net imputed rental income.
57. Mortgage interest expense on owner-oc- Under the baseline tax system, the taxable income of a
cupied residences.Under the baseline tax system, taxpayer who is an owner-occupant would include the
expenses incurred in earning income would be deductible. implicit value of gross rental income on housing services
However, such expenses would not be deductible when the earned on the investment in owner-occupied housing and
income or the return on an investment is not taxed. In con- would allow a deduction for expenses, such as interest,
trast, the Tax Code allows an exclusion from a taxpayers depreciation, property taxes, and other costs, associated
taxable income for the value of owner-occupied housing with earning such rental income. In contrast, the Tax
services and also allows the owner-occupant to deduct Code allows an exclusion from taxable income for the im-
mortgage interest paid on his or her primary residence plicit gross rental income on housing services, while in
and one secondary residence as an itemized non-business certain circumstances allows a deduction for some costs
deduction. In general, the mortgage interest deduction is associated with such income, such as for mortgage inter-
limited to interest on debt no greater than the owners ba- est and property taxes.
sis in the residence, and is also limited to interest on debt 62. Exception from passive loss rules for $25,000
of no more than $1 million. Interest on up to $100,000 of rental loss.The baseline tax system accepts current
of other debt secured by a lien on a principal or second laws general rule limiting taxpayers ability to deduct
residence is also deductible, irrespective of the purpose of losses from passive activities against nonpassive income
borrowing, provided the total debt does not exceed the fair (e.g., wages, interest, and dividends). Passive activities
market value of the residence. As an alternative to the de- generally are defined as those in which the taxpayer
duction, holders of qualified Mortgage Credit Certificates does not materially participate and there are numerous
issued by State or local governmental units or agencies additional considerations brought to bear on the determi-
may claim a tax credit equal to a proportion of their inter- nation of which activities are passive for a given taxpayer.
est expense. Losses are limited in an attempt to limit tax sheltering
58. Deduction for property taxes on real prop- activities. Passive losses that are unused may be carried
erty.Under the baseline tax system, expenses incurred forward and applied against future passive income. In
in earning income would be deductible. However, such ex- contrast to the general restrictions on passive losses, the
penses would not be deductible when the income or the Tax Code exempts certain owners of rental real estate ac-
return on an investment is not taxed. In contrast, the Tax tivities from passive income limitations. The exemption
Code allows an exclusion from a taxpayers taxable in- is limited to $25,000 in losses and phases out for taxpay-
come for the value of owner-occupied housing services and ers with income between $100,000 and $150,000.
also allows the owner-occupant to deduct property taxes 63. Credit for low-income housing investments.
paid on real property. The baseline tax system would uniformly tax all returns
59. Deferral of income from installment sales. to investments and not allow credits for particular activi-
The baseline tax system generally would tax all income ties, investments, or industries. However, under current
under the regular tax rate schedule. It would not allow law taxpayers who invest in certain low-income housing
preferentially low (or zero) tax rates, or deferral of tax, are eligible for a tax credit. The credit rate is set so that
to apply to certain types or sources of income. Dealers the present value of the credit is equal to 70 percent for
in real and personal property (i.e., sellers who regularly new construction and 30 percent for (1) housing receiving
hold property for sale or resale) cannot defer taxable in- other Federal benefits (such as tax-exempt bond financ-
come from installment sales until the receipt of the loan ing), or (2) substantially rehabilitated existing housing.
repayment. Nondealers (i.e., sellers of real property used The credit can exceed these levels in certain statutorily
in their business) are required to pay interest on deferred defined and State designated areas where project devel-
taxes attributable to their total installment obligations in opment costs are higher. The credit is allowed in equal
excess of $5 million. Only properties with sales prices ex- amounts over 10 years and is generally subject to a vol-
ceeding $150,000 are includable in the total. The payment ume cap.
of a market rate of interest eliminates the benefit of the 64. Accelerated depreciation on rental hous-
tax deferral. The tax exemption for nondealers with total ing.Under an economic income tax, the costs of
installment obligations of less than $5 million is, there- acquiring a building are capitalized and depreciated over
fore, a tax expenditure. time in accordance with the decline in the propertys eco-
60. Capital gains exclusion on home sales.The nomic value due to wear and tear or obsolescence. This
baseline tax system would not allow deductions and ex- insures that the net income from the rental property is
measured appropriately each year. Current law allows to certain types or sources of income. For individuals, tax
depreciation that is accelerated relative to economic de- rates on regular income vary from 10 percent to 39.6 per-
preciation. However, the depreciation provisions of the cent (plus a 3.8-percent surtax on high income taxpayers),
Tax Code are part of the reference law rules, and thus depending on the taxpayers income. In contrast, under
do not give rise to tax expenditures under reference law. current law, capital gains on assets held for more than
Under normal law, in contrast, depreciation allowances one year are taxed at a preferentially low rate that is no
reflect estimates of economic depreciation. higher than 20 percent (plus the 3.8-percent surtax).
65. Discharge of mortgage indebtedness.Under 70. Capital gains exclusion of small corporation
the baseline tax system, all income would generally be stock.The baseline tax system would not allow deduc-
taxed under the regular tax rate schedule. The baseline tions and exemptions, or provide preferential treatment
tax system would not allow preferentially low (or zero) of certain sources of income or types of activities. In con-
tax rates to apply to certain types or sources of income. In trast, the Tax Code provided an exclusion of 50 percent,
contrast, the Tax Code allowed an exclusion from a tax- applied to ordinary rates with a maximum of a 28 percent
payers taxable income for any discharge of indebtedness tax rate, for capital gains from qualified small business
of up to $2 million ($1 million in the case of a married stock held by individuals for more than 5 years; 75 per-
individual filing a separate return) from a qualified prin- cent for stock issued after February 17, 2009 and before
cipal residence. The provision applied to debt discharged September 28, 2010; and 100 percent for stock issued
after January 1, 2007, and before January 1, 2015. after September 27, 2010 and before January 1, 2015. A
66. Discharge of business indebtedness.Under qualified small business is a corporation whose gross as-
the baseline tax system, all income would generally be sets do not exceed $50 million as of the date of issuance
taxed under the regular tax rate schedule. The baseline of the stock.
tax system would not allow preferentially low (or zero) 71. Step-up basis of capital gains at death.
tax rates to apply to certain types or sources of income. Under the baseline tax system, unrealized capital gains
In contrast, the Tax Code allows an exclusion from a tax- would be taxed when assets are transferred at death. It
payers taxable income for any discharge of qualified real would not allow for exempting gains upon transfer of the
property business indebtedness by taxpayers other than underlying assets to the heirs. In contrast, capital gains on
a C corporation. If the canceled debt is not reported as assets held at the owners death are not subject to capital
current income, however, the basis of the underlying prop- gains tax under current law. The cost basis of the appreci-
erty must be reduced by the amount canceled. ated assets is adjusted to the market value at the owners
67. Exceptions from imputed interest rules. date of death which becomes the basis for the heirs.
Under the baseline tax system, holders (issuers) of debt 72. Carryover basis of capital gains on gifts.
instruments are generally required to report interest Under the baseline tax system, unrealized capital gains
earned (paid) in the period it accrues, not when received. would be taxed when assets are transferred by gift. In
In addition, the amount of interest accrued is determined contrast, when a gift of appreciated asset is made under
by the actual price paid, not by the stated principal and current law, the donors basis in the transferred property
interest stipulated in the instrument. But under current (the cost that was incurred when the transferred property
law, any debt associated with the sale of property worth was first acquired) carries over to the donee. The carry-
less than $250,000 is exempted from the general inter- over of the donors basis allows a continued deferral of
est accounting rules. This general $250,000 exception is unrealized capital gains.
not a tax expenditure under reference law but is under 73. Deferral of capital gains from like-kind ex-
normal law. Current law also includes exceptions for cer- changes.The baseline tax system generally would tax
tain property worth more than $250,000. These are tax all income under the regular tax rate schedule. It would
expenditure under reference law and normal law. These not allow preferentially low (or zero) tax rates, or deferral
exceptions include, sales of personal residences worth of tax, to apply to certain types or sources of income. In
more than $250,000, and sales of farms and small busi- contrast, current law allows the deferral of accrued gains
nesses worth between $250,000 and $1 million. on assets transferred in qualified like-kind exchanges.
68. Treatment of qualified dividends.The base- 74. Ordinary income treatment of loss from
line tax system generally would tax all income under the small business corporation stock sale.The baseline
regular tax rate schedule. It would not allow preferen- tax system limits to $3,000 the write-off of losses from
tially low tax rates to apply to certain types or sources capital assets, with carryover of the excess to future years.
of income. For individuals, tax rates on regular income In contrast, the Tax Code allows up to $100,000 in losses
vary from 10 percent to 39.6 percent (plus a 3.8-percent from the sale of small business corporate stock (capital-
surtax on high income taxpayers), depending on the tax- ization less than $1 million) to be treated as ordinary
payers income. In contrast, under current law, qualified losses and fully deducted.
dividends are taxed at a preferentially low rate that is no 75. Accelerated depreciation of buildings other
higher than 20 percent (plus the 3.8-percent surtax). than rental housing.Under an economic income tax,
69. Capital gains (except agriculture, timber, the costs of acquiring a building are capitalized and de-
iron ore, and coal).The baseline tax system generally preciated over time in accordance with the decline in the
would tax all income under the regular tax rate schedule. propertys economic value due to wear and tear or obsoles-
It would not allow preferentially low tax rates to apply cence. This insures that the net income from the property
is measured appropriately each year. Current law allows (or zero) tax rates to apply to certain types or sources of
depreciation deductions that are accelerated relative to income. In contrast, the Tax Code allowed taxpayers to
economic depreciation. However, the depreciation provi- deduct up to $15 million per production ($20 million in
sions of the Tax Code are part of the reference law rules, certain distressed areas) in non-capital expenditures in-
and thus do not give rise to tax expenditures under ref- curred during the year. This provision expired at the end
erence law. Under normal law, in contrast, depreciation of 2014.
allowances reflect estimates of economic depreciation.
76. Accelerated depreciation of machinery and Transportation
equipment.Under an economic income tax, the costs of
acquiring machinery and equipment are capitalized and 82. Tonnage tax.The baseline tax system general-
depreciated over time in accordance with the decline in the ly would tax all profits and income under the regular tax
propertys economic value due to wear and tear or obsoles- rate schedule. U.S. shipping companies may choose to be
cence. This insures that the net income from the property subject to a tonnage tax based on gross shipping weight
is measured appropriately each year. Current law allows in lieu of an income tax, in which case profits would not be
depreciation deductions that are accelerated relative to subject to tax under the regular tax rate schedule.
economic depreciation. However, the depreciation provi- 83. Deferral of tax on shipping companies.The
sions of the Tax Code are part of the reference law rules, baseline tax system generally would tax all profits and
and thus do not give rise to tax expenditures under ref- income under the regular tax rate schedule. It would not
erence law. Under normal law, in contrast depreciation allow preferentially low (or zero) tax rates to apply to cer-
allowances reflect estimates of economic depreciation. tain types or sources of income. In contrast, the Tax Code
77. Expensing of certain small investments. allows certain companies that operate U.S. flag vessels to
Under the reference law baseline, the costs of acquiring defer income taxes on that portion of their income used
tangible property and computer software would be de- for shipping purposes (e.g., primarily construction, mod-
preciated using the Tax Codes depreciation provisions. ernization and major repairs to ships, and repayment of
Under the normal tax baseline, depreciation allowances loans to finance these investments).
are estimates of economic depreciation. However, the Tax 84. Exclusion of reimbursed employee parking
Code allows qualifying investments by small businesses expenses.Under the baseline tax system, all compensa-
in tangible property and certain computer software to be tion, including dedicated payments and in-kind benefits,
expensed rather than depreciated over time. would be included in taxable income. Dedicated payments
78. Graduated corporation income tax rate. and in-kind benefits represent accretions to wealth that
Because the corporate rate schedule is part of reference do not differ materially from cash wages. In contrast, the
tax law, it is not considered a tax expenditure under the Tax Code allows an exclusion from taxable income for em-
reference method. A flat corporation income tax rate ployee parking expenses that are paid for by the employer
is taken as the baseline under the normal tax method; or that are received by the employee in lieu of wages. In
therefore the lower rate is considered a tax expenditure 2015, the maximum amount of the parking exclusion is
under this concept. $250 per month. The tax expenditure estimate does not
79. Exclusion of interest on small issue bonds. include any subsidy provided through employer-owned
The baseline tax system generally would tax all income parking facilities.
under the regular tax rate schedule. It would not allow 85. Exclusion for employer-provided transit
preferentially low (or zero) tax rates to apply to certain passes.Under the baseline tax system, all compensa-
types or sources of income. In contrast, the Tax Code tion, including dedicated payments and in-kind benefits,
allows interest earned on small issue industrial develop- would be included in taxable income. Dedicated payments
ment bonds (IDBs) issued by State and local governments and in-kind benefits represent accretions to wealth that
to finance manufacturing facilities to be tax exempt. do not differ materially from cash wages. In contrast, the
Depreciable property financed with small issue IDBs Tax Code allows an exclusion from a taxpayers taxable
must be depreciated, however, using the straight-line income for passes, tokens, fare cards, and vanpool expens-
method. The annual volume of small issue IDBs is subject es that are paid for by an employer or that are received
to the unified volume cap discussed in the mortgage hous- by the employee in lieu of wages to defray an employees
ing bond section above. commuting costs. The maximum amount of the transit
80. Deduction for U.S. production activities. exclusion is $130 per month in 2015. (There had been a
The baseline tax system generally would tax all income parity provision that had temporary resulted in a higher
under the regular tax rate schedule. It would not allow maximum equal to those for parking passes for several
preferentially low (or zero) tax rates to apply to certain years, but it expired on December 31, 2014).
types or sources of income. In contrast, the Tax Code al- 86. Tax credit for certain expenditures for main-
lows for a deduction equal to a portion of taxable income taining railroad tracks.The baseline tax system
attributable to domestic production. would not allow credits for particular activities, invest-
81. Special rules for certain film and TV pro- ments, or industries. However, the Tax Code allowed
duction.The baseline tax system generally would tax eligible taxpayers to claim a credit equal to the lesser of
all income under the regular tax rate schedule. It would 50 percent of maintenance expenditures and the prod-
not allow deductions and exemptions or preferentially low
uct of $3,500 and the number of miles of track owned or all CDEs was $3.5 billion for 2014, the last year for which
leased. This provision expired at the end of 2014. credit allocations could be made.
87. Exclusion of interest on bonds for Highway 93. Credit to holders of Gulf and Midwest Tax
Projects and rail-truck transfer facilities.The Credit Bonds.The baseline tax system would not allow
baseline tax system generally would tax all income under credits for particular activities, investments, or indus-
the regular tax rate schedule. It would not allow prefer- tries. Instead, under current law taxpayers that own Gulf
entially low (or zero) tax rates to apply to certain types or and Midwest Tax Credit bonds receive a non-refundable
sources of income. In contrast, the Tax Code provides for tax credit rather than interest. The credit is included in
$15 billion of tax-exempt bond authority to finance quali- gross income.
fied highway or surface freight transfer facilities. 94. Recovery Zone Bonds.The baseline tax sys-
tem would not allow credits for particular activities,
Community and Regional Development investments, or industries. In addition, it would tax all
income under the regular tax rate schedule. It would not
88. Investment credit for rehabilitation of struc- allow preferentially low (or zero) tax rates to apply to cer-
tures.The baseline tax system would uniformly tax all tain types or sources of income. In contrast, the Tax Code
returns to investments and not allow credits for partic- allowed local governments to issue up $10 billion in tax-
ular activities, investments, or industries. However, the able Recovery Zone Economic Development Bonds in 2009
Tax Code allows a 10-percent investment tax credit for and 2010 and receive a direct payment from Treasury
the rehabilitation of buildings that are used for business equal to 45 percent of interest expenses. In addition, local
or productive activities and that were erected before 1936 governments could issue up to $15 billion in tax exempt
for other than residential purposes. The taxpayers recov- Recovery Zone Facility Bonds. These bonds financed cer-
erable basis must be reduced by the amount of the credit. tain kinds of business development in areas of economic
89. Exclusion of interest for airport, dock, and distress.
similar bonds.The baseline tax system generally 95. Tribal Economic Development Bonds.The
would tax all income under the regular tax rate schedule. baseline tax system generally would tax all income under
It would not allow preferentially low (or zero) tax rates the regular tax rate schedule. It would not allow prefer-
to apply to certain types or sources of income. In con- entially low (or zero) tax rates to apply to certain types or
trast, the Tax Code allows interest earned on State and sources of income. In contrast, the Tax Code was modified
local bonds issued to finance high-speed rail facilities and in 2009 to allow Indian tribal governments to issue tax
Government-owned airports, docks, wharves, and sport exempt tribal economic development bonds. There is a
and convention facilities to be tax-exempt. These bonds national bond limitation of $2 billion on such bonds.
are not subject to a volume cap.
90. Exemption of certain mutuals and coop- Education, Training, Employment,
eratives income.Under the baseline tax system, and Social Services
corporations pay taxes on their profits under the regu-
lar tax rate schedule. In contrast, the Tax Code provides 96. Exclusion of scholarship and fellowship in-
for the incomes of mutual and cooperative telephone and come.Scholarships and fellowships are excluded from
electric companies to be exempt from tax if at least 85 taxable income to the extent they pay for tuition and
percent of their revenues are derived from patron service course-related expenses of the grantee. Similarly, tuition
charges. reductions for employees of educational institutions and
91. Empowerment zones.The baseline tax sys- their families are not included in taxable income. From
tem generally would tax all income under the regular tax an economic point of view, scholarships and fellowships
rate schedule. It would not allow preferentially low tax are either gifts not conditioned on the performance of
rates to apply to certain types or sources of income, tax services, or they are rebates of educational costs. Thus,
credits, and write-offs faster than economic depreciation. under the baseline tax system of the reference law meth-
In contrast, the Tax Code allowed qualifying businesses od, this exclusion is not a tax expenditure because this
in designated economically depressed areas to receive method does not include either gifts or price reductions in
tax benefits such as an employment credit, increased ex- a taxpayers gross income. The exclusion, however, is con-
pensing of investment in equipment, special tax-exempt sidered a tax expenditure under the normal tax method,
financing, and certain capital gains incentives. A taxpay- which includes gift-like transfers of Government funds in
ers ability to accrue new tax benefits for empowerment gross income (many scholarships are derived directly or
zones expired on December 31, 2014. indirectly from Government funding).
92. New markets tax credit.The baseline tax 97. HOPE tax credit.The baseline tax system
system would not allow credits for particular activities, would not allow credits for particular activities, invest-
investments, or industries. However, the Tax Code al- ments, or industries. Under current law, however, the
lowed taxpayers who made qualified equity investments non-refundable HOPE tax credit allows a credit for 100
in a community development entity (CDE), which then percent of an eligible students first $1,300 of tuition and
made qualified investments in low-income communities, fees and 50 percent of the next $1,300 of tuition and fees
to be eligible for a tax credit that is received over 7 years. (2015 levels, indexed). The credit only covers tuition and
The total equity investment available for the credit across fees paid during the first two years of a students post-sec-
ondary education. In 2015, the credit is phased out ratably other taxpayers). Taxpayers with adjusted gross income
for taxpayers with modified AGI between $110,000 and up to $160,000 on a joint return ($80,000 for other taxpay-
$130,000 if married filing jointly ($55,000 and $65,000 ers) could deduct up to $2,000. This provision expired on
for other taxpayers), indexed. This credit is replaced by December 31, 2014.
the American Opportunity Tax Credit for 2009 through 103. Qualified tuition programs.The baseline
2017. See provision number 99, American Opportunity tax system generally would tax all income under the regu-
Tax Credit. lar tax rate schedule. It would not allow preferentially low
98. Lifetime Learning tax credit.The baseline (or zero) tax rates to apply to certain types or sources of
tax system would not allow credits for particular activities, income. Some States have adopted prepaid tuition plans,
investments, or industries. Under current law, however, prepaid room and board plans, and college savings plans,
the non-refundable Lifetime Learning tax credit allows which allow persons to pay in advance or save for college
a credit for 20 percent of an eligible students tuition and expenses for designated beneficiaries. Under current law,
fees, up to a maximum credit per return of $2,000. In investment income, or the return on prepayments, is not
2015, the credit is phased out ratably for taxpayers with taxed when earned, and is tax-exempt when withdrawn
modified AGI between $110,000 and $130,000 if married to pay for qualified expenses.
filing jointly ($55,000 and $65,000 for other taxpayers), 104. Exclusion of interest on student-loan
indexed. The credit applies to both undergraduate and bonds.The baseline tax system generally would tax
graduate students. all income under the regular tax rate schedule. It would
99. American Opportunity Tax Credit.The not allow preferentially low (or zero) tax rates to apply to
baseline tax system would not allow credits for particular certain types or sources of income. In contrast, interest
activities, investments, or industries. Under current law earned on State and local bonds issued to finance student
in 2015, however, the American Opportunity Tax Credit loans is tax-exempt under current law. The volume of all
allows a partially refundable credit of up to $2,500 per such private activity bonds that each State may issue an-
eligible student for qualified tuition and related expenses nually is limited.
paid during each of the first four years of the students 105. Exclusion of interest on bonds for private
post-secondary education. The credit is phased out for nonprofit educational facilities.The baseline tax
taxpayers with modified adjusted gross income between system generally would tax all income under the regular
$80,000 and $90,000 ($160,000 and $180,000 for married tax rate schedule. It would not allow preferentially low
taxpayers filing a joint return). The credit expires at the (or zero) tax rates to apply to certain types or sources of
end of 2017. income. In contrast, under current law interest earned on
100. Education Individual Retirement Accounts State and local Government bonds issued to finance the
(IRA).The baseline tax system generally would tax all construction of facilities used by private nonprofit educa-
income under the regular tax rate schedule. It would not tional institutions is not taxed.
allow preferentially low (or zero) tax rates to apply to cer- 106. Credit for holders of zone academy bonds.
tain types or sources of income. While contributions to The baseline tax system would not allow credits for
an education IRA are not tax-deductible under current particular activities, investments, or industries. Under
law, investment income earned by education IRAs is not current law, however, financial institutions that own zone
taxed when earned, and investment income from an edu- academy bonds receive a non-refundable tax credit rath-
cation IRA is tax-exempt when withdrawn to pay for a er than interest. The credit is included in gross income.
students education expenses. The maximum contribution Proceeds from zone academy bonds may only be used to
to an education IRA in 2015 is $2,000 per beneficiary. In renovate, but not construct, qualifying schools and for
2015, the maximum contribution is phased down ratably certain other school purposes. The total amount of zone
for taxpayers with modified AGI between $190,000 and academy bonds that may be issued was limited to $1.4
$220,000 if married filing jointly ($95,000 and $110,000 billion in 2009 and 2010. As of March 2010, issuers of the
for other taxpayers). unused authorization of such bonds could opt to receive
101. Deductibility of student loan interest. direct payment with the yield becoming fully taxable. An
The baseline tax system accepts current laws general additional $0.4 billion of these bonds with a tax credit was
rule limiting taxpayers ability to deduct non-business authorized to be issued before January 1, 2015.
interest expenses. In contrast, taxpayers may claim an 107. Exclusion of interest on savings bonds
above-the-line deduction of up to $2,500 on interest paid redeemed to finance educational expenses.The
on an education loan. In 2015, the maximum deduction baseline tax system generally would tax all income under
is phased down ratably for taxpayers with modified AGI the regular tax rate schedule. It would not allow prefer-
between $130,000 and $160,000 if married filing jointly entially low (or zero) tax rates to apply to certain types
($65,000 and $80,000 for other taxpayers). or sources of income. Under current law, however, inter-
102. Deduction for higher education expenses. est earned on U.S. savings bonds issued after December
The baseline tax system would not allow a deduction for 31, 1989 is tax-exempt if the bonds are transferred to an
personal expenditures. In contrast, the Tax Code provid- educational institution to pay for educational expenses.
ed a maximum annual deduction of $4,000 for qualified The tax exemption is phased out for taxpayers with AGI
higher education expenses for taxpayers with adjusted between $115,751 and $145,749 if married filing jointly
gross income up to $130,000 on a joint return ($65,000 for ($77,200 and $92,199 for other taxpayers) in 2015.
108. Parental personal exemption for students 2010, issuers of such bonds could opt to receive direct pay-
age 19 or over.Under the baseline tax system, a per- ment with the yield becoming fully taxable.
sonal exemption would be allowed for the taxpayer, as 114. Work opportunity tax credit.The baseline
well as for the taxpayers spouse and dependents who do tax system would not allow credits for particular activi-
not claim a personal exemption on their own tax returns. ties, investments, or industries. Instead, it generally would
To be considered a dependent, a child would have to be seek to tax uniformly all returns from investment-like
under age 19. In contrast, the Tax Code allows taxpayers activities. In contrast, the Tax Code provides employers
to claim personal exemptions for children aged 19 to 23, with a tax credit for qualified wages paid to individuals.
as long as the children are full-time students and reside The credit applies to employees who began work on or
with the taxpayer for over half the year (with exceptions before December 31, 2014 and who are certified as mem-
for temporary absences from home, such as for school bers of various targeted groups. The amount of the credit
attendance). that can be claimed is 25 percent of qualified wages for
109. Charitable contributions to educational in- employment less than 400 hours and 40 percent for em-
stitutions.The baseline tax system would not allow a ployment of 400 hours or more. Generally, the maximum
deduction for personal expenditures. In contrast, the Tax credit per employee is $2,400 and can only be claimed
Code provides taxpayers a deduction for contributions on the first year of wages an individual earns from an
to nonprofit educational institutions that are similar to employer. However, the credit for long-term welfare recip-
personal expenditures. Moreover, taxpayers who donate ients can be claimed on second year wages as well and has
capital assets to educational institutions can deduct the a $9,000 maximum. Also, certain categories of veterans
assets current value without being taxed on any apprecia- are eligible for a higher maximum credit of up to $9,600.
tion in value. An individuals total charitable contribution Employers must reduce their deduction for wages paid by
generally may not exceed 50 percent of adjusted gross the amount of the credit claimed.
income; a corporations total charitable contributions gen- 115. Employer-provided child care exclu-
erally may not exceed 10 percent of pre-tax income. sion.Under the baseline tax system, all compensation,
110. Exclusion of employer-provided educa- including dedicated payments and in-kind benefits,
tional assistance.Under the baseline tax system, all should be included in taxable income. In contrast, under
compensation, including dedicated payments and in-kind current law up to $5,000 of employer-provided child care
benefits, should be included in taxable income because is excluded from an employees gross income even though
they represent accretions to wealth that do not materi- the employers costs for the child care are a deductible
ally differ from cash wages. Under current law, however, business expense.
employer-provided educational assistance is excluded 116. Employer-provided child care credit.The
from an employees gross income, even though the em- baseline tax system would not allow credits for particular
ployers costs for this assistance are a deductible business activities, investments, or industries. In contrast, current
expense. The maximum exclusion is $5,250 per taxpayer. law provides a credit equal to 25 percent of qualified ex-
111. Special deduction for teacher expenses. penses for employee child care and 10 percent of qualified
The baseline tax system would not allow a deduction for expenses for child care resource and referral services.
personal expenditures. In contrast, the Tax Code allowed Employer deductions for such expenses are reduced by
educators in both public and private elementary and sec- the amount of the credit. The maximum total credit is
ondary schools, who worked at least 900 hours during a limited to $150,000 per taxable year.
school year as a teacher, instructor, counselor, principal 117. Assistance for adopted foster children.
or aide, to subtract up to $250 of qualified expenses when Under the baseline tax system, all compensation, including
determining their adjusted gross income (AGI). This pro- dedicated payments and in-kind benefits, should be in-
vision expired on December 31, 2014. cluded in taxable income. Taxpayers who adopt eligible
112. Discharge of student loan indebtedness. children from the public foster care system can receive
Under the baseline tax system, all compensation, monthly payments for the childrens significant and
including dedicated payments and in-kind benefits, varied needs and a reimbursement of up to $2,000 for
should be included in taxable income. In contrast, the Tax nonrecurring adoption expenses; special needs adoptions
Code allows certain professionals who perform in under- receive the maximum benefit even if that amount is not
served areas or specific fields, and as a consequence have spent. These payments are excluded from gross income
their student loans discharged, not to recognize such dis- under current law.
charge as income. 118. Adoption credit and exclusion.The base-
113. Qualified school construction bonds.The line tax system would not allow credits for particular
baseline tax system would not allow credits for particular activities. In contrast, taxpayers can receive a tax cred-
activities, investments, or industries. Instead, it generally it for qualified adoption expenses under current law.
would seek to tax uniformly all returns from investment- Taxpayers may also exclude qualified adoption expenses
like activities. In contrast, the Tax Code was modified in provided or reimbursed by an employer from income, sub-
2009 to provide a tax credit in lieu of interest to holders ject to the same maximum amounts and phase-out as the
of qualified school construction bonds. The national vol- credit. The same expenses cannot qualify for tax benefits
ume limit is $22.4 billion over 2009 and 2010. As of March under both programs; however, a taxpayer may use the
benefits of the exclusion and the tax credit for different of the clergymans housing allowance or the rental value
expenses. of the clergymans parsonage.
119. Exclusion of employee meals and lodg- 125. Indian employment credit.The baseline tax
ing.Under the baseline tax system, all compensation, system would not allow credits for particular activities,
including dedicated payments and in-kind benefits, investments, or industries. Instead, it generally would
should be included in taxable income. In contrast, under seek to tax uniformly all returns from investment-like
current law employer-provided meals and lodging are ex- activities. In contrast, the Tax Code provided employers
cluded from an employees gross income even though the with a tax credit for qualified wages paid to employees
employers costs for these items are a deductible business who were enrolled members of Indian tribes. The amount
expense. of the credit that could be claimed was 20 percent of the
120. Credit for child and dependent care expens- excess of qualified wages and health insurance costs paid
es.The baseline tax system would not allow credits for by the employer in the current tax year over the amount
particular activities or targeted at specific groups. In con- of such wages and costs paid by the employer in 1993.
trast, the Tax Code provides parents who work or attend Qualified wages and health insurance costs with respect
school and who have child and dependent care expenses to any employee for the taxable year could not exceed
a tax credit. Expenditures up to a maximum $3,000 for $20,000. Employees had to live on or near the reserva-
one dependent and $6,000 for two or more dependents are tion where he or she worked to be eligible for the credit.
eligible for the credit. The credit is equal to 35 percent Employers had to reduce their deduction for wages paid
of qualified expenditures for taxpayers with incomes of by the amount of the credit claimed. The credit does not
up to $15,000. The credit is reduced to a minimum of 20 apply to taxable years beginning after December 31, 2014.
percent by one percentage point for each $2,000 of income
in excess of $15,000. Health
121. Credit for disabled access expenditures.
The baseline tax system would not allow credits for 126. Exclusion of employer contributions
particular activities, investments, or industries. In con- for medical insurance premiums and medical
trast, the Tax Code provides small businesses (less than care.Under the baseline tax system, all compensa-
$1 million in gross receipts or fewer than 31 full-time em- tion, including dedicated payments and in-kind benefits,
ployees) a 50-percent credit for expenditures in excess of should be included in taxable income. In contrast, under
$250 to remove access barriers for disabled persons. The current law, employer-paid health insurance premiums
credit is limited to $5,000. and other medical expenses (including long-term care)
122. Deductibility of charitable contributions, are not included in employee gross income even though
other than education and health.The baseline tax they are deducted as a business expense by the employee.
system would not allow a deduction for personal expen- 127. Self-employed medical insurance premi-
ditures including charitable contributions. In contrast, ums.Under the baseline tax system, all compensation
the Tax Code provides taxpayers a deduction for con- and remuneration, including dedicated payments and
tributions to charitable, religious, and certain other in-kind benefits, should be included in taxable income. In
nonprofit organizations. Taxpayers who donate capital contrast, under current law self-employed taxpayers may
assets to charitable organizations can deduct the assets deduct their family health insurance premiums. Taxpayers
current value without being taxed on any appreciation in without self-employment income are not eligible for this
value. An individuals total charitable contribution gener- special deduction. The deduction is not available for any
ally may not exceed 50 percent of adjusted gross income; a month in which the self-employed individual is eligible to
corporations total charitable contributions generally may participate in an employer-subsidized health plan and the
not exceed 10 percent of pre-tax income. deduction may not exceed the self-employed individuals
123. Exclusion of certain foster care payments. earned income from self-employment.
The baseline tax system generally would tax all income 128. Medical Savings Accounts and Health
under the regular tax rate schedule. It would not allow Savings Accounts.Under the baseline tax system, all
preferentially low (or zero) tax rates to apply to certain compensation, including dedicated payments and in-kind
types or sources of income. Foster parents provide a home benefits, should be included in taxable income. Also, the
and care for children who are wards of the State, under baseline tax system would not allow a deduction for per-
contract with the State. Under current law, compensa- sonal expenditures and generally would tax investment
tion received for this service is excluded from the gross earnings. In contrast, individual contributions to Archer
incomes of foster parents; the expenses they incur are Medical Savings Accounts (Archer MSAs) and Health
nondeductible. Savings Accounts (HSAs) are allowed as a deduction in
124. Exclusion of parsonage allowances.Under determining adjusted gross income whether or not the in-
the baseline tax system, all compensation, including dedi- dividual itemizes deductions. Employer contributions to
cated payments and in-kind benefits, would be included in Archer MSAs and HSAs are excluded from income and
taxable income. Dedicated payments and in-kind benefits employment taxes. Archer MSAs and HSAs require that
represent accretions to wealth that do not differ materi- the individual have coverage by a qualifying high deduct-
ally from cash wages. In contrast, the Tax Code allows an ible health plan. Earnings from the accounts are excluded
exclusion from a clergymans taxable income for the value from taxable income. Distributions from the accounts
used for medical expenses are not taxable. The rules for qualifying employer may claim the credit for any taxable
HSAs are generally more flexible than for Archer MSAs year beginning in 2010, 2011, 2012, and 2013 and for up
and the deductible contribution amounts are greater (in to two years for insurance purchased through a Health
2015, $3,350 for taxpayers with individual coverage and Insurance Exchange thereafter. For taxable years begin-
$6,650 for taxpayers with family coverage). Thus, HSAs ning in 2010, 2011, 2012, and 2013, the maximum credit
have largely replaced MSAs. is 35 percent of premiums paid by qualified taxable em-
129. Deductibility of medical expenses.The ployers and 25 percent of premiums paid by qualified
baseline tax system would not allow a deduction for tax-exempt organizations. For taxable years beginning in
personal expenditures. In contrast, under current law 2014 and later years, the maximum tax credit increas-
personal expenditures for medical care (including the es to 50 percent of premiums paid by qualified taxable
costs of prescription drugs) exceeding 7.5 percent of the employers and 35 percent of premiums paid by qualified
taxpayers adjusted gross income are deductible. For tax tax-exempt organizations.
years beginning after 2012, only medical expenditures ex- 133. Deductibility of charitable contributions
ceeding 10 percent of the taxpayers adjusted gross income to health institutions.The baseline tax system would
are deductible. However, for the years 2013, 2014, 2015 not allow a deduction for personal expenditures includ-
and 2016, if either the taxpayer or the taxpayers spouse ing charitable contributions. In contrast, the Tax Code
turns 65 before the end of the taxable year, the threshold provides individuals and corporations a deduction for
remains at 7.5 percent of adjusted income. Beginning in contributions to nonprofit health institutions. Tax expen-
2017, the 10-percent threshold will apply to all taxpayers, ditures resulting from the deductibility of contributions
including those over 65. to other charitable institutions are listed under the edu-
130. Exclusion of interest on hospital construc- cation, training, employment, and social services function.
tion bonds.The baseline tax system generally would 134. Tax credit for orphan drug research.The
tax all income under the regular tax rate schedule. It baseline tax system would not allow credits for particular
would not allow preferentially low (or zero) tax rates to activities, investments, or industries. In contrast, under
apply to certain types or sources of income. In contrast, current law drug firms can claim a tax credit of 50 percent
under current law interest earned on State and local gov- of the costs for clinical testing required by the Food and
ernment debt issued to finance hospital construction is Drug Administration for drugs that treat rare physical
excluded from income subject to tax. conditions or rare diseases.
131. Refundable Premium Assistance Tax 135. Special Blue Cross/Blue Shield deduc-
Credit.The baseline tax system would not allow cred- tion.The baseline tax system generally would tax all
its for particular activities or targeted at specific groups. profits under the regular tax rate schedule using broadly
In contrast, for taxable years ending after 2013, the Tax applicable measures of baseline income. It would not al-
Code provides a premium assistance credit to any eligible low preferentially low tax rates to apply to certain types
taxpayer for any qualified health insurance purchased or sources of income. In contrast, Blue Cross and Blue
through a Health Insurance Exchange. In general, an Shield health insurance providers in existence on August
eligible taxpayer is a taxpayer with annual household in- 16, 1986 and certain other nonprofit health insurers are
come between 100% and 400% of the federal poverty level provided exceptions from otherwise applicable insurance
for a family of the taxpayers size and that does not have company income tax accounting rules that substantially
access to affordable minimum essential health care cover- reduce their tax liabilities, provided that their percentage
age. The amount of the credit equals the lesser of (1) the of total premium revenue expended on reimbursement for
actual premiums paid by the taxpayer for such coverage clinical services provided to enrollees or for activities that
or (2) the difference between the cost of a statutorily- improve health care quality is not less than 85 percent for
identified benchmark plan offered on the exchange and the taxable year.
a required payment by the taxpayer that increases with 136. Tax credit for health insurance purchased
income. by certain displaced and retired individuals.The
132. Credit for employee health insurance ex- baseline tax system would not allow credits for particular
penses of small business.The baseline tax system activities, investments, or industries. In contrast, the Tax
would not allow credits for particular activities or target- Code provides a refundable tax credit of 72.5 percent for
ed at specific groups. In contrast, the Tax Code provides the purchase of health insurance coverage by individu-
a tax credit to qualified small employers that make a als eligible for Trade Adjustment Assistance and certain
certain level of non-elective contributions towards the Pension Benefit Guarantee Corporation pension recipi-
purchase of certain health insurance coverage for its ents. This provision will expire on December 31, 2019.
employees. To receive a credit, an employer must have 137. Distributions from retirement plans for
fewer than 25 full-time-equivalent employees whose premiums for health and long-term care insur-
average annual full-time-equivalent wages from the em- ance.Under the baseline tax system, all compensation,
ployer are less than $50,000 (indexed for taxable years including dedicated and deferred payments, should be
after 2013). However, to receive a full credit, an employer included in taxable income. In contrast, the Tax Code
must have no more than 10 full-time employees, and the provides for tax-free distributions of up to $3,000 from
average wage paid to these employees must be no more governmental retirement plans for premiums for health
than $25,000 (indexed for taxable years after 2013). A and long term care premiums of public safety officers.
Income Security and dedicated payments, should be included in taxable

income. In addition, investment income would be taxed as
138. Child credit.The baseline tax system would earned. In contrast, under current law certain contribu-
not allow credits for particular activities or targeted at tions to defined benefit pension plans are excluded from
specific groups. Under current law, however, taxpayers an employees gross income even though employers can
with children under age 17 can qualify for a $1,000 par- deduct their contributions. In addition, the tax on the in-
tially refundable per child credit. Any unclaimed credit vestment income earned by defined benefit pension plans
due to insufficient tax liability may be refundable taxis deferred until the money is withdrawn.
payers may claim a refund for 15 percent of earnings in 145. Defined contribution employer plans.
excess of a $3,000 floor, up to the amount of unused credit. Under the baseline tax system, all compensation, including
Alternatively, taxpayers with three or more children may deferred and dedicated payments, should be included in
claim a refund of the amount of payroll taxes paid in ex- taxable income. In addition, investment income would be
cess of the Earned Income Tax Credit received (up taxed as earned. In contrast, under current law individual
to the amount of unused credit) if this results in a taxpayers and employers can make tax-preferred contri-
larger refund. The credit is phased out for taxpayers at butions to employer-provided 401(k) and similar plans
the rate of $50 per $1,000 of modified AGI above $110,000 (e.g. 403(b) plans and the Federal Governments Thrift
($75,000 for single or head of household filers and $55,000 Savings Plan). In 2015, an employee could exclude up to
for married taxpayers filing separately). After 2017 re- $18,000 of wages from AGI under a qualified arrange-
fundability is based on earnings in excess of $10,000 ment with an employers 401(k) plan. Employees age 50
indexed from 2001, rather than from $3,000 (unindexed); or over could exclude up to $24,000 in contributions. The
taxpayers with three or more children may continue to defined contribution plan limit, including both employee
use the alternative calculation. and employer contributions, is $53,000 in 2015. The tax
139. Exclusion of railroad Social Security on contributions made by both employees and employers
equivalent benefits.Under the baseline tax system, and the investment income earned by these plans is de-
all compensation, including dedicated and deferred pay- ferred until withdrawn.
ments, should be included in taxable income. In contrast, 146. Individual Retirement Accounts (IRAs).
the Social Security Equivalent Benefit paid to railroad Under the baseline tax system, all compensation, including
retirees is not generally subject to the income tax unless deferred and dedicated payments, should be included in
the recipients gross income reaches a certain thresh- taxable income. In addition, investment income would be
old under current law. See provision number 158, Social taxed as earned. In contrast, under current law individu-
Security benefits for retired workers, for discussion of the al taxpayers can take advantage of traditional and Roth
threshold. IRAs to defer or otherwise reduce the tax on the return
140. Exclusion of workers compensation ben- to their retirement savings. The IRA contribution limit
efits.Under the baseline tax system, all compensation, is $5,500 in 2015; taxpayers age 50 or over are allowed
including dedicated payments and in-kind benefits, should to make additional catch-up contributions of $1,000.
be included in taxable income. However, workers compen- Contributions to a traditional IRA are generally deduct-
sation is not subject to the income tax under current law. ible but the deduction is phased out for workers with
141. Exclusion of public assistance benefits. incomes above certain levels who, or whose spouses, are
Under the reference law baseline tax system, gifts and active participants in an employer-provided retirement
transfers are not treated as income to the recipients. In plan. Contributions and account earnings are includible
contrast, the normal tax method considers cash transfers in income when withdrawn from traditional IRAs. Roth
from the Government as part of the recipients income, IRA contributions are not deductible, but earnings and
and thus, treats the exclusion for public assistance ben- withdrawals are exempt from taxation. Income limits also
efits under current law as a tax expenditure. apply to Roth IRA contributions.
142. Exclusion of special benefits for disabled 147. Low and moderate-income savers cred-
coal miners.Under the baseline tax system, all com- it.The baseline tax system would not allow credits for
pensation, including dedicated payments and in-kind particular activities or targeted at specific groups. In con-
benefits, should be included in taxable income. However, trast, the Tax Code provides an additional incentive for
disability payments to former coal miners out of the Black lower-income taxpayers to save through a nonrefundable
Lung Trust Fund, although income to the recipient, are credit of up to 50 percent on IRA and other retirement
not subject to the income tax. contributions of up to $2,000. This credit is in addition
143. Exclusion of military disability pen- to any deduction or exclusion. The credit is completely
sions.Under the baseline tax system, all compensation, phased out by $61,000 for joint filers, $45,750 for head of
including dedicated payments and in-kind benefits, household filers, and $30,500 for other filers in 2015.
should be included in taxable income. In contrast, most of 148. Self-employed plans.Under the baseline tax
the military disability pension income received by current system, all compensation, including deferred and dedi-
disabled military retirees is excluded from their income cated payments, should be included in taxable income. In
subject to tax. addition, investment income would be taxed as earned.
144. Defined benefit employer plans.Under the In contrast, under current law self-employed individuals
baseline tax system, all compensation, including deferred can make deductible contributions to their own retire-
ment plans equal to 25 percent of their income, up to a claim an additional $1,550 standard deduction if single,
maximum of $53,000 in 2015. Total plan contributions or $1,250 if married in 2015.
are limited to 25 percent of a firms total wages. The tax 154. Additional deduction for the elderly.
on the investment income earned by self-employed SEP, Under the baseline tax system, the standard deduction is
SIMPLE, and qualified plans is deferred until withdrawn. allowed. An additional standard deduction for a targeted
149. Premiums on group term life insurance. group within a given filing status would not be allowed. In
Under the baseline tax system, all compensation, contrast, the Tax Code allows taxpayers who are 65 years
including deferred and dedicated payments, should be in- or older to claim an additional $1,550 standard deduction
cluded in taxable income. In contrast, under current law if single, or $1,250 if married in 2015.
employer-provided life insurance benefits are excluded 155. Tax credit for the elderly and disabled.
from an employees gross income (to the extent that the Under the baseline tax system, a credit targeted at a
employers share of the total costs does not exceed the cost specific group within a given filing status or for particular
of $50,000 of such insurance) even though the employers activities would not be allowed. In contrast, the Tax Code
costs for the insurance are a deductible business expense. allows taxpayers who are 65 years of age or older, or who
150. Premiums on accident and disability insur- are permanently disabled, to claim a non-refundable tax
ance.Under the baseline tax system, all compensation, credit equal to 15 percent of the sum of their earned and
including dedicated payments and in-kind benefits, retirement income. The amount to which the 15-percent
should be included in taxable income. In contrast, under rate is applied is limited to no more than $5,000 for single
current law employer-provided accident and disability individuals or married couples filing a joint return where
benefits are excluded from an employees gross income only one spouse is 65 years of age or older or disabled,
even though the employers costs for the benefits are a and up to $7,500 for joint returns where both spouses are
deductible business expense. 65 years of age or older or disabled. These limits are re-
151. Income of trusts to finance supplementary duced by one-half of the taxpayers adjusted gross income
unemployment benefits.Under the baseline tax sys- over $7,500 for single individuals and $10,000 for married
tem, all compensation, including dedicated payments and couples filing a joint return.
in-kind benefits, should be included in taxable income. In 156. Deductibility of casualty losses.Under the
addition, investment income would be taxed as earned. baseline tax system, neither the purchase of property
Under current law, employers may establish trusts to pay nor insurance premiums to protect the propertys value
supplemental unemployment benefits to employees sepa- are deductible as costs of earning income. Therefore,
rated from employment. Investment income earned by reimbursement for insured loss of such property is not
such trusts is exempt from taxation. included as a part of gross income, and uninsured losses
152. Special ESOP rules.ESOPs are a special are not deductible. In contrast, the Tax Code provides a
type of tax-exempt employee benefit plan. Under the deduction for uninsured casualty and theft losses of more
baseline tax system, all compensation, including dedicat- than $100 each, to the extent that total losses during the
ed payments and in-kind benefits, should be included in year exceed 10 percent of the taxpayers adjusted gross
taxable income. In addition, investment income would be income.
taxed as earned. In contrast, employer-paid contributions 157. Earned income tax credit (EITC).The
(the value of stock issued to the ESOP) are deductible baseline tax system would not allow credits for particular
by the employer as part of employee compensation costs. activities or targeted at specific groups. In contrast, the
They are not included in the employees gross income for Tax Code provides an EITC to low-income workers at a
tax purposes, however, until they are paid out as benefits. maximum rate of 45 percent of income. For a family with
In addition, the following special income tax provisions for one qualifying child, the credit is 34 percent of the first
ESOPs are intended to increase ownership of corporations $9,880 of earned income in 2015. The credit is 40 percent
by their employees: (1) annual employer contributions are of the first $13,870 of income for a family with two quali-
subject to less restrictive limitations than other qualified fying children, and it is 45 percent of the first $13,870 of
retirement plans; (2) ESOPs may borrow to purchase income for a family with three or more qualifying children.
employer stock, guaranteed by their agreement with the Low-income workers with no qualifying children are eli-
employer that the debt will be serviced by his payment gible for a 7.65-percent credit on the first $6,580 of earned
(deductible by him) of a portion of wages (excludable by income. The credit is phased out at income levels and
the employees) to service the loan; (3) employees who sell rates which depend upon how many qualifying children
appreciated company stock to the ESOP may defer any are eligible and marital status. In 2015, the phasedown
taxes due until they withdraw benefits; (4) dividends paid for married filers begins at incomes $5,520 greater than
to ESOP-held stock are deductible by the employer; and for otherwise similar unmarried filers. Earned income tax
(5) earnings are not taxed as they accrue. credits in excess of tax liabilities owed through the indi-
153. Additional deduction for the blind.Under vidual income tax system are refundable to individuals.
the baseline tax system, the standard deduction is al- After 2017, the additional benefit for families with three
lowed. An additional standard deduction for a targeted or more children will be eliminated and the marriage pen-
group within a given filing status would not be allowed. In alty relief will be reduced to $3,000 (indexed from 2008).
contrast, the Tax Code allows taxpayers who are blind to
Social Security Veterans Benefits and Services
158. Social Security benefits for retired work- 162. Exclusion of veterans death benefits and
ers.The baseline tax system would tax Social Security disability compensation.Under the baseline tax sys-
benefits to the extent that contributions to Social tem, all compensation, including dedicated payments and
Security were not previously taxed. Thus, the portion of in-kind benefits, should be included in taxable income
Social Security benefits that is attributable to employer because they represent accretions to wealth that do not
contributions and earnings on employer and employee materially differ from cash wages. In contrast, all com-
contributions (and not attributable to employee contribu- pensation due to death or disability paid by the Veterans
tions) would be subject to tax. In contrast, the Tax Code Administration is excluded from taxable income under
may not tax all of the Social Security benefits that ex- current law.
ceed the beneficiarys contributions from previously taxed 163. Exclusion of veterans pensions.Under the
income. Actuarially, previously taxed contributions gener- baseline tax system, all compensation, including dedi-
ally do not exceed 15 percent of benefits, even for retirees cated payments and in-kind benefits, should be included
receiving the highest levels of benefits. Up to 85 percent in taxable income because they represent accretions to
of recipients Social Security and Railroad Social Security wealth that do not materially differ from cash wages.
Equivalent retirement benefits are included in (phased Under current law, however, pension payments made
into) the income tax base if the recipients provisional in- by the Veterans Administration are excluded from gross
come exceeds certain base amounts. (Provisional income income.
is equal to other items included in adjusted gross income 164. Exclusion of G.I. Bill benefits.Under the
plus foreign or U.S. possession income, tax-exempt inter- baseline tax system, all compensation, including dedi-
est, and one half of Social Security and Railroad Social cated payments and in-kind benefits, should be included
Security Equivalent retirement benefits.) The untaxed in taxable income because they represent accretions to
portion of the benefits received by taxpayers who are wealth that do not materially differ from cash wages.
below the income amounts at which 85 percent of the Under current law, however, G.I. Bill benefits paid by the
benefits are taxable is counted as a tax expenditure. See Veterans Administration are excluded from gross income.
also provision number 139, Exclusion of railroad Social 165. Exclusion of interest on veterans housing
Security equivalent benefits. bonds.The baseline tax system generally would tax all
159. Social Security benefits for disabled work- income under the regular tax rate schedule. It would not
ers.Under the baseline tax system, insurance benefits allow preferentially low (or zero) tax rates to apply to cer-
would be taxed to the extent that premiums were paid tain types or sources of income. In contrast, under current
out of pre-tax income. Under current law, however, benefit law, interest earned on general obligation bonds issued by
payments from the Social Security Trust Fund for dis- State and local governments to finance housing for veter-
ability are fully or partially excluded from a beneficiarys ans is excluded from taxable income.
gross income in excess of any exclusion justified by contri-
butions made from pre-tax income. General Government
160. Social Security benefits for spouses, depen-
dents and survivors.Under the baseline tax system, 166. Exclusion of interest on public purpose
Social Security benefits would be taxed to the extent State and local bonds.The baseline tax system gen-
they exceed contributions out of after-tax income. Under erally would tax all income under the regular tax rate
current law, however, benefit payments from the Social schedule. It would not allow preferentially low (or zero)
Security Trust Fund for spouses, dependents and survi- tax rates to apply to certain types or sources of income.
vors are fully or partially excluded from a beneficiarys In contrast, under current law interest earned on State
gross income. and local government bonds issued to finance public-pur-
161. Credit for certain employer social security pose construction (e.g., schools, roads, sewers), equipment
contributions.Under the baseline tax system, employ- acquisition, and other public purposes is tax-exempt.
er contributions to Social Security represent labor cost Interest on bonds issued by Indian tribal governments for
and are deductible expenses. Under current law, how- essential governmental purposes is also tax-exempt.
ever, certain employers are allowed a tax credit, instead 167. Build America Bonds.The baseline tax sys-
of a deduction, against taxes paid on tips received from tem would not allow credits for particular activities or
customers in connection with the providing, delivering, targeted at specific group. In contrast, the Tax Code in
or serving of food or beverages for consumption, The tip 2009 allowed State and local governments to issue tax-
credit equals the full amount of the employers share of able bonds through 2010 and receive a direct payment
FICA taxes paid on the portion of tips, when added to the from Treasury equal to 35 percent of interest expenses.
employees non-tip wages, in excess of $5.15 per hour. The Alternatively, State and local governments could issue
credit is available only with respect to FICA taxes paid taxable bonds and the private lenders receive the 35-per-
on tips. cent credit which is included in taxable income.
168. Deductibility of nonbusiness State and
local taxes other than on owner-occupied homes.
Under the baseline tax system, a deduction for personal
consumption expenditures would not be allowed. In con- include the estimates for the deductibility of State and
trast, the Tax Code allows taxpayers who itemize their local property tax on owner-occupied homes. See item 58.)
deductions to claim a deduction for State and local in-
come taxes (or, at the taxpayers election, State and local Interest
sales taxes) and property taxes, even though these taxes
primarily pay for services that, if purchased directly by 169. Deferral of interest on U.S. savings bonds.
taxpayers, would not be deductible. The ability for taxpay- The baseline tax system would uniformly tax all returns
ers to elect to deduct State and local sales taxes in lieu to investments and not allow an exemption or deferral for
of State and local income taxes applied to taxable years particular activities, investments, or industries. In con-
beginning after December 31, 2003 and before January trast, taxpayers may defer paying tax on interest earned
1, 2015. (The estimates for this tax expenditure do not on U.S. savings bonds until the bonds are redeemed.
APPENDIX
Performance Measures and the Economic have no or very low incomes, and does not require infor-
Effects of Tax Expenditures mation on certain characteristics of individuals used in
some spending programs, such as wealth or duration of
The Government Performance and Results Act of 1993 employment. These features may reduce the effectiveness
(GPRA) directs Federal agencies to develop annual and of tax expenditures for addressing socioeconomic dispari-
strategic plans for their programs and activities. These ties. Tax expenditures also generally do not enable the
plans set out performance objectives to be achieved over a same degree of agency discretion as an outlay program.
specific time period. Most of these objectives are achieved For example, grant or direct Federal service delivery
through direct expenditure programs. Tax expenditures programs can prioritize activities to be addressed with
spending programs implemented through the tax code by specific resources in a way that is difficult to emulate with
reducing tax obligations for certain activities -- contribute tax expenditures.
to achieving these goals in a manner similar to direct ex- Outlay programs have advantages where the direct
penditure programs. provision of government services is particularly warrant-
Tax expenditures by definition work through the tax ed, such as equipping and maintaining the armed forces
system and, particularly, the income tax. Thus, they may or administering the system of justice. Outlay programs
be relatively advantageous policy approaches when the may also be specifically designed to meet the needs of
benefit or incentive is related to income and is intended to low-income families who would not otherwise be subject
be widely available. Because there is an existing public to income taxes or need to file a tax return. Outlay pro-
administrative and private compliance structure for the grams may also receive more year-to-year oversight and
tax system, income-based programs that require little fine tuning through the legislative and executive budget
oversight might be efficiently run through the tax system. process. In addition, many different types of spending
In addition, some tax expenditures actually simplify the programs include direct Government provision; credit
operation of the tax system (for example, the exclusion programs; and payments to State and local governments,
for up to $500,000 of capital gains on home sales). Tax the private sector, or individuals in the form of grants or
expenditures also implicitly subsidize certain activities contracts provide flexibility for policy design. On the other
in a manner similar to direct expenditures. For example, hand, certain outlay programs may rely less directly on
exempting employer-sponsored health insurance from economic incentives and private-market provision than
income taxation is equivalent to a direct spending sub- tax incentives, thereby reducing the relative efficiency
sidy equal to the forgone tax obligations for this type of of spending programs for some goals. Finally, spending
compensation. Spending, regulatory or tax-disincentive programs, particularly on the discretionary side, may
policies can also modify behavior, but may have differ- respond less rapidly to changing activity levels and eco-
ent economic effects. Finally, a variety of tax expenditure nomic conditions than tax expenditures.
tools can be used, e.g., deductions; credits; exemptions; Regulations may have more direct and immediate ef-
deferrals; floors; ceilings; phase-ins; phase-outs; and these fects than outlay and tax-expenditure programs because
can be dependent on income, expenses, or demographic regulations apply directly and immediately to the regu-
characteristics (age, number of family members, etc.). lated party (i.e., the intended actor), generally in the
This wide range of policy instruments means that tax private sector. Regulations can also be fine-tuned more
expenditures can be flexible and can have very different quickly than tax expenditures because they can often
economic effects. be changed as needed by the Executive Branch without
Tax expenditures also have limitations. In many cases legislation. Like tax expenditures, regulations often rely
they add to the complexity of the tax system, which raises largely on voluntary compliance, rather than detailed in-
both administrative and compliance costs. For example, spections and policing. As such, the public administrative
personal exemptions, deductions, credits, and phase-outs costs tend to be modest relative to the private resource
can complicate filing and decision-making. The income costs associated with modifying activities. Historically,
tax system may have little or no contact with persons who regulations have tended to rely on proscriptive measures,
as opposed to economic incentives. This reliance can di- As an illustration of how evaluations can inform
minish their economic efficiency, although this feature budgetary decisions, consider education, and research in-
can also promote full compliance where (as in certain vestment credits.
safety-related cases) policymakers believe that trade-offs Education. There are millions of individuals taking ad-
with economic considerations are not of paramount im- vantage of tax credits designed to help pay for educational
portance. Also, regulations generally do not directly affect expenses. There are a number of different credits avail-
Federal outlays or receipts. Thus, like tax expenditures, able as well as other important forms of Federal support
they may escape the degree of scrutiny that outlay pro- for higher education such as subsidized loans and grants.
grams receive. Some policy objectives are achieved using An evaluation would explore the possible relationships
multiple approaches. For example, minimum wage legis- between use of the credits and the use of loans and grants,
lation, the earned income tax credit, and the food stamp seeking to answer, for example, whether the use of credits
program (SNAP) are regulatory, tax expenditure, and di- reduce or increase the likelihood of the students applying
rect outlay programs, respectively, all having the objective for loans. Such an evaluation would allow stakeholders to
of improving the economic welfare of low-wage workers determine the most effective program whether it is a tax
and families. credit, a subsidized loan, or a grant.
Investment. A series of tax expenditures reduce the
A Framework for Evaluating the cost of investment, both in specific activities such as
Effectiveness of Tax Expenditures research and experimentation, extractive industries,
and certain financial activities and more generally
Across all major budgetary categories - from housing throughout the economy, through accelerated deprecia-
and health to space, technology, agriculture, and national tion for plant and equipment. These provisions can be
defense - tax expenditures make up a significant portion evaluated along a number of dimensions. For example,
of Federal activity and affect every area of the economy. it is useful to consider the strength of the incentives
For these reasons, a comprehensive evaluation framework by measuring their effects on the cost of capital (the
that examines incentives, direct results, and spillover return which investments must yield to cover their
effects will benefit the budgetary process by informing de- costs) and effective tax rates. The impact of these
cisions on tax expenditure policy. provisions on the amounts of corresponding forms of
As described above, tax expenditures, like spending investment (e.g., research spending, exploration activ-
and regulatory programs, have a variety of objectives and ity, equipment) might also be estimated. In some cases,
economic effects. These include: encouraging certain types such as research, there is evidence that the investment
of activities (e.g., saving for retirement or investing in cer- can provide significant positive externalitiesthat is,
tain sectors); increasing certain types of after-tax income economic benefits that are not reflected in the market
(e.g., favorable tax treatment of Social Security income); transactions between private parties. It could be useful
and reducing private compliance costs and Government to quantify these externalities and compare them with
administrative costs (e.g., the exclusion for up to $500,000 the size of tax expenditures. Measures could also indi-
of capital gains on home sales). Some of these objectives cate the effects on production from these investments
are well suited to quantitative measurement and evalua- such as numbers or values of patents, energy produc-
tion, while others are less well suited. tion and reserves, and industrial production. Issues to
Performance measurement is generally concerned with be considered include the extent to which the prefer-
inputs, outputs, and outcomes. In the case of tax expen- ences increase production (as opposed to benefiting
ditures, the principal input is usually the revenue effect. existing output) and their cost-effectiveness relative
Outputs are quantitative or qualitative measures of goods to other policies. Analysis could also consider objec-
and services, or changes in income and investment, direct- tives that are more difficult to measure but still are
ly produced by these inputs. Outcomes, in turn, represent ultimate goals, such as promoting the Nations techno-
the changes in the economy, society, or environment that logical base, energy security, environmental quality, or
are the ultimate goals of programs. Evaluations assess economic growth. Such an assessment is likely to in-
whether programs are meeting intended goals, but may volve tax analysis as well as consideration of non-tax
also encompass analyzing whether initiatives are supe- matters such as market structure, scientific, and other
rior to other policy alternatives. information (such as the effects of increased domestic
The Administration is working towards examining the fuel production on imports from various regions, or the
objectives and effects of the wide range of tax expendi- effects of various energy sources on the environment).
tures in our budget, despite challenges related to data The tax proposals subject to these analyses include
availability, measurement, and analysis. Evaluations items that indirectly affect the estimated value of tax
include an assessment of whether tax expenditures are expenditures (such as changes in income tax rates), pro-
achieving intended policy results in an efficient manner, posals that make reforms to improve tax compliance and
with minimal burdens on individual taxpayers, consum- administration, as well as proposals which would change,
ers, and firms; and an examination of possible unintended add, or delete tax expenditures.
effects and their consequences. Barriers to Evaluation. Developing a framework that
is sufficiently comprehensive, accurate, and flexible is a
significant challenge. Evaluations are constrained by the
availability of appropriate data and challenges in eco- upper-income taxpayers can use itemized deductions and
nomic modeling: other tax preferences to reduce tax liability to a maxi-
Data availability. Data may not exist, or may not mum of 28 percent, a limitation that would affect only
exist in an analytically appropriate form, to con- the highest-income households. The limit would apply to
duct rigorous evaluations of certain types of ex- all itemized deductions, interest on tax-exempt bonds,
penditures. For example, measuring the effects employer-sponsored health insurance, deductions and in-
of tax expenditures designed to achieve tax neu- come exclusions for employee retirement contributions,
trality for individuals and firms earning income and certain above-the-line deductions, effective for tax-
abroad, and foreign firms could require data from able years beginning after December 31, 2016. These are
foreign governments or firms which are not read- among the largest tax expenditures. This proposal would
ily available. make the tax code more equitable because the value of
the tax expenditure as a percentage of the deduction is
Analytical constraints. Evaluations of tax expen- proportional to ones tax bracket, so it is less valuable to
ditures face analytical constraints even when data those in lower brackets.
are available. For example, individuals might have Enhance and simplify the Research and Experimentation
access to several tax expenditures and programs (R&E) credit and modify and make permanent the
aimed at improving the same outcome. Isolating the Renewable Energy Production Tax Credit. The Budget
effect of a single tax credit is challenging absent a proposes to simplify the R&E credit by creating a single
well-specified research design. formula for calculating the credit and increasing the rate.
Resources. Tax expenditure analyses are seriously For similar reasons, the Budget also proposes to perma-
constrained by staffing considerations. Evaluations nently extend and enhance the production tax credit for
typically require expert analysts who are often en- renewable energy property.
gaged in other more competing areas of work related Simplify and better target benefits for education. A sig-
to the budget. nificant portion of federal spending on higher education
occurs through the tax code, but current higher education
The Executive Branch is focused on addressing these tax benefits are complicated and do not provide enough
challenges to lay the foundation for the analysis of tax ex- help for low and middle income families that struggle to
penditures comprehensively, alongside evaluations of the afford college. Building on bipartisan Congressional pro-
effectiveness of direct spending initiatives. posals, the Budget proposes to simplify, consolidate, and
better target higher education tax benefits. It would re-
Current Administration Proposals peal or let expire duplicative and less effective provisions,
on Tax Expenditures including the Lifetime Learning Credit and the student
loan interest deduction (for new borrowers). Meanwhile,
The Administration considers performance mea- it would enhance the $2,500 American Opportunity Tax
surement, evaluations, and the economic effects of tax Credit by indexing the maximum credit for inflation,
expenditures each year in its deliberation for the Budget, making the credit available for a fifth year, providing a
and proposals are informed by these analyses. The partial credit to part-time students, and increasing the
Presidents National Commission on Fiscal Responsibility amount of the credit available to low-income students
and Reform submitted a report in 2010 in which they said without income tax liability.
that the income tax system is unduly complicated and Eliminate a range of tax expenditures in the context of
that the government should sharply reduce rates, broad- business tax reform. The Presidents framework for busi-
en the base, simplify the tax code, and reduce the many ness tax reform calls for eliminating dozens of tax loopholes
tax expenditures another name for spending through and subsidies and reinvesting the revenue to lower the
the tax code. corporate tax rate. Consistent with the framework, the
The current Budget includes many proposals that would Budget includes a number of proposals to eliminate in-
change existing tax expenditures to raise revenue, elimi- efficient business tax expenditures. For example, current
nate ineffective or counterproductive tax expenditures, law provides a number of credits and deductions that are
and enhance effective tax expenditures. The tax expendi- targeted towards certain oil, gas, and coal activities. In
ture proposals in the budget further the Administrations accordance with the Presidents agreement at the G-20
goals of clean and secure energy, a world-class education Summit in Pittsburgh to phase out inefficient subsidies
for all Americans, and fairness in the tax code. Some of for fossil fuels so that the Nation can transition to a 21st
these proposals are highlighted below. century energy economy, the Administration proposes to
Reduce the value of certain tax expenditures. The repeal a number of tax preferences available for fossil
Administration proposes to limit the tax rate at which fuels.
SPECIAL TOPICS
267
268
15. AID TO STATE AND LOCAL GOVERNMENTS
State and local governments serve a vital role in provid- They can include grants for research, training, evalua-
ing services to their residents. The Federal Government tion, planning, technical assistance, survey work, and
contributes to that role by aiding State and local govern- construction.
ments through grants, loans, and the tax system. This The Government Accountability Office describes the
chapter focuses on Federal grants-in-aid and highlights various types of grants as each striking a different bal-
some of the Administration initiatives in this area in the ance between the interests of the Federal grant-making
2017 Budget. Information on Federal credit programs agency that funds be used efficiently and effectively to
may be found in Chapter 20, Credit and Insurance, in meet national objectives, and the interests of the recipient
this volume. Chapter 14, Tax Expenditures, in this to use the funds to meet local priorities and to minimize
volume, includes a display of tax expenditures that par- the administrative burdens associated with accepting the
ticularly aid State and local governments at the end of grant.1 As recipients of Federal grant funding, State and
Tables 14-1 and 14-2. local governments may provide services directly to ben-
Federal grants-in-aid are assistance provided to State eficiaries or States may act as a pass-through, disbursing
and local governments, U.S. territories, and American grant funding to localities using a formula or a competi-
Indian Tribal governments to support government opera- tive process. This pass-through structure allows States to
tions or provision of services to the public. Most often set priorities and determine the allocation methodology
grants are awarded as direct cash assistance, but Federal within the rules of the Federal grant guidance.2
grants-in-aid can also include payments for grants-in- In balancing interests across levels of government,
kindnon-monetary aid, such as commodities purchased the Administration has led efforts to transform how the
for the National School Lunch Program. Federal reve- Federal Government partners with State and local govern-
nues shared with State and local governments are also ments to achieve positive outcomes. The Administration
considered grants-in-aid. has cultivated a place-based approach, customizing sup-
Federal grants generally fall into one of two broad cat- port for communities based on their specific assets and
egoriescategorical grants or block grantsdepending challenges. This new approach seeks out communities
on the requirements of the grant program. In addition, plans or vision for addressing a set of challenges and
grants may be characterized by how the funding is award- then works across agency and program silos to support
ed such as by formula, by project, or by matching State those communities in implementing their plans. In addi-
and local funds. tion, the Federal Government and its partners focus on
Categorical grants have a narrowly defined purpose what works, using data to measure success and monitor
and may be awarded on a formula basis or as a project progress, fostering communities of practice to share and
grant. An example of a categorical grant is the Special build on innovations. The Federal Governments use of a
Supplemental Nutrition Program for Women, Infants, place-based approach helps to maximize the effectiveness
and Children, also known as WIC, administered by the of resources through greater coordination and collabora-
Department of Agriculture. WIC targets the nutrition tion with other levels of government. For more detail on
needs of low-income pregnant and postpartum women, the place-based approach and specific Administration
infants, and children up to age five. Applicants to this initiatives, see Partnering with Communities to Expand
program must meet defined categorical, residential, in- Opportunity and Reshaping the Way Government
come, and nutrition risk eligibility requirements. Engages with Citizens and Communities in the main
In contrast to categorical grants, block grants provide Budget volume.
the recipient with more latitude to define the use of the Across all States, in State fiscal year 2014 (the most re-
funding and are awarded on a formula basis specified in cent year for which final data are available), 25.6 percent
law. The Department of Health and Human Services of total State spending was for Medicaid; 19.8 percent
Temporary Assistance for Needy Families (TANF) pro- for elementary and secondary education; 10.5 percent
gram is an example of a block grant. States may use for higher education; 7.9 percent for transportation; 3.2
TANF funds in a variety of ways to meet any of four pur- percent for corrections; 1.5 percent for public assistance;
poses set out in law. Each State also has broad discretion and 31.4 percent for all other expenditures. The share
to determine eligibility requirements for TANF benefits. of spending dedicated to Medicaid is estimated to have
In addition, TANF has a matching requirement known increased to 27.4 percent in State fiscal year 2015, while
as maintenance of effort which specifies a minimum
amount that States must spend to assist low-income fam- 1 United States Government Accountability Office. Grants to State
ilies in order to receive the full Federal grant. and Local Governments, An Overview of Federal Funding Levels and
Project grants can be awarded competitively and are Selected Challenges. September 2012. p. 3.
typified by a predetermined end product or duration. 2 Keegan, Natalie. Federal Grants-in-Aid Administration: A Prim-
er. Congressional Research Service. October 3, 2012. p. 6-7.
269
all other categories are estimated to have slightly smaller ward work and support growth including an Earned
shares.3 Income Tax Credit for Puerto Rico.
The impact of Medicaid is again evident when State As a share of the total Federal budget, outlays for
spending is examined by source. Although most State Federal grants-in-aid accounted for 16.9 percent of total
spending comes from general fund revenues, Federal outlays in 2015 and totaled $624.4 billion, a 7.6 percent
funds are also a significant part of States overall bud- increase over 2014. Federal grant spending in 2016 is
gets. In State fiscal year 2014, 41.1 percent of total State estimated to be $666.7 billion, an increase of 6.3 percent
spending came from general funds,4 30.1 percent from from 2015. The Budget provides $694.2 billion in outlays
Federal funds, 26.9 percent from other State funds, and for aid to State and local governments in 2017, an increase
1.9 percent from bonds.5 In State fiscal year 2015, it is of 4.0 percent from 2016. Medicaid, by itself, accounts
estimated that the percentage of total State spending for over 50 percent of total grant spending. Excluding
that came from Federal funds increased to 31.3 percent Medicaid, spending is estimated to increase from $274.6
because it was the first full year of Medicaid expansion billion in 2015, to $299.4 billion in 2016, and to increase
under the Affordable Care Act, while spending from gen- to $308.7 billion in 2017.
eral funds decreased to 40.0 percent.6 Federal grants help State and local governments fi-
In its Fiscal Survey of States, the National Association nance programs covering most areas of domestic public
of State Budget Officers (NASBO) looks at enacted State spending including infrastructure, education, health
budgets to make projections for the coming year and at care, social services, and public safety. Of the total pro-
general fund spending as an indication of State financial posed grant spending in 2017, 59.4 percent is for health
health. According to the most recent report, State fiscal programs, with most of the funding going to Medicaid.
conditions have been improving gradually over the last Beyond health programs, 16.6 percent of Federal aid is
several years, however, progress has been slow and some- estimated to go to income security programs; 9.9 percent
what uneven. In addition, States face long-term financial to transportation; 9.1 percent to education, training, and
challenges such as infrastructure needs, and pension social services; and 5.0 for all other functions. Section
and health care costs. State general fund spending is A of Table 15-1, Trends in Federal Grants to State and
expected to increase by 4.1 percent in State fiscal year Local Governments, shows actual spending at the start
2016, according to enacted budgets. This would be the of each decade since 1960, actual spending for 2015, and
sixth straight year of annual increases to general fund estimates for 2016 and 2017 by budget function.
spending.7 Total State spending increased by 3.8 percent The Federal budget also classifies grant spending by
in 2014 to $1.7 billion, and is expected to increase by an- BEA categorymandatory and discretionary. 9 Funding
other 7.3 percent in 2015 to $1.9 billion.8 for discretionary grant programs is determined annually
NASBOs Fiscal Survey of States does not include the through appropriations acts. Funding for mandatory pro-
territory of Puerto Rico, which has been experiencing an grams is provided directly in authorizing legislation that
economic downturn since 2006. Puerto Rico is experi- establishes eligibility criteria or benefit formulas; fund-
encing expanding deficits, high levels of unemployment, ing for mandatory programs usually is not limited by the
the highest poverty rate of any State or territory, and, annual appropriations process. Section B of Table 15-1
as a result, outmigration and the loss of investment and shows the distribution of grants between mandatory and
jobs. Puerto Rico has not had access to the traditional discretionary spending.
bond market since its rating was downgraded below in- Outlays for mandatory grant programs were $438.5 bil-
vestment status in 2013. The measures Puerto Rico has lion in 2015 and are estimated to increase by 6.5 percent
taken to pay its debts, such as increasing taxes and delay- in 2016 to $467.1 billion. In 2017, outlays for mandatory
ing pension contributions, are creating other strains. The grant programs are estimated to be $496.6 billion, a 6.3
Budget includes a package of reforms to allow Puerto Rico percent increase over 2016. Medicaid is by far the larg-
to navigate through the crisis. The proposal includes four est mandatory grant program with estimated outlays of
key elements: first, provide tools for Puerto Rico to com- $385.6 million in 2017. After Medicaid, the three larg-
prehensively restructure its financial liabilities; second, est mandatory grant programs by outlays in 2017 are
enact strong fiscal oversight and help strengthen Puerto estimated to be Child Nutrition programs, which in-
Ricos fiscal governance; third, strengthen Medicaid in clude the School Breakfast Program, the National School
Puerto Rico and other U.S. territories; and finally, to re- Lunch Program and others, $23.1 billion; the Temporary
Assistance for Needy Families program, $17.0 billion; and
the Childrens Health Insurance program, $15.2 billion.10
3 State Expenditure Report, Examining Fiscal 2013-2015 State Outlays for discretionary grant programs were $185.9
Spending. National Association of State Budget Officers (2015). p. 6. billion in 2015 and are estimated to increase by 7.3 per-
4 State general funds are raised from States own taxes and fees. cent to $199.5 billion in 2016. In 2017, grants-in-aid with
5 State Expenditure Report, Examining Fiscal 2013-2015 State discretionary funding are estimated to have outlays of
Spending. National Association of State Budget Officers (2015). p. 5.
6 Ibid. p. 1.
9 For more information on these categories, see Chapter 9, Budget
7 The Fiscal Survey of States. National Association of State Budget Concepts, in this volume.
Officers. Fall 2015. p. vii. 10 Obligation data by State for programs in each of these budget ac-
8 State Expenditure Report, Examining Fiscal 2013-2015 State counts may be found in the State-by-State tables included with other
Spending. National Association of State Budget Officers (2015). p. 8. budget materials on the OMB web site and Budget CD-ROM.
15. AID TO STATE AND LOCAL GOVERNMENTS 271
Table 151. TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS

(Outlays in billions of dollars)
Actual Estimate
1960 1970 1980 1990 2000 2005 2010 2015 2016 2017
A. Distribution of grants by function:
Natural resources and environment 0.1 0.4 5.4 3.7 4.6 5.9 9.1 7.0 6.6 6.6
Agriculture 0.2 0.6 0.6 1.3 0.7 0.9 0.8 0.7 1.1 1.1
Transportation 3.0 4.6 13.0 19.2 32.2 43.4 61.0 60.8 62.2 69.0
Community and regional development 0.1 1.8 6.5 5.0 8.7 20.2 18.8 14.4 17.4 13.4
Education, training, employment, and social services 0.5 6.4 21.9 21.8 36.7 57.2 97.6 60.5 64.5 63.1
Health 0.2 3.8 15.8 43.9 124.8 197.8 290.2 368.0 392.7 412.2
Income security 2.6 5.8 18.5 36.8 68.7 90.9 115.2 101.1 106.9 114.9
Administration of justice ......... 0.0 0.5 0.6 5.3 4.8 5.1 3.7 7.2 6.1
General government 0.2 0.5 8.6 2.3 2.1 4.4 5.2 3.8 3.1 3.4
Other 0.0 0.1 0.7 0.8 2.1 2.6 5.4 4.3 5.0 4.5
Total 7.0 24.1 91.4 135.3 285.9 428.0 608.4 624.4 666.7 694.2
B. Distribution of grants by BEA category:
Discretionary N/A 10.2 53.3 63.3 116.7 181.7 207.7 185.9 199.5 197.6
Mandatory N/A 13.9 38.1 72.0 169.2 246.3 400.7 438.5 467.1 496.6
Total 7.0 24.1 91.4 135.3 285.9 428.0 608.4 624.4 666.7 694.2
C. Composition:
Current dollars:
Payments for individuals1 2.5 8.7 32.6 77.3 182.6 273.9 384.5 463.4 493.3 518.9
Physical capital1 3.3 7.1 22.6 27.2 48.7 60.8 93.3 77.2 78.0 85.3
Other grants 1.2 8.3 36.2 30.9 54.6 93.3 130.6 83.7 95.3 90.1
Total 7.0 24.1 91.4 135.3 285.9 428.0 608.4 624.4 666.7 694.2
Percentage of total grants:
Payments for individuals1 35.3% 36.2% 35.7% 57.1% 63.9% 64.0% 63.2% 74.2% 74.0% 74.7%
Physical capital1 47.3% 29.3% 24.7% 20.1% 17.0% 14.2% 15.3% 12.4% 11.7% 12.3%
Other grants 17.4% 34.5% 39.6% 22.8% 19.1% 21.8% 21.5% 13.4% 14.3% 13.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Constant (FY 2009) dollars:
Payments for individuals1 14.2 39.8 75.8 115.9 221.2 304.1 385.3 419.1 437.9 451.1
Physical capital1 23.8 38.2 54.7 45.7 68.6 74.2 93.7 69.1 67.9 72.1
Other grants 14.4 64.7 134.1 62.8 77.1 101.8 123.9 72.3 80.2 73.5
Total 52.4 142.7 264.7 224.3 366.9 480.1 602.9 560.6 585.9 596.7
D. Total grants as a percent of:
Federal outlays:
Total 7.6% 12.3% 15.5% 10.8% 16.0% 17.3% 17.6% 16.9% 16.9% 16.7%
Domestic programs2 18.0% 23.2% 22.2% 17.1% 22.0% 23.5% 23.4% 22.1% 21.8% 21.9%
State and local expenditures 14.3% 19.6% 27.3% 18.7% 21.8% 23.5% 26.4% 25.1% N/A N/A
Gross domestic product 1.3% 2.3% 3.3% 2.3% 2.8% 3.3% 4.1% 3.5% 3.6% 3.6%
E. As a share of total State and local gross investments:
Federal capital grants 24.6% 25.4% 35.4% 21.9% 22.0% 22.0% 27.5% 22.3% N/A N/A
State and local own-source financing 75.4% 74.6% 64.6% 78.1% 78.0% 78.0% 72.5% 77.7% N/A N/A
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
N/A: Not available at publishing.
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.
$197.6 billion, a decrease of less than one percent from Over time the number of grants has grown in an incre-
2016. The three largest discretionary programs in 2017 mental fashion creating a wide variety of types of grants,
are estimated to be Federal-aid Highways programs, with purposes, and requirements. Currently, there are 16
outlays of $41.9 billion; Tenant Based Rental Assistance, Executive Branch agencies and 14 independent agencies
with outlays of $20.8 billion; and Education for the that provide grants to State and local governments. The
Disadvantaged, with outlays of $15.9 billion.11
counts may be found in the State-by-State tables included with other
11 Obligation data by State for programs in each of these budget ac- budget materials on the OMB web site and Budget CD-ROM.
growing number and variety of grants created complexity all of the Federal grant dollars expended annually. Also
for grantees and has made it difficult to compare program in 2014, President Obama signed into law the Digital
performance and conduct oversight.12 To reduce this com- Accountability and Transparency Act of 2014 (DATA Act),
plexity, the Office of Management and Budget, working Public Law 113-101. The DATA Act will help improve the
with 28 Federal agencies and public stakeholders, imple- transparency of Federal grants oversight and spending by
mented new Uniform Guidance in 2014 that streamlined setting data standards and by improving the way the data
the financial management regulations for Federal grants can be accessed.
and other assistance. These reforms reduced the number Below is a summary of grants initiatives in the bud-
of financial management regulations for Federal grants get. The funding level for grants in every budget account
and other assistance by 75 percent, and co-located the can be found in Table 15-2, organized by functional cat-
streamlined regulations in Title 2 of the Code of Federal egory, and by Federal agency. Table 15-2, Federal Grants
Regulations part 200 with the goal of reducing adminis- to State and Local Governments, Budget Authority and
trative burdens and the risk of waste, fraud, and abuse for Outlays, formerly printed in this chapter, is available on
12 Keegan, Natalie. Federal Grants-in-Aid Administration: A Prim- the OMB web site at www.budget.gov/budget/Analytical_
er. Congressional Research Service. October 3, 2012. p. 2. Perspectives and on the Budget CD-ROM.
HIGHLIGHTS OF FEDERAL AID PROPOSALS
Natural Resources and the Environment Transportation

Coastal Resilience. First, the Budget proposes a $2 Investments in Americas Transportation Infrastructure.
billion Coastal Climate Resilience program, which will The Budget proposes a 21st Century Clean Transportation
provide resources over 10 years for at-risk coastal States, System investment initiative to lay the foundation today
local governments, and their communities to prepare for for the American transportation system of tomorrow.
and adapt to climate change. This program would be paid The proposal refocuses Federal investment by providing
for by redirecting roughly half of the savings that result more than $10 billion on average per year for the Federal
from repealing unnecessary and costly offshore oil and Transit Administration (FTA) New Starts, Small Starts,
gas revenue sharing payments that are set to be paid to and Transit Formula Grants programs to invest in the
a handful of States under current law. A portion of these safety, performance, and efficiency of existing, new, and
program funds would be set aside to cover the unique expanded transit systems. It also creates a new Rapid
circumstances that climate change forces some Alaskan Growth Area Transit program for fast growing commu-
communities to confront, such as relocation expenses for nities to implement multi-modal solutions to challenges
Alaska native villages threatened by rising seas, coast- caused by rapid growth. It reaffirms the Administrations
al erosion, and storm surges. The Budget also provides commitment to high-speed rail by investing on average
the Denali Commissionan independent Federal agency almost $7 billion per year on a competitive basis, with an
created to facilitate technical assistance and economic emphasis on incorporating advanced rail technologies. The
development in Alaskawith an additional $4 million proposal also provides an average of $1 billion per year for
above the 2016 enacted level to coordinate Federal, State, a multi-modal freight program through grants for innova-
and Tribal assistance to communities to develop and tive rail, highway, and port projects that seek to reduce
implement solutions to address the impacts of climate both emissions and particulate matter that harm local
change. Second, the Budget invests $20 million to help community health. It nearly doubles the amount of grant
coastal regions plan for and implement activities related funding available through the Transportation Investment
to mitigating extreme weather, changing ocean conditions Generating Economic Recovery (also known as TIGER)
and uses, and climate hazards through NOAAs Regional competitive grant program to support innovative, multi-
Coastal Resilience grants program. These competitive modal investments in our nations infrastructure to make
grants to State, local, Tribal, private, and non-governmen- communities more livable and sustainable. The Budget
tal organization partners will support activities such as rewards State and local governments for innovations that
vulnerability assessments, regional ocean partnerships, lead to smarter, cleaner, regional transportation system
and development and implementation of adaptation by proposing over $6 billion per year on average for a 21st
strategies. Century Regions grant program to empower metropolitan
Multi-Hazard Resilience. The Budget invests $54 and regional planners to implement regional-scale trans-
million in mitigation projectsincluding mitigation plan- portation and land-use strategies that achieve significant
ning, facilities hardening, and buyouts and elevation of reductions in per capita greenhouse gas (GHG) emissions
structuresthrough the Federal Emergency Management and vehicles miles traveled (VMT), while improving cli-
Agencys Pre-disaster Mitigation Grant Program. Studies mate resilience. The budget provides nearly $1.5 billion
on mitigation activities conclude that Americans save ap- per year on average in Clean Communities competi-
proximately $4 for every dollar invested in pre-disaster tive grants to support transit oriented development,
mitigation. reconnect downtowns, clean up brownfields, implement
complete streets policies, and pursue other policies that
make our cities and towns greener and better places to
live. It also provides nearly $1.7 billion per year on aver- connect them to services to address any issues, and utilize
age for Climate-Smart Performance Formula Funds that good parenting practices that foster healthy development
are designed to reorient transportation formula funding and later school success. The program builds on research
by rewarding states that make investments to mitigate showing that home visiting programs can significantly
transportation impacts like air pollution. The budget improve maternal and child health, child development,
provides $750 million on average per year for Resilient learning, and success.
Transportation competitive grants to spur investments Title I Education Grants. The Budget proposes a $450
that bolster resilience to climate impacts. Cutting-edge million increase for Title I, which ESSA maintained as
projects will incorporate resilience strategies, such as the Departments largest K-12 grant program and the
adaptive materials, risk-sensitive design, and next gen- cornerstone of its commitment to supporting schools in
eration transportation and logistics technology. low-income communities with the funding necessary to
Education, Training, and Employment provide high-need students access to an excellent educa-
tion. Title I supports local solutions in States and school
Preschool for All. The Budget provides $350 million for districts, while ensuring that students make progress to-
Preschool Development Grants, an increase of $100 mil- ward high academic standards. The Budget also calls for
lion above the 2016 enacted level. Preschool Development dedicating additional funds within Title I to address the
Grants are jointly administered by the Departments of urgent need to improve our Nations lowest performing
Health and Human Services (HHS) and Education un- schools. This dedicated funding, which will be distribut-
der the Every Student Succeeds Act (ESSA), Public Law ed based on the Title I formulas, will ensure States and
114-95, signed into law in December 2015, with funding school districts have the support necessary to successfully
residing at HHS. The Budget also provides $907 million turn around these schools.
for the Department of Educations early intervention and STEM and Computer Science for All. Under the
preschool services for children with disabilities, an in- Computer Science for All proposal, the Budget includes
crease of $80 million from the 2016 enacted level. This $4 billion in mandatory funding over three years for
proposal includes up to $15 million for competitive grants States to increase access to K-12 computer science and
for early identification of and intervention for develop- other rigorous STEM coursework by training more than
mental delays and disabilities, with a potential focus on 250,000 teachers, providing infrastructure upgrades, of-
autism, intended to help identify, develop, and scale up fering online courses and building effective partnerships.
evidence-based practices. Complementing the mandatory proposal, the Budget
Investments in Head Start. The Budget provides $434 also dedicates $100 million in discretionary funding for
million in additional funding over the 2016 enacted level Computer Science for All Development Grants to help
for the Head Start program within HHS, which delivers school districts, alone or in consortia, execute ambitious
comprehensive early childhood services to support the computer science expansion efforts, particularly for tradi-
learning and development of Americas neediest children. tionally under-represented students. Both the mandatory
Expanding Access to Quality Child Care for Working and discretionary proposal would also encourage States
Families. The Budget invests $82 billion in additional and districts to expand overall access to rigorous STEM
mandatory funding over 10 years to ensure that all low- coursework.
and moderate-income working families with children Student Support and Academic Enrichment Grant. The
ages three and under have access to quality, affordable Budget provides $500 million for Student Support and
child care. The Budget also provides $200 million in dis- Academic Enrichment Grants, newly authorized in ESSA,
cretionary funding to help States implement the policies which provides funds for States and school districts to
required by the bipartisan Child Care and Development support student achievement and promote academic en-
Block Grant Act of 2014, Public Law 113-186, designed richment opportunities. This flexible funding can support
to improve the safety and quality of care while giving expanding STEM opportunities and the arts, improving
parents the information they need to make good choices supports for student learning, and enhancing the use of
about their child care providers. The new funding will technology for instruction.
help States improve quality while preserving access to Stronger Together Initiative. The Budget supports the
care. The additional funding in the Budget will also go to- Stronger Together initiative, which would make $120 mil-
ward new pilot grants to States and local communities to lion in voluntary competitive grants available to school
help build a supply of high-quality child care in rural ar- districts or consortia of school districts that are inter-
eas and during non-traditional hours. These grants will ested in exploring ways to foster socioeconomic diversity
focus on what low-income working families need most through a robust process of parental, educator and com-
high-quality, affordable care that is close to home and munity engagement, and data analysis; and to school
available during the hours they work and on short notice. districts and consortia of school districts that already
Home Visiting. The Budget invests $15 billion in new have set goals and developed strategies and are ready to
funding over the next 10 years to extend and expand ev- begin implementation. The funding would be available
idence-based, voluntary home visiting programs, which for five-year projects.
enable nurses, social workers, and other professionals Support for Teachers. The Budget invests nearly $2.8
to work with new and expecting parents to help families billion in discretionary funding for programs to provide
track their childrens healthy development and learning, broad support for educators at every phase of their ca-
reers, from ensuring they have strong preparation before been left on the sidelines of the economic recovery. The
entering the classroom, to pioneering new approaches to Budget provides $1.5 billion in mandatory funding
help teachers succeed in the classroom and equipping to States to fund Career Navigators in American Job
them with tools and training they need to implement col- Centers who will proactively reach out to all people who
lege- and career-ready standards. The Budget provides have been unemployed for approximately six months or
$250 million for the Teacher and School Leader Incentive more, those who have dropped out of the labor force al-
Program to drive improvements in school districts hu- together and people who are only able to find part time
man capital management systems through innovative work. These Career Navigators would help workers look
strategies for recruiting, developing, evaluating, and re- for a job, identify training options, and access addition-
taining excellent educators. A new $125 million Teacher al supportive services. The Budget also includes almost
and Principals Pathways program, to be proposed in the $190 million in discretionary funding to provide in-person
next Higher Education Act reauthorization, will support reemployment services to the one-third of Unemployment
teacher and principal preparation programs and nonprof- Insurance (UI) beneficiaries most at risk of exhausting
its partnering with school districts to create or expand their benefits, as well as all returning veterans who are
high quality pathways into teaching and school leader- receiving UI. Evidence suggests these services are a cost-
ship, particularly into high-need schools and high-need effective strategy that gets workers back into jobs faster
subjects such as STEM. Finally, the Budget includes with higher wages.
RESPECT: Best Job in the World, a $1 billion manda-
tory initiative that will support a nationwide effort to
Income Security
attract and retain effective teachers in high-need schools
by increasing compensation and paths for advancement, Encouraging State Paid Leave Initiatives. The Budget
implementing teacher-led development opportunities includes $2.2 billion for the Paid Leave Partnership
to improve instruction, and creating working conditions Initiative to assist up to five States that wish to launch
and school climates conducive to student success. This paid leave programs, following the example of California,
proposal is a key strategy in the Departments efforts to New Jersey, and Rhode Island. States that participate in
ensure all students equitable access to effective teachers. the Paid Leave Partnership Initiative would be eligible
Education and Training in High Demand Fields. The to receive funds for the initial set up and three years of
Budget includes $75 million for a tuition-free invest- benefits. The Budget also includes funding to help States
ment in the American Technical Training Fund (ATTF). and localities conduct analysis to inform the development
ATTF will provide competitive grants to support the of paid family and medical leave programs. These grants
development, operation, and expansion of innovative, have helped recipients obtain the information they need-
evidence-based, tuition-free job training programs in ed to understand how a paid family leave policy could
high-demand fields such as manufacturing, healthcare, work in their communities.
and IT. Strengthen TANF. The Budget (1) increases resources
Supporting WIOA Implementation. The Budget builds for TANF and ensures that States are also meeting their
on prior progress by funding the core Department of State funding requirements without using funding gim-
Labor (DOL) Workforce Innovation and Opportunity Act micks; (2) requires States to spend a majority of their
(WIOA), Public Law 113-128, formula grants at their full funds on core purposes of TANF including welfare-to-
authorized level for the first time since the laws enact- work efforts, child care, and basic assistance, and ensures
menta $138 million (5 percent) increase. The Budget all TANF funds are spent on low-income families; (3) calls
also gives DOL and States the funding they need to over- on Congress to provide States more flexibility to design
see and implement the extensive changes envisioned in effective work programs in exchange for holding States
the law. The Budget includes a $40 million investment accountable for the outcome that really mattershelp-
to build State and local capacity to track the employment ing parents find jobs; (4) proposes authority to publish a
and educational outcomes of WIOA program participants, measure or measures related to child poverty in States;
and give those seeking training meaningful information and (5) creates a workable countercyclical measure mod-
including past participants success in finding jobsso eled after the effective TANF Emergency Fund created
they can make good choices about which program will during the Great Recession and utilized by governors of
best prepare them for the labor market. both parties. The Budget also continues a prior proposal
Building a System of Apprenticeships. The Budget to redirect funds in the contingency fund to finance two
invests in the proven learn-and-earn strategy of appren- important innovative approaches to reducing poverty and
ticeship by sustaining the $90 million in grants provided promoting self-sufficiencysubsidized jobs programs,
in 2016 a landmark investmentand adding a $2 bil- and two-generation initiatives that seek to improve em-
lion mandatory Apprenticeship Training Fund. These ployment outcomes of parents and developmental and
investments would help meet the Presidents goal to dou- educational outcomes of children.
ble the number of apprentices across the United States, The Upward Mobility Project. The Budget continues to
giving more workers the opportunity to develop job-rele- support the Upward Mobility Project, a place-based ini-
vant skills while they are earning a paycheck. tiative that will allow up to 10 communities, States, or a
Reconnecting Workers to Jobs. The Administration consortium of States and communities more flexibility to
makes significant investments to reach those who have use funding from up to four Federal programs for efforts
designed to implement and rigorously evaluate promising cations. In addition, the Budget proposes $15 million for
approaches to helping families achieve self-sufficiency, a mobility counseling grant and evaluation designed to
improving childrens education and health outcomes, and help HUD-assisted families move and stay in higher qual-
revitalizing communities. Projects will have to rely on ity neighborhoods.
evidence-based approaches or be designed to test new Ending Homelessness. The Budget sustains funding to
ideas, and will have a significant evaluation component support programs dedicated to ending veteran homeless-
that will determine whether they meet a set of robust out- ness, while also providing $11 billion in housing vouchers
comes. The funding streams that States and communities and rapid rehousing over the next ten years to reach and
can use in these projects are currently block grantsthe maintain the goal of ending homelessness among all of
Social Services Block Grant, the Community Development Americas families in 2020. This significant investment
Block Grant, the Community Services Block Grant, and is based on recent rigorous research that found that fami-
the HOME Investment Partnerships Programthat lies who were offered voucherscompared to alternative
share a common goal of promoting opportunity and reduc- forms of homeless assistancehad fewer incidents of
ing poverty, but do not facilitate cross-sector planning and homelessness, child separations, intimate partner violence
implementation as effectively as they could. The Budget and school moves, less food insecurity, and generally less
also provides $1.5 billion in additional funding over five economic stress. Complementing this mandatory propos-
years that States and communities can apply for to help al, the Budget provides targeted discretionary increases
support their Upward Mobility Projects. to address homelessness, including 25,500 new units of
Promise Zone Initiative. The Budget supports all 20 permanent, supportive housing to end chronic homeless-
Promise Zones through intensive, tailored Federal as- ness, 10,000 new Housing Choice Vouchers targeted to
sistance at the local level. The Budget further supports homeless families with children, $25 million to test in-
efforts to transform distressed communities by expanding novative projects that support homeless youth, and 8,000
the Department of Educations Promise Neighborhoods new units of rapid re-housing, which provides tailored
program and the Department of Housing and Urban assistance to help homeless families stabilize in housing
Development (HUD)s Choice Neighborhoods program. and then assists them to become more self-sufficient.
These programs have already provided critical funding Ensuring Adequate Food for Children Throughout the
for comprehensive and community-driven approaches to Year. Rigorous evaluations of Dept of Agriculture pilots
improving the educational and life outcomes of residents have found that providing additional nutrition benefits
in over 100 distressed communities. The Budget provides on debit cards to low-income families with school-aged
$128 million for Promise Neighborhoods and $200 million children during summer months can significantly reduce
for Choice Neighborhoods, an overall increase of $130 mil- food insecurity. The Budget invests $12 billion over ten
lion over 2016 enacted levels for the two programs. This years to create a permanent Summer Electronic Benefits
additional funding would support implementation grants Transfer for Children (SEBTC) program that will provide
for approximately 15 new Promise Neighborhoods and six all families with children eligible for free and reduced
new Choice Neighborhoods, and numerous other plan- price school meals access to supplemental food benefits
ning grants for communities to engage with stakeholders during the summer months.
to create plans for future revitalization.
Health Care
Improving Emergency Aid and Family Connections
Grants. The Budget provides $2 billion for robust pilots Medicaid and the Childrens Health Insurance Program
to test new approaches to providing emergency aid for (CHIP). The Budget gives States the option to streamline
families facing financial crisis. Building on the promising eligibility determinations for children in Medicaid and
rapid rehousing approacha strategy that helps stabilize CHIP and to maintain Medicaid coverage for adults by
families housing and then assists them to become more providing one-year of continuous eligibility. The Budget
self-sufficientthese pilots will seek to both prevent proposes to extend funding for CHIP through 2019, en-
families from financial collapse when emergency help is suring continued, comprehensive, affordable coverage for
needed, and connect families to services and supports, these children. The Budget also extends full Medicaid
such as TANF, employment assistance, SNAP, child care, coverage to pregnant and post-partum Medicaid benefi-
or Medicaid, that can help them find jobs, stabilize their ciaries, expands access to preventive benefits and tobacco
families, and become more financially secure. The pilots cessation for adults in Medicaid, streamlines appeals pro-
will be rigorously evaluated to inform future policy and cesses, and ensures children in inpatient psychiatric
program decisions at the local, State, and Federal levels. treatment facilities have access to comprehensive bene-
Improving Mobility with Housing Choice Vouchers. fits. Finally, the Budget fully covers the costs of the Urban
The President proposes $20.9 billion for the Housing Indian Health Program (UIHP) clinics for Medicaid ser-
Choice Vouchers program in 2017, an increase of $1.2 bil- vices provided to eligible American Indians and Alaska
lion over 2016 enacted, to expand opportunities for very Natives, supporting the expansion of UIHP service offer-
low-income families. This includes $2.1 billion for Public ings and improving beneficiary care.
Housing Authorities (PHAs) to ensure they have suffi- Supporting Medicaid Expansion. The Budget provides
cient resources to promote mobility and greater access to a further incentive for States to expand Medicaid to serve
opportunity, as well as cover fundamental functions, such individuals earning up to 133 percent of the Federal pov-
as housing quality inspections and tenant income certifi- erty level by covering the full cost of expansion for the
first three years a State expands, ensuring equity be- mandatory funding over the next two years to boost State
tween States that already expanded and those that do so efforts to help individuals seek treatment, successfully
in the future. complete treatment, and sustain recovery. States will
Strengthening Medicaid in Puerto Rico and other U.S. receive funds based on the severity of the epidemic and
Territories. The Medicaid programs in Puerto Rico and on the strength of their strategy to respond to it. States
the other U.S. territories of American Samoa, Guam, can use these funds to expand treatment capacity and
Northern Mariana Islands, and the U.S. Virgin Islands make services more affordable to those who cannot af-
are fundamentally different from the Medicaid program ford it. This funding will also help expand the addiction
in the States, leading to a lower standard of care than treatment workforce through the National Health Service
may be otherwise experienced on the mainland. Medicaid Corps and support the evaluation of treatment services.
funding in Puerto Rico and the other territories is capped;
Criminal Justice
beneficiaries are offered fewer benefits; and the Federal
Government contributes less on a per-capita basis than Community Policing Initiative. The Presidents
it does to the rest of the Nation. The ACA increased the Community Policing Initiative aims to build and sustain
Federal match rate and provided $7.3 billion above the trust between law enforcement and the people they serve.
territory funding caps between July 1, 2011 and the end The Budget provides $97 million to expand training and
of 2019. To avoid a loss in coverage when the supple- oversight for local law enforcement, increase the use of
mental funds provided in the ACA run out and to better body-worn cameras, provide additional opportunities for
align Puerto Rico and other territory Medicaid programs police department reform, and facilitate community and
with the mainland, the Budget would remove the cap on law enforcement engagement in 10 pilot sites, with ad-
Medicaid funding in Puerto Rico and the other territories. ditional technical assistance and training for dozens of
It also would gradually increase the Federal support ter- communities and police departments across the Nation.
ritories receive through the Federal Medicaid match by Incentivizing Justice Reform. The Administration
transitioning them to the same level of Federal support as continues to support criminal justice reform that si-
is received on the mainland, and expand eligibility to 100 multaneously enhances public safety, avoids excessive
percent of the Federal poverty level in territories current- punishment and unnecessary incarceration, and builds
ly below this level. To be eligible for maximum Federal trust between the justice system and the community. The
financial support, territories would have to meet finan- Budget provides $500 million per year over 10 years
cial management and program integrity requirements a $5 billion investmentfor a new 21st Century Justice
and achieve milestones related to providing full Medicaid Initiative. The program will focus on achieving three ob-
benefits. jectives: reducing violent crime, reversing practices that
Combating Prescription Drug Abuse and Heroin Use. have led to unnecessarily long sentences and unnecessary
The Budget takes a two-pronged approach to address this incarceration, and building community trust. Specifically,
epidemic. First, it includes approximately $500 million to States would focus on one or more opportunities for re-
continue and expand current efforts across HHS and the form in both the adult and juvenile systems, including:
Department of Justice to expand State-level prescription examining and changing State laws and policies that
drug overdose prevention strategies, increase the avail- contribute to unnecessarily long sentences and unnec-
ability of medication-assisted treatment programs, and essary incarceration, without sacrificing public safety;
improve access to the overdose-reversal drug naloxone. promoting critical advancements in community-oriented
A portion of this funding is targeted specifically to rural policing; and providing comprehensive front-end and re-
areas, where rates of overdose and opioid use are particu- entry services.
larly high. Second, the Budget includes $1 billion in new
OTHER SOURCES OF INFORMATION ON FEDERAL GRANTS-IN-AID

A number of other sources provide State-by-State Current and updated grant receipt information by State
spending data and other information on Federal grants, and local governments and other non-Federal entities can
but may use a broader definition of grants beyond what is be found on USASpending.gov. This public website also
included in this chapter. contains contract and loan information and is updated
The website Grants.gov is a primary source of infor- twice per month. Additionally, information about grants
mation for communities wishing to apply for grants and provided specifically by the Recovery Act can be found on
other domestic assistance. Grants.gov hosts all open no- Recovery.gov.
tices of opportunities to apply for Federal grants. The Federal Audit Clearinghouse maintains an
The Catalog of Federal Domestic Assistance hosted by on-line database (harvester.census.gov/sac) that pro-
the General Services Administration contains detailed vides access to summary information about audits
listings of grant and other assistance programs; discus- conducted under OMB Circular A133, Audits to States,
sions of eligibility criteria, application procedures, and Local Governments, and Non-Profit Organizations.
estimated obligations; and related information. The Information is available for each audited entity, including
Catalog is available on the Internet at www.cfda.gov. the amount of Federal money expended by program and
whether there were audit findings.
The Bureau of Economic Analysis, in the Department DOJ Office of Justice Programs (OJP), OJP Grant
of Commerce, produces the monthly Survey of Current Awards and OJP Award Data by Location, http://
Business, which provides data on the national income and grants.ojp.usdoj.gov:85/selector/main and http://ojp.
product accounts (NIPA), a broad statistical concept en- gov/funding/Explore/OJPAwardData.htm
compassing the entire economy. These accounts, which
are available at bea.gov/national, include data on Federal Department of Labor Employment and Training Ad-
ministration (ETA), Grants Awarded, http://www.
grants to State and local governments.
doleta.gov/grants/grants_awarded.cfm
In addition, information on grants and awards can be
found through individual Federal agencies web sites: Environmental Protection Agency (EPA), Integrated
USDA Current Research Information System, http:// Grants Management System (IGMS), http://www.
cris.csrees.usda.gov/ epa.gov/enviro/facts/igms/index.html
DOD Medical Research Programs, http://cdmrp. Institute of Museum and Library Services (IMLS),
army.mil/search.aspx http://www.imls.gov/recipients/grantsearch.aspx
DOD Small Business Innovation Research (SBIR) National Endowment for the Arts (NEA), Grant
and Small Business Technology Transfer (STTR) Search, https://apps.nea.gov/grantsearch/
programs, http://www.dodsbir.net/awards/Default. National Endowment for the Humanities (NEH)
asp Funded Projects, https://securegrants.neh.gov/pub-
Department of Education, Institute of Education licquery/main.aspx
Sciences, Funded Research Grants and Contracts, National Library of Medicine (NLM), Health Servic-
http://ies.ed.gov/funding/grantsearch/index.asp es Research Projects in Progress (HSRProj), http://
HHS Tracking Accountability in Government wwwcf.nlm.nih.gov/hsr_project/home_proj.cfm
Grants System (TAGGS), http://taggs.hhs.gov/Ad- National Science Foundation (NSF) Awards, http://
vancedSearch.cfm www.nsf.gov/awardsearch/
National Institutes of Health (NIH) Research Port- Small Business Innovation Research (SBIR) and
folio Online Reporting Tools RePORTER, http://pro- Small Business Technology Transfer (STTR) Awards,
jectreporter.nih.gov/reporter.cfm https://www.sbir.gov/sbirsearch/award/all
APPENDIX: SELECTED GRANT DATA BY STATE

Catalog of Federal Domestic Assistance.
The Appendix includes two tables that summarize
State-by-State spending for select grant programs to The Treasury budget account number from which
State and local governments. The first summary table, the program is funded.
Summary of Programs by Agency, Bureau, and Program, Actual 2015 obligations for States, Federal territo-
shows obligations for each program by agency and bureau. ries, or Indian Tribes in thousands of dollars. Un-
The second summary table, Summary of Grant Programs distributed obligations are generally project funds
by State, shows total obligations across all programs for that are not distributed by formula, or programs for
each State. The programs selected here cover more than which State-by-State data are not available.
90 percent of total grant spending.
Individual program tables with State-by-State obliga- Obligations in 2016 from balances of previous bud-
tion data may be found on the OMB web site at www. get authority and obligations in 2016 from new bud-
budget.gov/budget/Analytical_Perspectives and on the get authority distributed by State.
Budget CD-ROM. The individual program tables display
obligations for each program on a State-by-State basis,
Estimates of 2017 obligations by State, which are
based on the 2017 Budget request, unless otherwise
consistent with the estimates in this Budget. Each table noted.
reports the following information:
The Federal agency that administers the program. The percentage share of 2017 estimated program
funds distributed to each State.
The program title and number as contained in the
Table 153. SUMMARY OF PROGRAMS BY AGENCY, BUREAU, AND PROGRAM

(Obligations in millions of dollars)
Estimated FY2016 obligations from:
Agency, Bureau, and Program FY 2015 Previous New FY 2017
(actual) authority authority Total (estimated)
Department of Agriculture, Food and Nutrition Service

School Breakfast Program (10.553) 4,057 ......... 4,339 4,339 4,486
National School Lunch Program (10.555) 11,929 374 12,155 12,528 13,032
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (10.557) 6,676 851 6,260 7,111 6,801
Child and Adult Care Food Program (10.558) 3,350 ......... 3,340 3,340 3,446
State Administrative Matching Grants for the Supplemental Nutrition Assistance Program (Food Stamps) (10.561) 4,730 9 5,076 5,085 5,228
Department of Education, Office of Elementary and Secondary Education
Title I Grants to Local Educational Agencies (84.010) 14,410 ......... 14,910 14,910 15,360
Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants) (84.367) 2,350 ......... 2,350 2,350 2,250
Department of Education, Office of Special Education and Rehabilitative Services
Special Education-Grants to States (84.027) 11,498 ......... 11,913 11,913 11,913
Vocational Rehabilitation Grants (84.126) 3,092 ......... 3,161 3,161 3,399
Department of Health and Human Services, Centers for Medicare and Medicaid Services
Affordable Insurance Exchange Grants (93.525) 449 ......... ......... ......... .........
Childrens Health Insurance Program (93.767) 11,286 ......... 13,499 13,499 15,901
Grants to States for Medicaid (93.778) 378,897 ......... 369,621 369,621 378,553
Department of Health and Human Services, Administration for Children and Families
Temporary Assistance for Needy Families (TANF)-Family Assistance Grants (93.558) 16,562 ......... 16,562 16,562 17,312
Child Support Enforcement-Federal Share of State and Local Administrative Costs and Incentives (93.563) 4,288 ......... 4,260 4,260 4,511
Low Income Home Energy Assistance Program (93.568) 3,395 ......... 3,390 3,390 3,000
Child Care and Development Block Grant (93.575) 2,435 ......... 2,761 2,761 2,962
Child Care and Development Fund-Mandatory (93.596A) 1,236 ......... 1,254 1,254 1,348
Child Care and Development Fund-Matching (93.596B) 1,681 ......... 1,663 1,663 5,234
Head Start (93.600) 8,098 ......... 8,533 8,533 8,957
Foster Care-Title IV-E (93.658) 4,669 ......... 4,800 4,800 5,293
Adoption Assistance (93.659) 2,473 ......... 2,674 2,674 2,780
Social Services Block Grant (93.667) 1,576 ......... 1,584 1,584 2,000
Department of Health and Human Services, Health Resources and Services Administration
Ryan White HIV/AIDS Treatment Modernization Act-Part B HIV Care Grants (93.917) 1,288 ......... 1,315 1,315 1,315
Department of Homeland Security, Federal Emergency Management Agency
FEMA State and Local Programs (97.067 et al) 2,287 ......... 2,307 2,307 1,877
Department of Housing and Urban Development, Public and Indian Housing Programs
Public Housing Operating Fund (14.850) 4,398 ......... 4,500 4,500 4,569
Section 8 Housing Choice Vouchers (14.871) 19,333 251 19,665 19,916 20,955
Public Housing Capital Fund (14.872) 1,870 96 1,808 1,904 1,860
Department of Housing and Urban Development, Community Planning and Development
Community Development Block Grant (14.218; 14.225; 14.228; 14.862) 2,675 915 2,723 3,638 2,890
Community Development Block Grant - Disaster Recovery (14.218; 14.228; 14.269) 3,529 4,592 299 4,891 3,529
Department of Labor, Employment and Training Administration
Unemployment Insurance (17.225) 2,771 ......... 2,746 2,746 2,778
Department of Transportation, Federal Transit Administration
Transit Formula Grants Programs (20.507) 9,241 6,219 4,767 10,987 15,176
Department of Transportation, Federal Aviation Administration
Airport Improvement Program (20.106) 3,071 ......... 3,192 3,192 2,739
Department of Transportation, Federal Highway Administration
Highway Planning and Construction (20.205) 38,616 ......... 43,421 43,421 51,645
Environmental Protection Agency, Office of Water
Capitalization Grants for Clean Water State Revolving Fund (66.458) 1,438 42 1,352 1,394 980
Capitalization Grants for Drinking Water State Revolving Fund (66.468) 907 26 837 863 1,021
Federal Communications Commission
Universal Service Fund E-Rate 1,675 ......... 2,518 2,518 3,076
Total 592,234 13,376 585,555 598,931 628,174
Table 154. SUMMARY OF PROGRAMS BY STATE

All programs distributed in all years by state
Estimated FY 2016 obligations from: FY 2017
State or Territory Percentage
FY 2015 Previous FY 2017 of distributed
(actual) authority New authority Total (estimated) total
Alabama 6,902 93 7,389 7,482 7,653 1.26
Alaska 1,968 47 2,315 2,362 2,357 0.39
Arizona 11,617 84 12,444 12,528 13,237 2.18
Arkansas 6,583 31 7,331 7,362 7,433 1.22
California 84,267 1,211 82,866 84,077 82,674 13.61
Colorado 7,356 208 7,884 8,092 8,391 1.38
Connecticut 6,963 139 6,994 7,133 7,353 1.21
Delaware 1,889 17 2,024 2,041 2,135 0.35
District of Columbia 3,790 629 3,516 4,144 4,332 0.71
Florida 22,861 497 23,472 23,969 25,302 4.16
Georgia 12,910 196 12,804 13,000 13,259 2.18
Hawaii 2,292 46 2,523 2,568 2,622 0.43
Idaho 2,251 24 2,312 2,336 2,477 0.41
Illinois 19,330 479 17,081 17,560 18,867 3.11
Indiana 10,404 103 13,032 13,135 12,838 2.11
Iowa 4,831 40 5,085 5,125 5,402 0.89
Kansas 3,378 34 3,671 3,705 3,795 0.62
Kentucky 10,655 66 11,493 11,559 11,902 1.96
Louisiana 8,561 175 8,990 9,166 9,368 1.54
Maine 2,553 20 2,612 2,633 2,704 0.45
Maryland 9,487 179 9,677 9,856 10,453 1.72
Massachusetts 14,107 248 15,073 15,321 14,994 2.47
Michigan 17,977 181 19,589 19,770 19,339 3.18
Minnesota 9,678 110 10,002 10,112 10,546 1.74
Mississippi 6,249 40 6,526 6,565 6,747 1.11
Missouri 9,873 155 10,281 10,437 10,678 1.76
Montana 1,812 23 1,792 1,815 1,876 0.31
Nebraska 2,190 34 2,184 2,218 2,286 0.38
Nevada 3,913 55 4,110 4,165 4,130 0.68
New Hampshire 1,781 17 1,987 2,004 2,058 0.34
New Jersey 16,387 1,165 15,120 16,285 16,732 2.75
New Mexico 5,486 47 6,189 6,235 6,340 1.04
New York 52,413 3,866 55,239 59,105 59,061 9.72
North Carolina 14,373 190 14,899 15,089 16,175 2.66
North Dakota 1,039 17 1,702 1,719 1,717 0.28
Ohio 22,643 188 23,376 23,565 24,971 4.11
Oklahoma 5,626 110 5,840 5,950 5,973 0.98
Oregon 9,123 114 10,341 10,455 10,817 1.78
Pennsylvania 21,586 406 25,966 26,372 26,025 4.28
Rhode Island 2,595 47 2,748 2,795 2,851 0.47
South Carolina 6,868 46 7,232 7,278 7,706 1.27
South Dakota 1,223 16 1,237 1,253 1,337 0.22
Tennessee 9,868 92 10,795 10,887 11,287 1.86
Texas 36,918 501 39,143 39,645 40,239 6.62
Utah 3,064 59 3,350 3,409 3,583 0.59
Vermont 1,669 22 1,877 1,899 1,860 0.31
Virginia 8,473 175 8,788 8,963 9,341 1.54
Washington 11,277 192 13,359 13,551 14,091 2.32
West Virginia 4,374 23 4,680 4,703 4,475 0.74
Wisconsin 8,078 62 8,459 8,521 8,731 1.44
Wyoming 875 10 893 903 913 0.15
American Samoa 75 3 72 75 82 0.01
Guam 231 6 251 257 267 0.04
Northern Mariana Islands 100 2 123 125 139 0.02
Puerto Rico 4,105 85 4,133 4,218 4,186 0.69
Freely Associated States 46 .... 38 38 37 0.01
Table 154. SUMMARY OF PROGRAMS BY STATEContinued

All programs distributed in all years by state
Estimated FY 2016 obligations from: FY 2017
State or Territory
Percentage
FY 2015 Previous FY 2017 of distributed
(actual) authority New authority Total (estimated) total
Virgin Islands 172 4 185 189 182 0.03
Indian Tribes 960 78 1,068 1,146 1,237 0.20
Total, programs distributed by State in all years 558,071 12,708 584,156 596,864 607,506 100.00
MEMORANDUM:
Not distributed by State in all years 1 34,163 688 1,399 2,066 20,667 N/A
Total, including undistributed 592,234 13,376 585,555 598,931 628,174 N/A
1 The sum of programs not distributed by State in all years.
16. STRENGTHENING FEDERAL STATISTICS
models that used national survey and other auxil-

The ability of governments, businesses, and the general
iary data for violent and property crimes as well as
public to make informed choices about budgets, employ-
for intimate partner and domestic violence incidents
ment, investments, taxes, and a host of other important
(Bureau of Justice Statistics);
matters depends critically on the ready and equitable
availability of relevant, accurate, timely, and objective introduced experimental disease-based price index-
Federal statistics. Taken together, the data produced by es to provide alternative estimates of inflation for
the decentralized Federal statistical system form a ro- medical output and consumption using price data
bust evidence base to support both public and private from both the Producer Price Index and the Con-
decision-making. sumer Price Index programs along with quantity
Federal statistical programs have been a cornerstone data from the Department of Health and Human
of this evidence base for many decades, producing fun- Services Medical Expenditure Panel Survey in or-
damental information to illuminate public and private der to provide data users additional ongoing insight
decisions on a range of topics, including the economy, the into the evolution of the Nations healthcare system
population, the environment, agriculture, crime, educa- (Bureau of Labor Statistics);
tion, energy, health, science, and transportation. These
statistics are used in part to describe and increase un- initiated development of a port performance freight
derstanding of the basic condition and performance of our statistics program of the Nations ports to provide
economy and society, as discussed in Chapter 5, Social timely and nationally consistent measures of perfor-
Indicators. mance in terms of capacity and throughput for the
The share of budget resources devoted to supporting Nations top 25 ports by tonnage, intermodal con-
Federal statistics is relatively modestabout 0.04 per- tainer volume, and dry bulk (Bureau of Transporta-
cent of GDP in non-decennial census years and roughly tion Statistics);
double that in decennial census years. This funding is identified, researched, and tested four major cost
leveraged to inform crucial decisions in a wide variety of saving innovations (i.e., reengineering address can-
spheres. The Administration is committed to continuing vassing, optimizing self-response, utilizing admin-
cost-effective investment in Federal statistical programs istrative records and third-party data, and reengi-
in order to build and support agencies capacity to incor- neering field operations) that have the potential to
porate evidence and evaluation analyses into budget, save approximately $5.2 billion in the 2020 Census
management, and policy decisions. For example, this compared with repeating the 2010 Census design
budget proposes strategic investments to strengthen the (Census Bureau);
Federal statistical infrastructure for acquiring, linking,
and curating administrative and other alternative data- began the regular release of quarterly Gross Domes-
sets, and to make those datasets available to additional tic Product by State data, presenting businesses and
Federal and academic researchers through the Federal policy-makers with a more detailed and timely pic-
Statistical Research Data Center program. It also high- ture of economic activity at the State level (Bureau
lights emerging efforts to harness and inform sound of Economic Analysis);
statistical practice for big data and big data analytics. expanded the use of billions of observations of pro-
The Federal statistical community has leveraged a prietary household and retail scanner data to pro-
number of other opportunities to improve these measures vide unique detailed insights into consumer food
of our Nations performance and strengthen our Federal purchase behaviors and nutrition-related policy, pro-
evidence base. For example, during 2015 and 2016, gram, and regulatory impacts and combined them
Federal statistical agencies: with other multifaceted data products to enhance
published, for the first time, information on changes the depth of nutrition data offerings, facilitating re-
in the prices of treating different diseases, laying the search into the food choices, nutrition, and health of
groundwork to improve the measurement of health Americans (Economic Research Service);
care spending in the U.S. economy (Bureau of Eco-
nomic Analysis); initiated monthly State-level estimates of small-
scale distributed solar photovoltaic (PV) arrays, in-
issued newly developed crime victimization rates for cluding rooftop generation, based on a blend of sur-
the 50 States and select large counties covering 1999 vey, administrative, and third-party data sources to
to 2013 that required almost no additional data col- provide the public, government, and industry with
lection, but instead were derived from statistical the ability to track where and by how much small-
scale distributed PV generation contributes to the
281
Nations electricity supply (Energy Information Ad- have related to the collection, analysis, and dissemination
ministration); of data, the Office of Management and Budget (OMB) has
affirmed and codified them by issuing OMB Statistical
released a comprehensive set of statistics on land
Policy Directive No. 1, Fundamental Responsibilities of
tenure for the first time in 15 years, including in-
Federal Statistical Agencies and Recognized Statistical
formation on whether land owners either operate
Units.1 The Administration remains committed to these
the land they own or rent it out to others as well
principles, as agencies work to codify them within their
as projected the future outlook of land transition to
own policies and practices. By unlocking the power of
help estimate new or expanding farming operations
Government data to improve the quality of information
(National Agricultural Statistics Service);
available to the American people, the Federal statistical
released more than 1,500 data products from the system fosters the Nations long-term global competitive-
2012 Economic Census covering the economic ac- ness while maximizing the cost-effective use of resources
tivity of more than 1,000 industries and providing for the provision of Federal statistics within a constrained
detailed industry statistics by geographic area and fiscal environment. The remainder of this chapter pres-
enhanced the Longitudinal Business Database to ents highlights of principal statistical agencies 2017
provide more information about business innovation program budget proposals.
and entrepreneurship to the public (Census Bureau);
administered the first nationally representative Highlights of 2017 Program Budget Proposals
large-scale high school senior assessment in ad- The programs that provide essential statistical informa-
vanced mathematics and physics in two decades, tion for use by governments, businesses, researchers, and
TIMSS Advanced (TIMSS is the Trends in Interna- the public are carried out by agencies spread across every
tional Mathematics and Science Study), to measure department and several independent agencies. Excluding
the college and career-readiness of our top stu- cyclical funding for the decennial census, approximately
dents compared with their peers in other countries 40 percent of the total budget for these programs provides
(National Center for Education Statistics); resources for 13 agencies or units that have statistical ac-
redesigned Science and Engineering Indicators tivities as their principal mission (see Table 161). The
2016, a primary source of evidence supporting the remaining funding supports work in approximately 115
National Science Board and other decision-makers, agencies or units that carry out statistical activities in
into a fully digital document supporting interactive conjunction with other missions such as providing ser-
graphics, enhanced navigation, and increased acces- vices, conducting research, or implementing regulations.
sibility to its data sources (National Center for Sci- More comprehensive budget and program information
ence and Engineering Statistics); about the Federal statistical system, including its core
programs, will be available in OMBs annual report,
implemented methodological improvements for ex- Statistical Programs of the United States Government,
isting geographic administrative population-based Fiscal Year 2017, when it is published later this year. The
data that expand the population of included tax re- following highlights the Administrations proposals for
turns and provide an enhanced year-to-year match- the programs of the principal Federal statistical agencies,
ing process (Statistics of Income Division, Internal giving particular attention to new initiatives and to other
Revenue Service); and program changes.
published data from a new survey on how much for- Bureau of Economic Analysis (BEA), Department
eign investors are spending to acquire, establish, or of Commerce: Funding is requested to provide support
expand U.S. businesses, providing additional insight for ongoing BEA programs and to: (1) expand the scope
into the impact of foreign direct investment in the of geographic information available from BEAs economic
United States (Bureau of Economic Analysis). accounts, including developing new statistics on gross do-
mestic product (GDP) by county and creating a Regional
In order for Federal statistical products to be beneficial Economic Dashboard that will allow users to quickly
to their wide range of users, the underlying data systems access, manipulate, and extract information on the perfor-
that produce them must be credible. To foster this cred- mance of local economies across the United States; and (2)
ibility, Federal statistical programs seek to adhere to high improve the measures of GDP and other key BEA statis-
quality standards and to maintain integrity, transparen- tics by incorporating expanded and accelerated economic
cy, and efficiency in the production and curation of data. indicators to foster economic growth by providing users
As the collectors and providers of these basic statistics, with more timely and accurate information to drive deci-
the responsible Federal statistical agencies act as data sions on investment and job creation.
stewardsbalancing public information demands and Bureau of Justice Statistics (BJS), Department of
decision-makers needs for information with legal and Justice: Funding is requested to provide support for on-
ethical obligations to minimize reporting burden, respect going BJS programs and to: (1) continue to improve BJS
respondents privacy, and protect the confidentiality of the
data provided to the Government. To reinforce the funda- 1 OMB Statistical Policy Directive No. 1: Fundamental Responsibili-
mental responsibilities that Federal statistical agencies ties of Federal Statistical Agencies and Recognized Statistical Units.
http://www.gpo.gov/fdsys/pkg/FR-2014-12-02/pdf/2014-28326.pdf.
16. STRENGTHENING FEDERAL STATISTICS 283
criminal victimization statistics derived from the National round of USDAs National Household Food Purchase and
Crime Victimization Survey with special emphasis on Acquisition Survey, including representative populations
generating sub-national estimates and enhancing data of participants in Women, Infant and Children (WIC) and
on rape and sexual assault; (2) increase the use of admin- school meal programs; (2) analyze barriers to entry for
istrative records data in police and correctional agencies beginning farmers and ranchers that will examine differ-
to provide new statistics on topics such as recidivism, ar- ences in demographic characteristics of new farmers and
rests, and offenses known to the police; (3) expand the use ranchers, including the socially disadvantaged, women,
of open source information to foster the production of and veterans; and (3) analyze drought resilience issues in
statistics on police use of force; (4) expand surveys of in- the agricultural sector.
mates of prisons and jails to inform the process of re-entry Energy Information Administration (EIA),
and support the linking of survey data with criminal his- Department of Energy: Funding is requested to enable
tory administrative records; (5) improve the availability EIA to continue its core programs and to: (1) revamp pe-
of justice statistics for Indian country; and (6) continue troleum data and analysis to provide more regional detail;
to support the enhancement of criminal justice statis- (2) improve renewable generation information; (3) provide
tics available through State statistical analysis centers. timely international analyses, including petroleum trade
Bureau of Labor Statistics (BLS), Department estimates related to Canada-Mexico collaboration; (4)
of Labor: Funding is requested to provide support for collect transportation energy consumption data; and (5)
ongoing BLS programs and to: (1) add an annual supple- enhance commercial building energy efficiency data.
ment to the Current Population Survey, capturing data National Agricultural Statistics Service (NASS),
on contingent work and alternative work arrangements Department of Agriculture: Funding is requested
biennially, with data on other topics collected in the in- to provide support for ongoing NASS programs and to:
tervening years; (2) fund the first year of activities for a (1) collect data on new and beginning farmers in order
survey of employer-provided training; and (3) support the to gauge the effectiveness of programs implemented
Census Bureau in the development of a statistical supple- by USDA; (2) conduct new surveys on hogs, cattle and
mental poverty measure using Consumer Expenditure poultry to support the Presidents National Strategy for
Survey data. Combating Antimicrobial Resistant Bacteria (CARB); (3)
Bureau of Transportation Statistics (BTS), expand geospatial research to augment current satellite-
Department of Transportation: Funding is requested based agriculture statistics monitoring, extend current
to support ongoing BTS programs and to: (1) estimate the monitoring capabilities of CropScape and VegScape, and
inventory and use of motor vehicles; (2) improve meth- enrich the evaluation of climate change effects at the lo-
ods and data for calculating the value of transportation cal level on crop production; (4) conduct a special study on
infrastructure and services; and (3) implement a port per- farm structure to better reflect the changing face of ag-
formance freight statistics program. riculture, especially including women, new farmers, and
Census Bureau, Department of Commerce: veterans; (5) continue preparations for the 2017 Census
Funding is requested to provide continued support for of Agriculture; and (6) maintain the annual Census of
ongoing Census Bureau programs and to: (1) build op- Agriculture Current Agriculture Industrial Reports.
erations and systems for a reengineered 2020 Census National Center for Education Statistics (NCES),
that has the potential to save over $5 billion, including Department of Education: Funding is requested to
field-testing a suite of integrated operations and systems provide support for NCES ongoing activities and to: (1)
to collect and process data for over 120 million housing support the conduct of a new round of the Early Childhood
units, finalize methodologies for key design areas and Longitudinal Study -- Birth cohort, and U.S. participation
most census operations, and complete the development in the International Early Learning Assessment, which
of interoperable production systems for an end-to-end will allow policymakers to better understand the range of
test in 2018; (2) move to 100 percent Internet response outcomes for children in early childhood education; (2) col-
to increase the efficiency of the 2017 Economic Census; lect selected National Postsecondary Student Aid Survey
(3) continue research into in-office geographic imagery to data every two years instead of every four years to pro-
inform decisions about areas of the country where in-field vide more timely data on educational costs, financial aid,
address canvassing operations are required; (4) support enrollment, and student progress and fresh information
the third year of the Census Enterprise Data Collection on student loan borrower behavior and choices through
and Processing Initiative and deliver scheduled systems a new study on college loan performance; (3) support full
into production in support of the 2017 Economic Census U.S. participation in the next Teaching and Learning
and the Company Organization Survey/Annual Survey International Survey (TALIS), including the TALIS vid-
of Manufactures; and (5) collaborate in a joint venture eo study to provide the only internationally comparable
with BEA to accelerate and improve the quality of eco- data on the behavior of teachers in the classroom since
nomic indicators by integrating multifaceted approaches 1999; (4) support NCES contributions to the My Brothers
to increase the accuracy and timeliness of a substantial Keeper initiative; and (5) support new awards to States
number of key economic indicators. under the Statewide Longitudinal Data Systems program
Economic Research Service (ERS), Department of to advance their use of data to improve education and in-
Agriculture: Funding is requested to provide support formation policy and enhance data coordination, quality,
for ongoing ERS programs and to: (1) conduct a second and use at the national, State, and local levels.
National Center for Health Statistics (NCHS), search and education grants under the NCSES Research
Department of Health and Human Services: Funding on Science and Technology Enterprise: Statistics and
is requested to provide support for ongoing NCHS pro- Surveys program.
grams and to: 1) continue the expansion and upgrading Office of Research, Evaluation, and Statistics
of electronic death reporting to provide faster access to (ORES), Social Security Administration: Funding is
data on prescription drug overdose deaths and other requested to provide support for ongoing ORES programs
deaths significant for public health, such as the Vital and to continue to: (1) support outside survey and link-
Statistics Rapid Release program initiated in 2015; 2) age of SSA administrative data to surveys;(2) complete
further reduce the turnaround time associated with re- data collection, produce data files, and provide SSA with
search access to NCHS-compiled birth and death data, data from the redesigned Survey of Income and Program
including for tracking priority initiatives in preven- Participation to address Social Securitys data needs for
tion and teenage pregnancy, such as the NCHS Data microsimulation models, program evaluation, and analy-
Visualization Gallery with national and State trends sis;(3) provide enhanced statistical and analytical support
on teen births; 3) enhance the quality and usability of for initiatives to improve Social Security and other gov-
health data through improved access and presentation ernment agency programs; (4) fund the three centers of
methods; 4) test and implement modules to the National SSAs Retirement Research Consortium; and (5) fund the
Health and Nutrition Examination Survey to address two centers of SSAs Disability/Research Consortium.
the growing need for information on infectious diseases Statistics of Income Division (SOI), Internal
and chronic health conditions; 5) incorporate electronic Revenue Service, Department of the Treasury:
health record information into the family of health care Funding is requested to provide support for ongoing SOI
provider surveys following the inclusion of NCHS in the programs and to: (1) provide opportunities to study the
Final Rule for Stage 3 of the Electronic Health Record impacts of tax law and economic changes on tax admin-
Incentive Programs (Meaningful Use); 6) launch a new, istration by further integrating existing administrative
more efficient sample for the National Health Interview data with edited data to allow for improved data link-
Survey that incorporates information on changing popu- ages across sectors, while reducing cost and improving
lation demographics from the Decennial Census; and 7) timeliness by streamlining data processing, thus reduc-
update the content and structure of the National Health ing the number of, or eliminating the need for, fields to
Interview Survey to harmonize with other Federal health be transcribed; (2) implement recommended sample im-
surveys, improve measurement of covered health topics, provements to expand population coverage and improve
and incorporate advances in survey methodology and estimation; (3) complete statistical tables and analysis on
measurement. complex corporations and new data provided in compli-
National Center for Science and Engineering ance with the Foreign Account Tax Compliance Act and
Statistics (NCSES), National Science Foundation: the Affordable Care Act; (4) support innovative research
Funding is requested to provide support for ongoing with the potential to improve tax administration by work-
NCSES programs and to: (1) continue the development of ing with experts within and outside Government; (5)
enhanced data access tools, techniques, and visualizations, complete an extensive reprogramming of all SOI studies
including integration of the Scientists and Engineers using modernized software and continue to upgrade SOIs
Data System (SESTAT) with the Integrated Science and information technology infrastructure and deploy virtu-
Engineering Resources Data System (WebCASPAR) and alization throughout the agency to improve security and
the NSF Survey of Earned Doctorates Tabulation Engine reduce costs; and (6) continue to modernize data dissemi-
databases; (2) improve survey instruments and data col- nation practices, developing more web-based products and
lection techniques to enhance measures of innovation and data visualizations and conducting social media outreach
address data gaps related to educational and career path- to increase the publics awareness and understanding of
ways of scientists and engineers, and research activities the tax system.
in non-profit organizations; and (3) provide support for re-
16. STRENGTHENING FEDERAL STATISTICS 285
Table 161. 2015-2017 BUDGET AUTHORITY FOR

PRINCIPAL STATISTICAL AGENCIES1
Actual Estimate
2015 2016 2017
Bureau of Economic Analysis 96 105 111
Bureau of Justice Statistics2 66 52 67
Bureau of Labor Statistics 592 609 641
Bureau of Transportation Statistics 26 26 26
Census Bureau3 1113 1397 1660

Salaries and Expenses/Current Surveys and Programs3 295 299 314
Periodic Censuses and Programs 818 1098 1346
Economic Research Service 85 85 91
Energy Information Administration 117 122 131
National Agricultural Statistics Service4 172 168 177
National Center for Education Statistics5 256 282 296

Statistics5 116 125 139
Assessment 132 149 149
National Assessment Governing Board 8 8 8
National Center for Health Statistics 1556 160 160
National Center for Science and Engineering Statistics, NSF7 58 58 60
Office of Research, Evaluation, and Statistics, SSA 29 26 27
Statistics of Income Division, IRS 37 38 38

1Reflects any rescissions and sequestration.
2Includes directly appropriated funds as well as funds transferred to BJS for research and statistical services;
minus assessments for management and administrative (M&A) costs, and known rescissions.
3Salaries and Expenses/Current Surveys and Programs funds include discretionary and mandatory funds.
FY15 Actuals are displayed in the prior FY15 budget structure; FY16 is the start of the new FY16 budget
structure.
4Includes funds for the periodic Census of Agriculture of $48, $42, and $42 million in 2015, 2016, and 2017,
respectively.
5Includes funds for salaries and expenses of $13, $13, and $14 million in 2015, 2016, and 2017, respectively,
that are displayed in the Budget Appendix under the Institute of Education Sciences (IES). In addition, NCES
manages the IES grant program for the State Longitudinal Data System which is funded at $35 million, $35
million, and $81 million in 2015, 2016, and 2017, respectively, and the EDFacts Initiativewhich is funded at $11
million in 2015, 2016, and 2017.
6 All funds from Budget Authority. Amounts include funds to implement the CDC Working Capital Fund.
7Includes funds for salaries and expenses of $7.6, $7.7, and $7.8 million in 2015, 2016, and 2017,
respectively.
17. INFORMATION TECHNOLOGY
With the radical evolution of technology, the Federal in 2017 is estimated to be $89.9 billion.1 Chart 17-1 de-
Government has an unprecedented opportunity to ac- picts how 7.1 percent annual growth in IT spending over
celerate the quality, timeliness, and security of services 2001-2009 has been slowed to 1.8 percent annually for
delivered to the public. In recent years, agency adoption 2009-2017, due in part to the Administrations achieve-
of emerging technologies has had a dramatic impact in ments in improving the efficiency of how funds are spent
efficiency. For example, the United States Digital Service on IT.
(USDS) supported the United States Citizenship and Focusing Agency IT Oversight on Comprehensive
Immigration Services (USCIS) transition to electronic IT Portfolio ReviewsIn 2016 and 2017, the
filings to renew or replace green cards and pay certain Administration will continue to manage Federal IT
immigration fees. Closing down the legacy Electronic through the application of PortfolioStatdata driv-
Immigration System (ELIS) will save the Department en reviews of agency IT portfolios led by the Office of
of Homeland Security $33 million a year in ongoing op- Management and Budgets (OMB) Office of E-Government
erations, maintenance, and licensing costs. The newly and Information Technology (E-Gov). These reviews have
launched myUSCIS makes it easier for users to access evolved each year to ensure Federal IT policy goals are
information about the immigration process and services. aligned with agency IT portfolios. In addition to assisting
In addition, over the past year major policy milestones agencies with financial savings through reform efforts,
were accomplished with the release of government-wide PortfolioStat analyzes agency IT investments by us-
Federal Information Technology Acquisition Reform Act ing a variety of performance metrics, including whether
(FITARA) implementation guidance and the launch of agencies are delivering their IT investments on budget
the Cybersecurity Strategy Implementation Plan (CSIP) and on schedule, the use of innovation to meet customer
a sweeping series of actions to continue enhancing the needs, and the protection of Federal data and systems.
management of information technology (IT) resources As part of its ongoing commitment to transparency, the
and strengthening Federal civilian cybersecurity. The Administration has updated PortfolioStat performance
Administration will continue to integrate modern so- metrics publicly on the IT Dashboard throughout FY
lutions to enhance mission and service delivery by 2015, and for the first time will publish continuously up-
prioritizing four core objectives across the Federal IT dated agency-specific cost savings information.
portfolio: (1) driving value in Federal IT investments, (2) OMB requires that agency Chief Information Officers
delivering world-class digital services, to include open- (CIOs) rate all major IT investments reflected on the IT
ing Government data to fuel innovation, (3) protecting Dashboard on a continuous basis and assess how risks
Federal IT assets and information, and (4) developing the for major development efforts are being addressed and
next generation IT workforce. Highlights of activities and mitigated. The IT Dashboard shows continued improve-
initiatives undertaken to advance these objectives are ments in the general health of IT investments across
provided in the Government of the Future chapter in the government, as denoted by the increased proportion of
Budget volume, and in additional detail below. CIO-rated Green investments on the IT Dashboard,
which comprised 77 percent of all rated investments in
DRIVING VALUE IN FEDERAL IT INVESTMENTS January 2016 compared to 69 percent in 2012 (assess-
ments based on total life cycle of investments).
Federal Spending on ITThrough a combination of Implementing FITARAOn December 19, 2014, the
policy guidance and oversight, this Administration has op- President signed FITARA2, the most comprehensive IT
timized IT spending to save taxpayers money by driving reform law in almost two decades. To aid in government-
value and cost savings in Federal IT investments, and by wide implementation, the Administration released the
delivering better services to American citizens. As shown policy M-15-14: Management and Oversight of Information
in Table 17-1, the Budgets total planned spending on IT Technology3 in June. This guidance took major steps to-
ward ensuring agency CIOs have significant involvement
Table 171. FEDERAL IT SPENDING in procurement, workforce, and technology-related budget
(Millions of dollars) matters. The guidance provides direction on the CIOs and
2015 2016 2017 other Senior Agency Officials roles and responsibilities
Department of Defense 36,727 37,987 38,551 1 Based on agencies represented on the IT Dashboard, located at:
Non-Defense 49,965 50,726 51,300 http://itdashboard.gov.
Total 86,692 88,712 89,850 2 See http://www.gpo.gov/fdsys/pkg/CPRT-113HPRT91496/pdf/
Note: Defense IT spending includes estimates for IT investments for which details are CPRT-113HPRT91496.pdf , page 355.
classified and not reflected on the IT Dashboard. All spending estimates reflect data 3 See https://www.whitehouse.gov/sites/default/files/omb/memo-
available as of January 19, 2016. randa /2015/m-15-14.pdf
287
for the management of IT and creates a foundation for for a variety of categories7, and the IT category is leader
lasting partnerships among agency leadership including of this new initiative. The Federal Government is the
CIOs, CFOs, CAOs4 and program leaders to make tech- single largest buyer of IT in the world with annual IT
nology decisions that best support agency missions. It contract spending in excess of $50 billion for hardware,
also positions CIOs so that they can be held accountable software, telecommunications, security, and professional
for how effectively agencies manage the full lifecycle of IT services. Category management has already begun to
products and services and use modern digital approaches, make significant improvements in IT acquisitions. For ex-
including agile development, to achieve the objectives of ample, the first IT Category Management memorandum,
efficient, effective, and secure programs and operations. M-16-028, established policies to prohibit new contracts
Over the last year, the Administration has made signifi- for laptops and desktops, mandated use of standard
cant progress in facilitating agency implementation of configurations, and implemented demand management
FITARA and our Common Baseline by requiring agen- strategies. The Federal Government has already seen
cies to thoroughly review agency implementation plans workstation prices from some vendors drop as much as 50
and integrating FITARA implementation oversight into percent. In FY 2017 the Administration will continue to
quarterly PortfolioStat sessions. For example, OMB re- expand Category Management in the areas of hardware,
cently launched a central location for tools and resources software, telecommunications and services.
to support agencies in implementation, and a dashboard Software Reuse and Open SourceIn 2016, the
to publicly track agencies progress.5 Ensuring full imple- Administration will take important steps to improve value
mentation of FITARA remains a top priority in FY 2016 to taxpayers when Federal agencies procure software code
and 2017. that has been custom-developed for Federal use. This will
Buying as OneIn 2015, the Administration an- enable the brightest minds from around the country to
nounced the launch of the government-wide Category review, improve, and collaborate on Federal Government
Management initiative6 to move the Federal Government code, thereby helping to ensure that the code is safe, reli-
toward the goal of buying as one customer. This ap- able, and effective in furthering our national objectives.
proach, used extensively by private industry, enables the Government-Wide SuccessesThe Administrations
Federal Government to act more like a single enterprise continued focus on driving value in Federal IT invest-
7 Government-wide Category Management includes ten super cat-
4CFOs are Chief Financial Officers and CAOs are Chief Acquisition
egories: IT, Professional Services, Security and Protection, Facilities and
Construction, Industrial Products and Services, Office Management,
Officers. Transportation and Logistics Services, Travel and Lodging, Human Cap-
5 See https://management.cio.gov ital and Medical. See https://www.whitehouse.gov/blog/2015/10/14/
6 See https://www.whitehouse.gov/sites/default/files/omb/procure- update-drive-category-management-government-wide for more detail.
8 See https://www.whitehouse.gov/sites/default/files/omb/memoranda/
ment/memo/simplifying-federal-procurement-to-improve-performance-
drive-innovation-increase-savings.pdf 2016/m-16-02.pdf
Chart 17-1. Trends in Federal IT Spending

Billions of dollars
160
Department of Defense $134.6 Billion
(at 7.1% CAGR)
140 Major Civilian Agencies
Total for Major Agencies

120
Projection Based on 2001-2009 CAGR
100
7.1% CAGR* $89.9
80 2001-2009 Billion
60
40
20 1.8% CAGR*
2009-2017
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*Compound Annual Growth Rate.

Source: Total IT spending for agencies reporting to the IT Dashboard. Department of Defense has provided estimates
for classified IT investments not shown on the IT Dashboard. Chart reflects data available as of January 19, 2016.
17. INFORMATION TECHNOLOGY 289
ments has led to key successes across the Federal IT development practices and are delivering value 23
portfolio. Specific examples include: days (12 percent) faster since May 2013. Evidence
Government-wide cost savingsSince 2012, 9the in the IT portfolio shows that these agile projects
Federal Government has saved over $3.5 billion as have been nearly twice as likely to deliver on time
a result of the Administrations IT reform efforts, in- as those using waterfall development techniques,13
cluding initiatives such as PortfolioStat, the Federal and have been 33 percent more likely to deliver
Cloud Computing Strategy,10 commodity IT consoli- planned capabilities on budget.14
dation, migration to shared services, increased use Data center effortsAs part of the Administrations
of modern development practices, and data center data center consolidation and optimization efforts,
consolidation and optimization efforts.11 agencies have closed 3,179 data centers as of Novem-
Shifting to more efficient computing servicesThe ber 2015, reversing the previous unsustainable data
Federal Government now spends approximately 8.2 center growth trends, reducing energy consumption
percent of its IT budget on provisioned services such and the Federal real estate footprint, and enhancing
as cloud, on par with leading private sector compa- the Federal IT security posture. The General Servic-
nies. es Administration (GSA) leads the Government in
data center closures, having closed 88 of its 124 (71
Increased
12
use of modern, agile development prac- percent) total data centers.
tices Agencies have increased their use of agile
9 As reported by agencies. Savings described in this chapter can be
development to reduce the risk of failure by getting working software
into users hands quickly by releasing bundles of features in frequent
recognized in two different ways, as defined in OMB Circular A-131: (a) sprints based on evolving user needs. For additional information on the
Cost-Savings: A reduction in actual expenditures below the projected benefits of agile development, see http://www.whitehouse.gov/sites/
level of costs to achieve a specific objective; and, (b) Cost-Avoidance: An default/files/omb/procurement/guidance/modular-approaches-for-in-
action taken in the immediate timeframe that will decrease costs in the formation-technology.pdf.
future. For example, an engineering improvement that increases the 13 Waterfall development typically proceeds in sequential phases of
mean time between failures and thereby decreases operation and main-
tenance costs is a cost-avoidance action. consistent, fixed duration to produce a complete system. Such full sys-
10See http://www.whitehouse.gov/sites/default/files/omb/assets/
tem development efforts can take several years, potentially resulting in
a product that is either outdated by the time it is released or contains
egov_docs/federal-cloud-computing-strategy.pdf features that are not aligned with user needs.
11See http://www.whitehouse.gov/sites/default/files/omb/assets/
14 Projects which are on time and on budget have schedule and
egov_docs/fdcci-update-memo-07202011.pdf cost variance of less than 10 percent and are depicted as green on the
12 Agile development is an incremental, fast-paced style of software IT Dashboard.
DELIVERING WORLD CLASS DIGITAL SERVICES
Smarter IT DeliveryThe Administration has em- the College Scorecard at the Department of Education17,
barked on a comprehensive approach to fundamentally as well as partnering with the Internal Revenue Service
improve the way that the Government delivers technol- to deliver better online taxpayer services to citizens.
ogy services to the public. This agenda for the Smarter The College Scorecard was redesigned with direct input
IT Delivery Cross-Agency Priority (CAP)15 goal focuses on from students, families, and their advisers to provide the
ensuring that all agencies have access to the best part- clearest, most accessible, and reliable national data on
ners, people, and digital practices. As part of this work, college cost, graduation, debt, and post-college earnings.
top technologists are being recruited to work within agen- For the first time the public can access the most reliable
cies on the highest priority projects. and comprehensive data on students outcomes at specific
U.S. Digital Service and agency digital service colleges, including former students earnings, graduates
teamsRecruiting the best technologists to work inside student debt, and borrowers repayment rates. Various or-
of government is a key component of our Smarter IT de- ganizations are already using this data to provide tools to
livery strategy. The Budget will support the continued consumers to help them make better informed financial
recruitment of private sector innovators, entrepreneurs, decisions for themselves and their families18.
and engineers to government service. Since 2014, Digital USDS also created a new Rapid Response team. This
Service Experts recruited into the United States Digital teams work included supporting Healthcare.gov during
Services (USDS)16 have worked in collaboration with the 2015 open enrollment season and restoring service for
Federal agencies to implement cutting-edge digital prac- the State Departments Consolidated Consular Database,
tices on the Nations highest impact programs, including after an outage led to a two-week suspension of visa issu-
the continued success and stability of Healthcare.gov, the ances worldwide.
Veterans Benefits Management System, myUSCIS, and Digital Acquisition EffortsIn addition to its de-
livery efforts, USDS is promoting innovation within
15 The mission of the Smarter IT CAP goal is to improve outcomes government contracting and working to build a more ag-
and customer satisfaction with Federal services through smarter IT de-
livery and stronger agency accountability for success. For more informa- 17 https://collegescorecard.ed.gov
tion on CAP goals, see http://www.performance.gov. 18 See https://www.whitehouse.gov/blog/2015/09/12/under-hood-

16 See https://whitehouse.gov/digital/united-states-digital-service building-new-college-scorecard-students
ile procurement process. In partnership with the Office of wards its open data commitment. Data.gov now features
Federal Procurement Policy (OFPP), USDS created and over 200,000 datasets on topics such as education, public
launched the Digital Service Contracting Professional safety, health care, energy, and agriculture. To further this
Training and Development Program, which seeks to spur progress and to support the federal open data ecosystem,
innovation in the training of Contracting Officers. This additional resources have been provided and expanded
program challenged companies to develop a program that such as Project Open Data21 which provides tools that
will teach best practices in the procurement of digital enable agencies to make their data publicly available,
services and the important role Contracting Officers can and the Project Open Data Dashboard22 which provides
play in building meaningful, successful services. USDS the public and relevant stakeholders a quarterly evalu-
and OFPP identified the winning training program, and ation of agencies open data progress. To facilitate the
the first class of Contracting Officers enrolled in October usage of open data and to increase public dialogue around
of 2015. open data, eight Federal agencies co-hosted Open Data
Information as an AssetGovernment Open Roundtables to conduct action-oriented dialogues that
DataOpen government data enables private sector connect agencies with the organizations that use their
innovation, facilitates use, and maximizes the nations re- data to help identify high value datasets and establish
turn on its investment in data. Since releasing Executive open data priorities. Going forward, this Administration
Order 1364219 and OMB Memorandum M-13-1320 in 2013, will continue to increase agency data inventories, improve
this Administration has continued to make progress to- the discoverability of existing data, and work to reduce
19 See https://www.whitehouse.gov/the-press-office/2013/05/09/exec- open data barriers within agencies.
utive-order-making-open-and-machine-readable-new-default-government-
21 See https://project-open-data.cio.gov
20 See https://www.whitehouse.gov/sites/default/files/omb/memoranda/
2013/m-13-13.pdf 22 See http://labs.data.gov/dashboard/offices
CYBERSECURITY: PROTECTING FEDERAL IT ASSETS AND INFORMATION

Strengthening the cybersecurity of Federal networks, activity, as well as costly to defend and protect.
systems, and data is one of the most important chal- Fragmented Governance Governance and man-
lenges we face as a Nation. As cyber risks have grown agement structures are unable to consistently pro-
in severity over recent years, the Administration has ex- vide effective, well-coordinated cybersecurity across
ecuted a comprehensive strategy to address cybersecurity the Federal Government.
across the Nation, as outlined in the National Security
Chapter. Building upon the Administrations broader ef- Workforce GapsWorkforce shortages and skill
forts for 21st Century Cybersecurity, in 2015 the Office gaps, including training, education, and recruitment
of Management and Budget, in coordination with the and retention of cybersecurity and privacy profes-
National Security Council (NSC), the Department of sionals, are significant.
Homeland Security (DHS), the Department of Commerce,
as well as other departments and agencies, executed a se- To address these challenges and continue moving the
ries of actions to bolster Federal cybersecurity and secure needle on cybersecurity for the Federal Government, the
Federal information systems through the Cybersecurity Presidents 2017 Budget invests over $19 billion, or a
Strategy and Implementation Plan (CSIP). 35 percent increase from FY 2016, in overall Federal re-
In 2015, these actions and others led to areas of significant sources for cybersecurity.
progress across the Federal Government. Federal civilian Enhancing Federal IT to Secure
agencies took action to patch critical vulnerabilities, identify Federal Information and Assets
high-value assets, tightly limit the number of privileged users
with access to authorized systems, and dramatically acceler- The technology, architectures, and processes under-
ate the use of Personal Identity Verification (PIV) cards or pinning Federal Government operations need to be
alternative forms of strong authentication for accessing net- modernized to improve cybersecurity. Of the $51 bil-
works and systems. Indeed, since the Cybersecurity Sprint, lion in Federal civilian IT spending planned for FY 2017,
an intensive effort conducted in July 2015 to assess and approximately 71 percent ($36 billion) is dedicated to
improve the health of all Federal assets and networks, both maintaining legacy IT investments. Improving Federal cy-
civilian and military, Federal Civilian agencies have nearly bersecurity will require an accelerated push to strengthen
doubled their use of strong authentication for all users from the Governments highest value IT and information assets
42 percent to 81 percent. and to retire, replace, or upgrade hard-to-defend legacy
Still, as outlined in the CSIP, challenges remain. IT. This will require not just modernizing hardware and
The Federal Government has identified three primary software, but also improving how we manage the lifecycle
challenges: of IT investments so that security gains can be sustained
Outdated Technology The Federal Government re- over time. This approach will improve the governments
lies significantly on hard-to-defend legacy hardware, risk management capability, improve the cyber-defense
software, applications, and infrastructure, which landscape, and enhance our ability to respond to chang-
make it particularly vulnerable to malicious cyber ing threats. Therefore, the Administration is proposing
17. INFORMATION TECHNOLOGY 291
a revolving fund at GSA, seeded with an initial capital nating role. Moving forward, the Budget supports Federal
injection of $3.1 billion, to retire, replace or upgrade Government efforts to continue developing policy and
hard-to-secure legacy IT systems and transition to new, plans that establish a foundation for a scalable, flexible,
more secure, efficient, modern IT systems, while also es- and cooperative approach to significant cyber incident
tablishing long-term mechanisms for Federal agencies to coordination involving both public and private sector
regularly refresh their networks and systems based on stakeholders, and anchors it within the broader National
up-to-date technologies and best practices. Preparedness System.
A project review board, comprised of experts in IT In 2016 and 2017, the Administration, including OMB
acquisition, cybersecurity, and agile development, will and NSC staff, will also coordinate with DHS to con-
review agency business cases and select projects for fund- tinue working with agencies to identify and remediate
ing to ensure prioritization of projects with the highest weaknesses in cybersecurity programs while ensuring
risk profile, government-wide impact, and probability of agency progress towards the Cybersecurity Cross-Agency
success. The board will identify opportunities to replace Priority (CAP) Goal through CyberStat reviews. These re-
multiple legacy systems with a smaller number of com- views provide the opportunity for agencies to identify the
mon platforms something that is difficult for agencies cybersecurity areas where they may be facing implemen-
to do when acting on their own with limited insight into tation and organizational challenges.
other agencies operations. As a result, the central fund
Strengthening the Cybersecurity Workforce
will achieve a far greater and more rapid impact than if
the funds were allocated directly to agencies. In addition, There is a shortage of skilled cybersecurity experts
a team of systems architects and developers will provide and privacy professionals throughout the IT industry as a
additional oversight and development capabilities to whole, and that shortage is more acute within the Federal
make these major changes. The revolving fund will be Government. The Budget includes $62 million for three
self-sustaining by requiring agencies to repay the initial initiatives to address this recruitment challenge by:
investments through efficiencies gained from moderniza-
tion, ensuring the fund can continue to support projects 1. Expanding the National Science Foundations (NSF)
well beyond the initial infusion of capital. Seed funding of CyberCorps: Scholarship for Service (SFS) program
$3.1 billion would address an estimated $12 billion worth to establish a sustainable cadre of cyber reservists
of modernization projects over 10 years. and enhance opportunities for career cybersecurity
Finally, the Budget includes $275 million in funding experts across departments and agencies that can
to accelerate implementation of the DHS continuous di- serve the Federal Government to help rapidly re-
agnostics and monitoring (CDM) program. CDM enables spond to cybersecurity challenges;
agencies to invest in a centralized continuous monitoring
program that will allow them to quickly and efficiently 2. Developing a foundational cybersecurity curriculum
identify cybersecurity vulnerabilities and mitigate risk. for academic institutions to consult and adopt; and
Streamlining Governance and
3. Providing grants to academic institutions to de-
Ensuring Effective Oversight
velop or expand cyber education programs as part
Over the long term, the Federal Government will need of the National Centers of Academic Excellence in
to move away from a model of IT and cybersecurity gov- Cybersecurity Program.
ernance where individual departments and agencies
build, provision, and manage nearly all aspects of their In addition to funding these foundational workforce
IT and cybersecurity, from infrastructure to platforms initiatives, this Budget also invests over $37 million to
to applications. Instead, IT systems and cybersecurity expand standing teams of cybersecurity experts within
capabilities will need to be built, acquired, and man- DHS to provide readily-available cybersecurity capabili-
aged in a more holistic way, one that treats the Federal ties to departments and agencies.
Government as an enterprise and that relies more on As malicious cyber activity becomes increasingly sophis-
shared platforms and common services. This Budget ticated and persistent in the digital age, so must our actions
lays the foundation for shifting to this more effective to tackle it. Cyber threats cannot be eliminated entirely, but
approach to Federal cybersecurity by supporting invest- they can be managed much more effectively. Through these
ments in common IT solutions for small agencies, more investments, the Administration continues to lead a broad,
secure, enterprise-wide email systems, and common strategic effort to combat cyber threats, update and mod-
cybersecurity tools and services. Further, the Federal ernize Federal cybersecurity policies and procedures, and
Government needs to improve not only its hardware and strengthen the Federal Governments overall cybersecurity
software, but how it acquires technology, so that it can infrastructure through modernization efforts.
keep up to date with industry best practices and emerg- To complement these steps and focus on long-term
ing technologies in the future. challenges in cybersecurity, the Budget also supports the
Todays sophisticated cyber incidents have also dem- creation of the first Federal Chief Information Security
onstrated the need for more coordinated and nimble Officer, and the establishment of a blue ribbon commis-
Government efforts when they occur. In such instances, sion consisting of leaders in the fields of cybersecurity,
the Government may need to play an important coordi- technology, privacy, national security, and government.
This commission will identify recommendations for the and outside of government and to empower Americans to
President, future Administrations, and the Nation to en- take better control of their digital security.
hance cybersecurity awareness and protections inside
DEVELOPING THE NEXT GENERATION IT WORKFORCE

Having a high-caliber IT workforce is key to lasting suc- Additionally, in FY 2017 OMB will continue to build off
cess in each of the Administrations technology initiatives. of existing training opportunities being offered to current
For example, the Administration has set an aggressive Federal IT professionals to scale modern development
goal of hiring and placing 500 top technology and design practices across the workforce. For example, this past
experts to serve in the U.S. Government by January 2017 year the CIO Council, CAO Council and OMB launched
to dramatically improve customer satisfaction with fed- the IT Solutions Challenge. Over several months, more
eral technology services. To aid in this, USDS worked than 40 IT and Acquisition professionals in the GS-9
with OPM to create a term-appointment hiring author- through GS-13 range worked in teams to develop innova-
ity for Digital Services Experts to more quickly get talent tive solutions for some of the biggest challenges in IT and
into government, which is now being used by USDS and acquisitions. These types of training programs work in
Agency Digital Service teams. Individuals hired under tandem with expanding the Governments digital acqui-
this authority may serve up to two years once appointed, sition expertise. In the past year, 30 Federal acquisition
meaning staff appointed at the end of 2017 could extend professionals piloted an innovative approach to training
into 2019. Working with OPM to expand flexible hiring to improve digital IT acquisition capabilities.
options and spread proven hiring practices will remain a
focus area in FY 2017.
CONCLUSION
Ensuring the efficiency, effectiveness, and secu- this Administration represent an important commitment
rity of Federal IT has never been more central to how to future generations. The 2017 Budget includes funding
Americans are served by their Government. Over the that will launch the Nation on a path to hire the leading
past seven years, this Administration has focused on driv- digital experts, institutionalize modern digital delivery
ing efficiencies in the way the Government buys, builds, practices, and establish more effective partnerships both
and delivers IT solutions to provide improved services to within Government and with the private sector that will
citizens, and these efforts will be strengthened in 2016 provide services to our citizens at a historical level of
and further scaled across Government in 2017. The 21st quality and timeliness.
Century digital service delivery standards being set by
18. FEDERAL INVESTMENT
Federal investment is the portion of Federal spend- training, all of which are intangible but still increase in-
ing intended to yield long-term benefits for the economy come in the future or provide other long-term benefits.
and the country. It promotes improved efficiency within Most presentations in this volume combine invest-
Federal agencies, as well as growth in the national econo- ment spending with spending intended for current use.
my by increasing the overall stock of capital. Investment This chapter focuses solely on Federal and federally fi-
spending can take the form of direct Federal spending or nanced investment. It provides a comprehensive picture
of grants to State and local governments.1 It can be desig- of Federal investment spending for physical capital, re-
nated for physical capital, which creates a tangible asset search and development, and education and training, but
that yields a stream of services over a period of years. It because it disregards spending for non-investment activi-
also can be for research and development, education, or ties, it provides only a partial picture of Federal support
1 For more information on Federal grants to State and local govern- for specific national needs, such as defense, transporta-
ments see Chapter 15, Aid to State and Local Governments, in this tion, or environmental protection.
volume.
DESCRIPTION OF FEDERAL INVESTMENT

The distinction between investment spending and cur- as maternal health, certain nutrition programs, and
rent outlays is a matter of judgment. The budget has substance abuse treatment, which are designed in
historically employed a relatively broad classification of part to prevent more costly health problems in fu-
investment, encompassing physical investment, research, ture years.
development, education, and training. The budget fur- This analysis takes the relatively broad approach of
ther classifies investments into those that are grants to including all investment in physical assets, research and
State and local governments, such as grants for highways, development, and education and training, regardless of
and all other investments, or direct Federal programs. ultimate ownership of the resulting asset or the purpose
This direct Federal category consists primarily of spend- it serves. It does not include social investment items
ing for assets owned by the Federal Government, such as like health care or social services where it is difficult to
weapons systems and buildings, but also includes grants separate out the degree to which the spending provides
to private organizations and individuals for investment, current versus future benefits. The definition of invest-
such as capital grants to Amtrak or higher education ment used in this section provides consistency over time
loans directly to individuals. (historical figures on investment outlays back to 1940 can
The definition of investment in a particular presenta- be found in the Budgets historical tables).2 Table 182
tion can vary depending on specific considerations: at the end of this section allows disaggregation of the data
Taking the approach of a traditional balance sheet to focus on those investment outlays that best suit a par-
would limit investment to only those physical assets ticular purpose.
owned by the Federal Government, excluding capital In addition to this basic issue of definition, there are
financed through grants and intangible assets such two technical problems in the classification of investment
as research and education. data: the treatment of grants to State and local govern-
ments, and the classification of spending that could be
Focusing on the role of investment in improving na- shown in multiple categories.
tional productivity and enhancing economic growth First, for some grants to State and local governments it
would exclude items such as national defense assets, is the recipient jurisdiction, not the Federal Government,
the direct benefits of which enhance national secu- that ultimately determines whether the money is used
rity rather than economic growth. to finance investment or current purposes. This analysis
classifies all of the outlays into the category in which the
Examining the efficiency of Federal operations
recipient jurisdictions are expected to spend a majority of
would confine the coverage to investments that re-
duce costs or improve the effectiveness of internal the money. Hence, the Community Development Block
Federal agency operations, such as computer sys- Grants are classified as physical investment, although
tems. some may be spent for current purposes. General pur-
pose fiscal assistance is classified as current spending,
Considering a social investment perspective would although some may be spent by recipient jurisdictions on
broaden the coverage of investment beyond what is investment.
included in this chapter to include programs such
2 The historical tables are available at http://www.budget.gov/budget/
Historicals and on the Budget CD-ROM.
293
Second, some spending could be classified in more than Composition of Federal Investment Outlays
one category of investment. For example, outlays for con-
struction of research facilities finance the acquisition of Major Federal Investment
physical assets, but they also contribute to research and
development. To avoid double counting, the outlays are The composition of major Federal investment outlays
classified hierarchically in the category that is most com- is summarized in Table 181. They include major public
monly recognized as investment: physical assets, followed physical investment, the conduct of research and develop-
by research and development, followed by education and ment, and the conduct of education and training. Total
training. Consequently, outlays for the conduct of re- Federal investment outlays were $489.2 billion in 2015.
search and development do not include outlays for the Federal investment outlays are estimated to increase to
construction of research facilities, because these outlays $491.0 billion, less than one percent, in 2016, and increase
are included in the category for investment in physical by 1.0 percent to $495.6 billion in 2017. In 2017, defense
assets. investment outlays are estimated to increase by $6.1 bil-
When direct loans and loan guarantees are used to lion, while nondefense investment outlays are expected to
fund investment, the subsidy value is included as in- decrease by $1.4 billion. The major factors contributing to
vestment. The subsidies are classified according to their these changes are described below.
program purpose, such as construction or education and Major Federal investment outlays will comprise an
training. For more information about the treatment of estimated 12.0 percent of total Federal outlays in 2017
Federal credit programs, refer to the section on Federal and 2.6 percent of the Nations gross domestic product.
credit in Chapter 9, Budget Concepts, in this volume. Greater detail on Federal investment is available in Table
This discussion presents spending for gross invest- 182 at the end of this section. That table includes both
ment, without adjusting for depreciation. budget authority and outlays.
Physical investment. Outlays for major public physical
capital investment (hereafter referred to as physical in-
Table 181. COMPOSITION OF FEDERAL INVESTMENT OUTLAYS

Estimate
Federal Investment Actual
2015 2016 2017
Major public physical capital investment:
Direct Federal:
National defense 108.9 110.8 109.7
Nondefense 40.3 42.5 39.4
Subtotal, direct major public physical capital investment 149.2 153.3 149.1
Grants to State and local governments 77.2 78.0 85.3
Subtotal, major public physical capital investment 226.4 231.3 234.4
Conduct of research and development:
Nondefense 61.3 63.8 67.8
Subtotal, conduct of research and development 132.1 135.5 146.7
Conduct of education and training:
Grants to State and local governments 55.9 60.3 59.3
Direct Federal 74.7 63.9 55.3
Subtotal, conduct of education and training 130.7 124.2 114.6
Total, major Federal investment outlays 489.2 491.0 495.6
MEMORANDUM
Major Federal investment outlays:
Nondefense 309.5 308.5 307.1
Total, major Federal investment outlays 489.2 491.0 495.6
Miscellaneous physical investment:
Commodity inventories * 0.2 0.0
Other physical investment (direct) 2.4 2.4 4.1
Total, miscellaneous physical investment 2.4 2.2 4.0
Total, Federal investment outlays, including miscellaneous physical investment 491.5 493.2 499.7
18. FEDERAL INVESTMENT 295
vestment outlays) are estimated to grow by one percent of research and development outlays, an estimated $78.9
in 2017 to $234.4 billion. Physical investment outlays billion, are for national defense. Physical investment for
are for construction and rehabilitation, the purchase of research and development facilities and equipment is in-
major equipment, and the purchase or sale of land and cluded in the physical investment category.
structures. Just under two-thirds of these outlays are for Non-defense outlays for the conduct of research and
direct physical investment by the Federal Government, development are estimated to be $67.8 billion in 2017, a
with the remainder being grants to State and local gov- $4.0 billion or 6.2 percent increase over 2016. Most in-
ernments for physical investment. vestments in this area are funded through programs in
Direct physical investment outlays by the Federal the National Institutes of Health (which accounts for half
Government are primarily for national defense. Defense of the increase in 2017), the National Aeronautics and
outlays for physical investment are estimated to be Space Administration, the Department of Energy, and the
$109.7 billion in 2017, $1.1 billion lower than in 2016. National Science Foundation.
Approximately 93 percent of defense physical investment A more detailed discussion of research and develop-
outlays, or an estimated $102.0 billion, are for the procurement funding can be found in Chapter 19, Research and
ment of weapons and other defense equipment, and the Development, in this volume.
remainder is primarily for construction on military bases, Conduct of education and training. Outlays for the
family housing for military personnel, and Department of conduct of education and training were $130.7 billion in
Energy defense facilities. 2015. Outlays are estimated to decrease to $124.2 bil-
Outlays for direct physical investment for nondefense lion in 2016, and decrease again in 2017 to $114.6 billion.
purposes are estimated to be $39.4 billion in 2017. Outlays Investments in this category add to the stock of human
for 2017 include $21.0 billion for construction and reha- capital by developing a more skilled and productive la-
bilitation. This amount includes funds for water, power, bor force. Grants to State and local governments for this
and natural resources projects of the Corps of Engineers, category are estimated to be $59.3 billion in 2017, 52 per-
the Bureau of Reclamation within the Department of the cent of the total. They include education programs for the
Interior, the Power Marketing Administrations within disadvantaged and individuals with disabilities, training
the Department of Energy, and the Tennessee Valley programs in the Department of Labor, Head Start, and
Authority; construction and rehabilitation of veterans other education programs. Direct Federal education and
hospitals and Indian Health Service hospitals and clinics; training outlays in 2017 are estimated to be $55.3 billion,
facilities for space and science programs; Postal Service which is a decrease of $8.6 billion, or 13.4 percent, from
facilities; construction for the administration of justice 2016. Programs in this category primarily consist of aid
programs (largely in Customs and Border Protection with- for higher education through student financial assistance,
in the Department of Homeland Security); construction of loan subsidies, and veterans education, training, and re-
office buildings by the General Services Administration; habilitation. The decrease in outlays for the conduct of
and construction for embassy security. Outlays for this education and training from 2015 to 2017 is more than
category are estimated to decrease by $3.8 billion in accounted for by revisions in the cost of past student loan
2017 primarily because outlays for 2016 include upward activity. Adjusting for these reestimates of past activity,
reestimates of the cost of past guaranteed loans for the this category of outlays would increase from year to year.
construction and repair of apartment buildings, hospitals, This category does not include outlays for education
and other health care facilities. and training of Federal civilian and military employees.
Outlays for grants to State and local governments for Outlays for education and training that are for physical
physical investment are estimated to be $85.3 billion in investment and for research and development are in the
2017, a 10.1 percent increase from the 2016 estimate of categories for physical investment and the conduct of re-
$78.0 billion. Most of the increase is for the 21st Century search and development.
Clean Transportation System proposal, which includes a
Miscellaneous Physical Investment
number of grants and programs within the Department
of Transportation. For more information on this proposal In addition to the categories of major Federal invest-
see Chapter 11, Budget Process, in this volume. Other ment, several miscellaneous categories of investment
major grants for physical investment fund sewage treat- outlays are shown at the bottom of Table 181. These
ment plants and other State and tribal assistance grants, items, all for physical investment, are generally unrelated
community and regional development, and public housing. to improving Government operations or enhancing eco-
Conduct of research and development. Outlays for the nomic activity.
conduct of research and development are estimated to Outlays for commodity inventories are for the purchase
be $146.7 billion in 2017, an $11.2 billion or 8.3 percent or sale of agricultural products pursuant to farm price
increase over 2016. These outlays are devoted to increas- support programs and other commodities. Sales are esti-
ing basic scientific knowledge and promoting research mated to exceed purchases by $36 million in 2017.
and development. They increase the Nations security, Outlays for other miscellaneous physical investment
improve the productivity of capital and labor for both pub- are estimated to be $4.1 billion in 2017. This category
lic and private purposes, and enhance the quality of life. consists entirely of direct Federal outlays and includes
With an increase of $7.3 billion over 2016, more than half primarily conservation programs.
Detailed Table on Investment Spending according to grants to State and local governments and
direct Federal spending. Miscellaneous investment is not
The following table provides data on budget authority included because it is generally unrelated to improving
as well as outlays for major Federal investment divided Government operations or enhancing economic activity.
Table 182. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS
Budget Authority Outlays
Description 2015 2016 2017 2015 2016 2017
Actual Estimate Estimate Actual Estimate Estimate
GRANTS TO STATE AND LOCAL GOVERNMENTS

Major public physical investment:
Construction and rehabilitation:
Transportation:
Highways 39,018 41,382 39,658 42,002 42,030 42,863
Mass transportation 12,190 12,950 14,684 11,784 11,669 12,859
Rail transportation 1,394 1,452 2,269 2,415 3,342 4,778
Air and other transportation 3,548 3,677 18,327 3,454 3,779 7,125
Subtotal, transportation 56,150 59,461 74,938 59,655 60,820 67,625
Other construction and rehabilitation:
Pollution control and abatement 2,651 2,880 2,721 3,310 3,281 3,324
Community and regional development 3,964 4,322 3,810 7,766 8,467 7,886
Housing assistance 3,498 3,601 3,631 4,036 3,131 3,849
Other 387 514 1,140 360 431 663
Subtotal, other construction and rehabilitation 10,500 11,317 11,302 15,472 15,310 15,722
Subtotal, construction and rehabilitation 66,650 70,778 86,240 75,127 76,130 83,347
Other physical assets 1,912 2,021 2,389 2,117 1,869 1,937
Subtotal, major public physical investment 68,562 72,799 88,629 77,244 77,999 85,284
Agriculture 334 339 335 247 478 388
Other 221 214 221 164 168 167
Subtotal, conduct of research and development 555 553 556 411 646 555
Elementary, secondary, and vocational education 37,063 38,167 42,842 38,021 39,792 38,195
Higher education 328 363 363 373 392 381
Research and general education aids 736 781 837 741 783 804
Training and employment 3,073 3,375 3,529 3,309 3,600 3,676
Social services 11,764 12,678 13,411 11,099 12,588 12,649
Agriculture 416 418 456 402 586 611
Other 2,232 2,265 2,294 1,994 2,579 2,982
Subtotal, conduct of education and training 55,612 58,047 63,732 55,939 60,320 59,298
Subtotal, grants for investment 124,729 131,399 152,917 133,594 138,965 145,137
DIRECT FEDERAL PROGRAMS
Major public physical investment:
Construction and rehabilitation:
National defense:
Military construction and family housing 5,156 6,672 6,274 7,524 7,671 7,702
Atomic energy defense activities and other 138 145 190 3 6 186
Subtotal, national defense 5,294 6,817 6,464 7,527 7,677 7,888
Nondefense:
International affairs 1,731 1,602 1,752 956 1,007 1,270
General science, space, and technology 1,173 1,219 1,254 1,373 1,279 1,254
Water resources projects 2,935 2,990 2,010 3,326 3,468 3,448
Other natural resources and environment 1,093 1,161 1,518 1,169 1,219 1,267
Energy 5,986 5,593 4,596 6,142 5,075 4,567
Postal service 429 402 402 385 402 524
18. FEDERAL INVESTMENT 297
Table 182. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMSContinued
Description 2015 2016 2017 2015 2016 2017
Transportation 291 385 274 294 236 413
Veterans hospitals and other health facilities 3,385 3,635 3,005 3,278 3,482 3,248
Administration of justice 1,959 2,561 1,456 1,645 2,206 1,543
GSA real property activities 1,361 2,343 2,172 995 1,166 1,644
Other construction 3,292 5,171 11,894 3,902 5,271 1,835
Subtotal, nondefense 23,635 27,062 30,333 23,465 24,811 21,013
Subtotal, construction and rehabilitation 28,929 33,879 36,797 30,992 32,488 28,901
Acquisition of major equipment:
National defense:
Department of Defense 101,956 115,961 109,057 101,237 102,802 101,382
Atomic energy defense activities 474 450 490 184 353 439
Nondefense:
General science and basic research 328 394 420 321 379 419
Postal service 1,325 1,388 1,388 850 1,392 1,389
Air transportation 3,309 3,393 3,906 3,459 3,382 3,696
Water transportation (Coast Guard) 918 1,581 945 1,258 1,196 1,280
Hospital and medical care for veterans 1,838 1,550 2,313 1,760 1,512 1,987
Federal law enforcement activities 1,649 1,580 2,323 1,272 1,379 996
Department of the Treasury (fiscal operations) 292 292 345 231 266 281
National Oceanic and Atmospheric Administration 2,098 2,313 2,152 1,932 2,126 1,979
Other 4,728 4,941 5,127 5,120 5,523 5,704
Subtotal, acquisition of major equipment 118,915 133,843 128,466 117,624 120,310 119,552
Purchase or sale of land and structures:
National defense 40 36 38 48 28 34
Natural resources and environment 223 328 557 201 271 406
General government ......... ......... ......... ......... 7 .........
Other 72 37 37 431 252 250
Subtotal, purchase or sale of land and structures 111 255 482 584 502 622
Subtotal, major public physical investment 147,955 167,977 165,745 149,200 153,300 149,075
National defense:
Defense military 65,431 70,839 72,630 65,666 66,754 71,959
Atomic energy and other 6,038 5,567 6,970 5,062 4,915 6,958
Nondefense:
International affairs 290 315 327 290 315 327
NASA 11,565 11,773 11,225 11,170 10,872 11,096
National Science Foundation 5,569 5,693 6,070 5,059 5,231 5,218
Department of Energy 4,399 4,502 4,827 4,159 4,520 5,060
Subtotal, general science, space, and technology 21,533 21,968 22,122 20,388 20,623 21,374
Energy 3,019 3,331 4,347 2,785 2,966 3,615
Transportation:
Department of Transportation 696 742 881 645 790 868
NASA 516 500 681 555 555 644
Other transportation 17 18 23 24 17 24
Subtotal, transportation 1,229 1,260 1,585 1,224 1,362 1,536
Health:
National Institutes of Health 28,880 30,490 31,204 28,358 29,222 31,220
Other health 1,745 1,689 1,786 1,314 1,273 1,734
Subtotal, health 30,625 32,179 32,990 29,672 30,495 32,954
Table 182. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMSContinued
Description 2015 2016 2017 2015 2016 2017
Agriculture 1,655 1,669 2,077 1,623 1,818 1,907
Natural resources and environment 2,124 2,320 2,457 2,050 2,279 2,490
National Institute of Standards and Technology 589 624 681 482 639 681
Hospital and medical care for veterans 1,178 1,220 1,252 1,224 1,222 1,255
All other research and development 1,485 1,570 1,556 1,181 1,420 1,067
Subtotal, conduct of research and development 135,196 142,862 148,994 131,647 134,808 146,123
Elementary, secondary, and vocational education 1,410 1,472 1,709 1,271 1,230 1,369
Higher education 49,235 39,102 35,114 51,335 38,715 29,459
Research and general education aids 2,119 2,239 2,429 2,172 2,179 2,260
Training and employment 2,184 2,263 2,385 2,111 2,368 2,605
Health 1,595 1,776 1,857 1,677 1,802 1,866
Veterans education, training, and rehabilitation 15,369 14,647 16,668 13,605 15,129 15,296
General science and basic research 927 864 915 805 784 790
International affairs 612 608 657 642 763 668
Other 1,051 816 1,103 1,097 918 1,001
Subtotal, conduct of education and training 74,502 63,787 62,837 74,715 63,888 55,314
Subtotal, direct Federal investment 357,653 374,626 377,576 355,562 351,996 350,512
Total, Federal investment 482,382 506,025 530,493 489,156 490,961 495,649
19. RESEARCH AND DEVELOPMENT
The President is committed to making investments 4 percent funding increase over 2016 enacted levels1 for
in research and development (R&D) that will grow our R&D. Reflecting the high priority of R&D in a time of lim-
economy and enable America to remain the world leader ited discretionary funding, the FY 2017 Budget includes
in innovation. The Nation depends on science, technology, $4 billion in R&D supported by new mandatory funding
and innovation to promote sustainable economic growth proposals across a range of topics from health to clean
and job creation, maintain a safe and sufficient food sup- energy technologies. In conjunction with this investment,
ply, improve the health of all Americans, move toward a the 2017 Budget proposes to build on recently-enacted leg-
clean energy future, address global climate change, man- islation expanding and making permanent the Research
age competing demands on environmental resources, and and Experimentation tax credit by proposing to simplify
ensure the Nations security. Investing in science and and further expand the credit, spurring increased private
technology-based innovation will produce vaccines that investment in R&D.
stay ahead of drug-resistant bacteria, find new answers The 2017 Budget continues to strengthen U.S. in-
in the fight against Alzheimers and other diseases, de- ternational leadership by investing in the high-tech
vise new clean energy technologies, and promote new knowledge-based economy and innovation-fueled growth
advanced manufacturing opportunities in areas such as industries. The investments proposed in the 2017 Budget
robotics. align with the recent update to the Strategy for American
The Presidents 2017 Budget provides $152 billion Innovation to help ensure that the United States contin-
for Federal research and development (R&D), including ues its long-standing and robust leadership in public and
the conduct of R&D and investments in R&D facilities private sector R&D and maintains the high quality of our
and equipment (see Table 19-1). Detailed definitions R&D institutions and the entrepreneurial nature of our
and discussion are available in Section II below. The R&D enterprise.
Administration continues to prioritize R&D, providing a 1 R&D spending figures for FY 2016 are preliminary and may change
as agency operating plans are finalized.
I. PRIORITIES FOR FEDERAL RESEARCH AND DEVELOPMENT

The Budget provides support for a broad spectrum of The 2017 Budget proposes both discretionary and
research and development, including multidisciplinary new mandatory funding to continue increasing the total
research and exploratory, potentially transformative, Federal investment in the combined budgets of three key
high-risk research proposals that could fundamentally basic research agencies: the National Science Foundation
improve our understanding of nature, revolutionize fields (NSF), the Department of Energy (DOE) Office of Science,
of science, and lead to the development of radically new and the laboratories of the Department of Commerce
technologies. Federal Government funding for R&D is (DOC) National Institute of Standards and Technology
essential to address societal needs in areas in which the (NIST). The Budget proposes $14.6 billion in 2017 for
private sector does not have sufficient economic incentive these three agencies, an increase of $0.9 billion over the
to make the required investments. Key among these is 2016 enacted level.
the fundamental, curiosity-driven inquiry that has been
Moving Toward Cleaner American Energy
a hallmark of the American research enterprise and a
powerful driver of surprising, new technology. The Budget The Presidents Climate Action Plan outlines several
provides $73 billion for basic and applied research, an key objectives for the United States to lead the world in
increase of $4 billion (6%) from 2016 enacted because clean energy. The Administration is committed to a future
research is a reliable source of the new knowledge that where the United States leads the world in research, devel-
drives job creation and lasting economic growth. opment, demonstration, and deployment of clean-energy
Many research investments into the most promising technologies to reduce air pollution, greenhouse-gas emis-
areas for future industry, scientific discovery, and job cre- sions, and dependence on oil, while creating high-wage,
ation are being addressed through multi-agency research highly-skilled clean energy jobs and new businesses.
activities coordinated through the National Science and The 2017 Budget supports the United States partici-
Technology Council (NSTC) and other interagency forums. pation in Mission Innovation, the landmark 20-nation
Most of these challenges simply cannot be addressed ef- commitment to dramatically accelerate public and private
fectively by a single agency. Moreover, innovation often global clean energy innovation that was launched at the
arises from combining the tools, techniques, and insights start of the Paris climate change conference in November
from multiple agencies. 2015. As part of its participation in Mission Innovation,
the U.S. Government will seek to double its current level
299
of Federal fiscal year investment in clean energy R&D try and universities, and $200 million in Department of
over five years, from $6.4 billion in 2016 to $12.8 billion in Transportation funding for safety research to accelerate
2021. New funding will initially be strategically allocated the development of autonomous vehicles.
to early stage research and development, which offers The Budget invests in breakthrough R&D that reduces
some of the greatest opportunities for breakthroughs and the price, energy input, and carbon emissions levels of
transformative change. However, this investment port- new water supply technology, which can provide com-
folio spans the full range of research and development munities in water-stressed regions with new and more
from basic research to demonstration activities. The effective options to meet their increasing water supply
2017 Budget provides $7.7 billion in discretionary fund- needs. Examples include $45 million for the Department
ing for clean energy R&D, demonstrating a strong U.S. of Energy to launch a new Energy-Water Desalination
commitment to the Mission Innovation doubling pledge. Hub and conduct complementary R&D; $98.6 million for
Funding for clean energy R&D is part of a broader port- the Department of the Interiors WaterSMART program,
folio of clean energy technology programs that includes which promotes water conservation initiatives, improved
investments in deployment and other related activities. water data, and technological breakthroughs; $15 mil-
In total, the 2017 Budget provides approximately $9 billion in additional funding for Department of Agricultures
lion in discretionary funding government-wide for clean (USDA) research on water supplies and conservation
energy technology programs. practices such as building healthy soils that retain wa-
In DOE, the 2017 Budget provides about $6.8 billion ter; and $88 million for the National Science Foundation
in discretionary funding for clean energy technology pro- (NSF) to support basic water research to enhance the sci-
grams, including $5.9 billion for research, development, entific and engineering knowledge base.
and demonstration activities that contribute to Mission
Understanding and Responding to Global
Innovation. Specifically, it provides $2.9 billion for the
Climate Change and Its Impacts
Office of Energy Efficiency and Renewable Energy, of
which $2.1 billion is part of Mission Innovation. This While investing in clean energy, the Presidents Climate
$2.9 billion supports efforts to accelerate research and de- Action Plan also provides a blueprint for responsible
velopment, build on ongoing successes, increase the use national and international action to slow the effects of
of critical clean energy technologies, and further reduce climate change. 2015, on the heels of record-warm 2014,
costs and reflects increases above 2016 enacted levels of was the warmest year on record, and by a record mar-
37 percent for sustainable vehicle and fuel technologies, gin. One of the key activities supported in the Climate
28 percent for energy efficiency and advanced manufac- Action Plan is actionable climate science, which is criti-
turing activities, and 34 percent for innovative renewable cal in helping government officials, communities, and
power projects. The 2017 Budget also provides over $1.8 businesses better understand and manage the risks as-
billion for basic clean energy research in the Office of sociated with climate change. In support of this goal, the
Science and supports investments in a modernized elec- Administration has continued, through the U.S. Global
tric grid with $177 million for clean energy R&D in the Change Research Program (USGCRP), to advance ac-
Office of Electricity Delivery and Energy Reliability. The tionable climate science to improve our understanding of
Budget supports clean energy R&D through the Office climate change and its impacts, requesting approximately
of Nuclear Energy and Office of Fossil Energy, including $2.8 billion for these programs. The USGCRP coordi-
funding for advanced reactors R&D, quantification and nates and integrates Federal research and applications
mitigation of methane emissions from natural gas infra- to assist the Nation and the world in understanding, as-
structure, and activities primarily dedicated to further sessing, predicting, and responding to the human-induced
lowering the costs of carbon capture and storage. In ad- and natural processes of climate change and their related
dition, the Budget includes $500 million through a mix impacts and effects. Within coordinated USGCRP inter-
of discretionary and mandatory funding for the Advanced agency investments, the 2017 Budget supports the goals
Research Projects AgencyEnergy (ARPA-E). set forth in the programs 2012-2021 strategic plan, which
The Budget also supports the Administrations 21st include: advancing scientific knowledge of the integrated
Century Clean Transportation Plan, a new mandatory natural and human components of the Earth; providing
proposal, which includes a number of R&D programs, the scientific basis to inform and enable timely deci-
as well as support for clean transportation system de- sions on adaptation and mitigation; building sustained
ployment. Through this Plan the Budget provides $500 assessment capacity that improves the United States
million in FY 2017 to scale-up clean transportation R&D ability to document changes on the regional, landscape,
through initiatives to accelerate cutting the cost of bat- and local level to understand, anticipate, and respond to
tery technology; advance the next generation of low climate change impacts and vulnerabilities; and advanc-
carbon biofuels, in particular for intermodal freight and ing communications and education to broaden public
fleets; and establish a smart mobility research center to understanding of climate change. The 2017 Budget also
investigate systems level energy implications of vehicle supports an integrated suite of climate change observa-
connectivity and automation. Also as part of the Plan, tions, process-based research, modeling and assessment,
the Budget provides $100 million at NASA to support a and adaptation science activities that serve as a foun-
new era of low carbon emission aircraft by initiating a dation for providing timely and responsive information,
series of experimental aircraft in partnership with indus- including but not limited to technical reports, impact
19. RESEARCH AND DEVELOPMENT 301
and vulnerability assessments, and adaptation response position the United States as a global leader in advanced
strategies to a broad array of stakeholders. The Budget manufacturing technology. Specifically, the Budget builds
prioritizes the development and use of actionable data, on the 13 institutes already funded through 2016 with
information, and related tools needed to prepare for and more than $250 million in additional discretionary funds
reduce climate-related risks and prioritizes investments to support these and 5 new manufacturing innovation
that support technical assistance for community climate- institutes in DOC, DOD, and DOE, which will solicit
preparedness efforts. This includes $20 million to continue proposals on a wide-range of focus areas across the manu-
expanding and improving the online Climate Resilience facturing sector. The Budget also includes a mandatory
Toolkit, which provides scientific tools and information to spending proposal of $1.9 billion to fund the remaining 27
help tribes, communities, citizens, businesses, planners, institutes in the network.
and others manage their climate-related risks and oppor-
Improving Americans Health through Innovation
tunities, and improve their resilience to extreme events.
in Life Sciences, Biology, and Neuroscience
Observing our Planet
The Administration is committed to Federal R&D in-
Earth-observation data are instrumental to services vestments in fundamental biological discovery research
that protect human life, property, the economy, and na- that could generate unexpected, high-impact scientific
tional security, and advance understanding of the Earth and technological advances in health. The 2017 Budget
as a system. The Budget supports investments in Earth strongly supports research that has the potential to fos-
observations, such as Earth-observing satellites and ter innovations in health and to accelerate the pace of
monitoring of water, air, wildlife, invasive species, and eco- discovery in the life sciences, especially cancer, neurosci-
systems, consistent with the 2014 National Plan for Civil ence, and Precision Medicine. These discoveries will help
Earth Observations. Within the National Aeronautics improve the prevention and treatment of diseases and
and Space Administration (NASA), the Budget provides support the bioeconomy of the future.
$2.0 billion to sustain progress toward satellite missions The 2017 Budget proposes $33.1 billion for the National
and research that will improve our understanding of Institutes of Health (NIH), through a mix of discretion-
Earth, its atmosphere, and oceans. The Budget provides ary, enacted mandatory, and new mandatory funding to
$2.1 billion for the National Oceanic and Atmospheric support high-quality, innovative biomedical research both
Administrations (NOAA) satellite programs, including on-campus and at research institutions across the country.
the next generation of polar-orbiting and geostationary The Budget supports basic and translational research to
satellite systems that are critical to weather forecasting. increase understanding of the causes of disease and spur
Satellite observations contribute directly to the National development of diagnostic tests, treatments, and cures. As
Weather Services ability to issue public warnings to pro- a part of the cancer moonshot, an effort that will be led
tect life and property. The Budget also supports space by the Vice President, the Budget provides an increase
weather science and preparedness according to the 2015 of $680 million to accelerate progress in preventing, di-
National Space Weather Strategy and Action Plan; space agnosing, and treating cancer. The Budgets multi-year
weather observations and R&D are essential to address cancer initiative, which begins in FY 2016, provides re-
the growing societal needs for accurate and timely space sources to improve health and outcomes for patients
weather information. The Budget begins planning for through investments in research and infrastructure, and
the next generation of NOAA space-weather satellites, brings together researchers across sectors and scientific
increases funding for space weather-related research at disciplines. The Budget also increases NIH investments
NASA, and provides $1.7 million at the U.S. Geological in the multi-agency BRAIN initiative and includes $300
Survey for improved geomagnetic monitoring to support million for NIHs contribution to the Precision Medicine
space weather alerts and warnings. Initiative aimed at tailoring medical care to the individ-
Promoting Advanced Manufacturing ual patient.
and Industries of the Future The Budget includes $530 million in mandatory R&D
funding for the independent Patient-Centered Outcomes
The Administration is committed to the continued Research Institute to conduct clinical comparative effec-
strengthening of Americas manufacturing sector. The tiveness research, as authorized by the Affordable Care
Budget continues to support the National Strategic Plan Act.
for Advanced Manufacturing, a blueprint for Federal ef- The Budget also proposes $1.3 billion for medical and
forts in partnership with industry and universities to prosthetic research across the Department of Veterans
develop and commercialize the emerging technologies Affairs (VA). VA supports a robust program of basic and
that will create high-quality manufacturing jobs and clinical research with a focus on ensuring continuous
sustain a renaissance in American manufacturing. The lifecycle care for veterans with an emphasis on Precision
2017 Budget provides $2.0 billion for Federal R&D di- Medicine.
rectly supporting advanced manufacturing at NSF, the
Strengthening Our National and Homeland
Department of Defense (DOD), DOE, DOC, and other
Security through Science and Technology
agencies, consistent with the goals and recommendations
of the Strategic Plan. The Budget funds a national net- Federal R&D investments in security aim to meet the
work of 45 manufacturing innovation institutes that will threats of the future and to develop new innovative se-
curity capabilities. DOD R&D investments in the 2017 high-confidence systems, high-end computing systems,
Budget focus on areas deemed to have the greatest im- human computer interaction, IT workforce development,
pact on our nation and future military requirements. To large-scale networking, software design, wireless spec-
this end, the 2017 Budget provides $72.8 billion for DOD trum sharing, and other research relevant to advanced
R&D, an increase of 2.8 percent from the 2016 enacted information technologies.
level. The 2017 Budget proposes $12.5 billion for DODs The 2017 Budget includes a focus on research to ad-
Science & Technology program, a subset of DOD R&D dress the challenges and opportunities afforded by big
which consists of basic research, applied research and ad- data while providing appropriate privacy protections
vanced technology development. for personal data. The Budget continues to prioritize cy-
The 2017 Budget also maintains DODs critical role in bersecurity research to develop novel approaches and
fostering breakthrough approaches for promising technol- technologies that can protect U.S. systems from cyberat-
ogies with $3.0 billion for the Defense Advanced Research tacks, consistent with the Federal Cybersecurity Research
Projects Agency (DARPA), which promotes advanced and Development Strategic Plan, to be released concur-
research to create breakthrough technologies for tomor- rently with the Budget.
rows military systems. Investing in DARPAs high-risk
Informing Better Stewardship of
and high-reward science is an Administration priority
the Ocean and the Arctic
and critical to maintaining the technological superiority
of the U.S. military. Sustainable stewardship of the ocean and the Arctic
For DOEs National Nuclear Security Administration, requires strong investments in research and development
the Budget proposes $7.1 billion for investments in R&D in the natural sciences to strengthen the scientific basis
to help effectively manage the Nations nuclear stockpile, for decision-making. The 2017 Budget provides robust
advance naval nuclear propulsion, and achieve our non- R&D funding to support responsible ocean stewardship,
proliferation goals. including observations, modeling, and data accessibility
The Budget supports investments in state-of-the-art needed to support ecosystem-based management, as well
technologies and solutions for Federal, State, and local as to advance understanding and inform responses to cur-
homeland security operators, including $583 million in rent and future climate impacts on oceans, Great Lakes,
funding for the Department of Homeland Security R&D and surrounding communities. The Budget provides $520
programs that protect the Nations people and critical million for NOAAs oceanic and atmospheric research
infrastructure from chemical, biological, radiological, nu- programs and $63 million for NSFs arctic research pro-
clear, and cyber-attacks as well as other hazards. grams. The 2017 Budget also advances the objectives of
Innovating in Information Technology the Interagency Arctic Research Policy Committee Arctic
and High-Performance Computing Research Plan and the newly-created Arctic Executive
Steering Committee, which coordinates efforts on Arctic
High-performance computing (HPC) systems, through science, resource management, conservation, indigenous
a combination of processing capability and storage capac- peoples, and international engagement through the 2015-
ity, can solve computational problems that are beyond 17 U.S. Chairmanship of the eight-nation Arctic Council.
the capability of small- to medium-scale systems. They
are vital to the Nations interests in science, medicine,
Growing Agriculture Research
engineering, technology, and industry. In July 2015,
for Future Generations
the Administration launched the National Strategic
Computing Initiative (NSCI) as a whole-of-government Agriculture has a significant impact on the economy
effort to create a cohesive, multi-agency strategic vision and well-being of the United States. The Budget recog-
and Federal investment strategy in HPC. This strategy nizes the importance of science and technology to meet
will be executed in collaboration with industry and aca- the challenges and opportunities in agriculture, and pro-
demia, maximizing the benefits of HPC for the United vides significant investment increases, through a mix of
States. The NSCI will spur the creation and deployment discretionary, enacted mandatory, and new mandatory
of computing technology at the leading edge, helping to funding. There are three major agricultural R&D pro-
advance Administration priorities for economic compe- grams. They are (1) competitive research grants through
tiveness, scientific discovery, and national security. The the Department of Agricultures flagship Agriculture and
2017 Budget supports NSCI investments through many Food Research Initiative, which are funded at the autho-
agencies, with major investments within DOE ($285 mil- rized level of $700 million, double the funding provided
lion) and NSF ($33 million). in FY 2016; (2) the Departments in-house research pro-
Federal IT R&D, which launched and fueled the digital grams, which are funded at $1.16 billion, and include
revolution, continues to drive innovation in scientific re- increases for key initiatives: anti-microbial resistance,
search, national security, communication, and commerce climate change, foreign animal diseases and Highly
to sustain U.S. technological leadership. The multi-agency Pathogenic Avian Influenza, and water resources to sup-
Networking and Information Technology Research and port agricultural production; and (3) key infrastructure
Development (NITRD) Program provides strategic plan- investments , which are funded at $95 million, which
ning for and coordination of agency research efforts in would continue the Departments program to prepare its
big data, cyber-physical systems, cybersecurity, health IT facilities for the 21st Century.
Expanding Our Capabilities in Space spur economic growth and other societal benefits. The
Federal R&D enterprise will continue to support fun-
The Budget provides $19.0 billion for NASA to sup- damental research that is motivated primarily by our
port the Presidents vision for innovation and scientific interest in expanding the frontiers of human knowledge,
discovery on Earth and beyond, through a mix of discre- and will continue to diffuse this knowledge through open
tionary and new mandatory funding proposals. NASA data and publications. At the same time, there remains
drives innovation in the aerospace sector and enhances significant potential to increase the publics return on
the Nations capabilities in space in areas such as commu- this investment through effective partnerships with aca-
nications, space-based observations, space transportation, demia, industry, and regional innovation networks. For
and scientific discovery.The Budget provides $1.2 billion example, NASA has partnered with companies to make
for the Commercial Crew program, continuing the de- experimentation on the International Space Station more
velopment of safe and affordable systems to transport accessible to researchers an approach that has played
astronauts to orbit and working to eliminate our sole re- a significant role in jump-starting a new industry in very
liance on Russia for crew transport to the International small satellites. In the case of the Department of Energy,
Space Station. The Budget also provides $827 million industry partnerships can help broadly develop and de-
for Space Technology and $324 million for Advanced ploy important next generation energy technologies and
Exploration Systems to develop technologies that will re- high-performance computers.
duce the cost and increase the capabilities of NASA, other The Budget reflects the Administrations commitment
government, and commercial space activities. Within this to accelerating the transfer of the results of Federally
funding the Budget supports early-stage public-private funded research to the commercial marketplace by pri-
partnerships leading to the development of habitation oritizing funding for Lab-to-Market programs at the
modules that will play an important part in human space National Institute of Standards and Technology (NIST)
exploration and may have spinoff benefits to the commer- ($8 million) and for the National Science Foundations
cial space economy closer to Earth. (NSF) Innovation Corps (I-Corps) program ($30 million).
Nanotechnology R&D Both of these efforts are developing tools and best prac-
tices to commercialize the results of Federally-funded
Working cooperatively through the National R&D. For example, the I-Corps program at NSF has 10
Nanotechnology Initiative (NNI), Federal agencies contin- agreements with other Federal agencies that are us-
ue to support R&D aimed at creating a future in which the ing its experiential entrepreneurial curriculum to train
ability to understand and control matter at the nanoscale research scientists, graduate students, and other en-
leads to a revolution in technology and industry that ben- trepreneurs in how to identify and mature discoveries
efits society. Agencies participating in the NNI conduct ripe for commercialization. In addition, I-Corps has a
R&D on materials, devices, and systems that exploit the growing number of partnerships with non-Federal enti-
unique physical, chemical, and biological properties that ties such as the State of Ohio. The Budget also provides
emerge in materials at the nanoscale (approximately 1 $50 million in mandatory funding for a new competitive
to 100 nanometers). Participating agencies continue to grant program, building on the success of prior Economic
support fundamental research for nanotechnology-based Development Administration led activities, to incentiv-
innovation, technology transfer, and nanomanufacturing ize partnerships between Federal Labs, academia and
through individual investigator awards; multidisciplinary regional economic development organizations enabling
centers of excellence; education and training; and in- the transfer of knowledge and technologies from Labs to
frastructure and standards development, including private industry for commercialization. In addition, the
openly-accessible user facilities and networks. NNI agen- Department of Energy (DOE) is making the technologies
cies will also continue their strong support for R&D on the and tools developed by its national labs more available to
environmental, health, and safety aspects of nanotech- small businesses and entrepreneurs through innovative
nology needed to ensure responsible development. NNI approaches designed to unlock new business or produc-
agencies and the National Nanotechnology Coordination tive opportunities. (For additional details on this Cross
Office (NNCO) will work with the business community, Agency Priority goal see performance.gov)
state and local governments, and the private sector to ex-
Preparing Our Students with Skills
plore new approaches and leverage existing programs to
through Science, Technology, Engineering,
foster broader commercialization of nanotechnology-en-
and Mathematics (STEM) Education
abled products. In addition, NNI agencies and the NNCO
will continue to expand stakeholder engagement to ad- Our Nations competitiveness depends on our ability to
vance nanotechnology-based STEM education, training, improve and expand STEM learning in the United States.
and outreach. Budget information is available at www. Over the past several years, the Administration has made
nano.gov. considerable progress towards creating a more cohesive
Bridging the Barriers from Lab-to-Market framework for delivering STEM education. Guided by
the Federal STEM Education Five-Year Strategic Plan,
After the work of research and technology development agencies are increasing coordination, strengthening
is completed, additional work is necessary to translate partnerships, and identifying ways to leverage existing
the results into new capabilities and products that can resources to improve the reach of agency assets. The
2017 Budget builds on these efforts, ensuring that invest- acted, including $100 million for a new Computer Science
ments are aligned with the Strategic Plan and support for All program within the Department of Education; as
effective programs with strategic approaches to evalua- well as $332 million for graduate fellowships, $59 million
tion. The Budget invests $3.0 billion in STEM education for graduate traineeships, and $109 million for improving
programs, maintaining the level supported in 2016 en- undergraduate education at NSF.
II. FEDERAL R&D DATA

R&D is defined as the collection of efforts directed to- Research and development equipment includes ac-
ward gaining greater knowledge or understanding and quisition or design and production of movable equipment,
applying knowledge toward the production of useful ma- such as spectrometers, research satellites, detectors, and
terials, devices, and methods. R&D investments can be other instruments. At a minimum, this category includes
characterized as basic research, applied research, devel- programs devoted to the purchase or construction of R&D
opment, R&D equipment, or R&D facilities. The Office of equipment.
Management and Budget has used those or similar cat- Research and development facilities include the
egories in its collection of R&D data since 1949. acquisition, design, and construction of, or major repairs
or alterations to, all physical facilities for use in R&D
Background on Federal R&D Funding activities. Facilities include land, buildings, and fixed
capital equipment, regardless of whether the facilities
More than 20 Federal agencies fund R&D in the United are to be used by the Government or by a private organi-
States. The character of the R&D that these agencies fund zation, and regardless of where title to the property may
depends on the mission of each agency and on the role rest. This category includes such fixed facilities as reac-
of R&D in accomplishing it. Table 191 shows agency- tors, wind tunnels, and particle accelerators.
by-agency spending on basic research, applied research, While the definitions for R&D activities have been
development, and R&D equipment and facilities. stable for decades, interpretations of which programs
Basic research is systematic study directed toward are conducting R&D can vary with time. During the past
a fuller knowledge or understanding of the fundamental year, DOE has been working to improve the consistency
aspects of phenomena and of observable facts without of their reporting of administrative activities that sup-
specific applications towards processes or products in port R&D, consistent with the international standards.
mind. Basic research, however, may include activities Because of these efforts, the DOE R&D amounts have
with broad applications in mind. increased in comparison to previous years. This effort is
Applied research is systematic study to gain knowl- an example of more comprehensive Government-wide ef-
edge or understanding necessary to determine the means forts currently underway to increase the accuracy and
by which a recognized and specific need may be met. consistency of the R&D budget. The Federal executive
Development is systematic application of knowledge agencies are working collaboratively, under a NSTC
or understanding, directed toward the production of use- working group, to identify best practices and standards
ful materials, devices, and systems or methods, including for the most accurate classification and reporting of
design, development, and improvement of prototypes and R&D activities.
new processes to meet specific requirements.
Table 191. FEDERAL RESEARCH AND DEVELOPMENT SPENDING

(Mandatory and discretionary budget authority1, dollar amounts in millions)
Dollar Percent
Change: Change:
2015 2016 2017 2016 to 2016 to
Actual Enacted Proposed 2017 2017
By Agency2
Defense 65,547 70,872 72,825 1,953 3%
Health and Human Services 30,453 31,942 32,714 772 2%
Energy3 14,354 14,405 17,160 2,755 19%
NASA 12,145 12,410 12,043 367 3%
National Science Foundation 5,944 6,117 6,529 412 7%
Agriculture 2,452 2,674 2,923 249 9%
Commerce 1,524 1,913 1,888 25 1%
Veterans Affairs 1,178 1,220 1,252 32 3%
Interior 863 981 1,082 101 10%
Transportation 885 924 1,065 141 15%
Homeland Security 919 579 585 6 1%
Environmental Protection Agency 523 516 530 14 3%
Patient-Centered Outcomes Research Trust Fund 396 472 530 58 12%
U.S. Agency for International Development 250 275 287 12 4%
Smithsonian Institution 246 250 270 20 8%
Education 279 242 248 6 2%
Other 320 346 402 56 16%
TOTAL 138,278 146,138 152,333 6,195 4%
Basic Research
Defense 2,225 2,320 2,115 205 9%
Energy 4,477 4,609 4,932 323 7%
NASA 3,198 3,562 3,537 25 1%
National Science Foundation 4,878 4,941 5,257 316 6%
Agriculture 993 1,028 1,162 134 13%
Commerce 214 223 239 16 7%
Veterans Affairs 484 505 542 37 7%
Interior 53 54 63 9 17%
Transportation ......... ......... ......... ......... .........
Environmental Protection Agency ......... ......... ......... ......... .........
Patient-Centered Outcomes Research Trust Fund ......... ......... ......... ......... .........
Education 7 18 16 2 11%
Other 18 18 18 0 0%
SUBTOTAL 31,854 33,510 34,485 975 3%
Applied Research
Defense 4,653 5,056 4,884 172 3%
Energy 5,624 5,346 7,108 1,762 33%
NASA 2,402 2,757 3,012 255 9%
National Science Foundation 691 752 813 61 8%
Agriculture 1,114 1,113 1,357 244 22%
Commerce 891 942 1,015 73 8%
Interior 685 790 886 96 12%
Transportation 688 612 758 146 24%
Patient-Centered Outcomes Research Trust Fund 396 472 530 58 12%
Table 191. FEDERAL RESEARCH AND DEVELOPMENT SPENDINGContinued

(Mandatory and discretionary budget authority1, dollar amounts in millions)
Dollar Percent
Change: Change:
2015 2016 2017 2016 to 2016 to
Actual Enacted Proposed 2017 2017
Smithsonian Institution ......... ......... ......... ......... .........
Education 159 135 132 3 2%
Other 207 236 269 33 14%
SUBTOTAL 34,178 35,439 38,361 2,922 8%
Development
Defense 58,553 63,463 65,631 2,168 3%
Health and Human Services 26 30 30 0 0%
Energy 3,263 3,338 3,982 644 19%
NASA 6,481 5,954 5,357 597 10%
National Science Foundation ......... ......... ......... ......... .........
Agriculture 177 176 179 3 2%
Commerce 188 348 303 45 13%
Interior 89 135 131 4 3%
Smithsonian Institution ......... ......... ......... ......... .........
Education 113 89 100 11 12%
Other 102 94 115 21 22%
SUBTOTAL 69,719 74,466 76,704 2,238 3%
Facilities and Equipment
Defense 116 33 195 162 491%
Health and Human Services 173 180 223 43 24%
Energy 990 1,112 1,138 26 2%
NASA 64 137 137 0 0%
National Science Foundation 375 424 459 35 8%
Agriculture 168 357 225 132 37%
Commerce 231 400 331 69 17%
Veterans Affairs ......... ......... ......... ......... .........
Interior 36 2 2 0 0%
Homeland Security 315 8 0 8 1
U.S. Agency for International Development ......... ......... ......... ......... .........
Education ......... ......... ......... ......... .........
Other 7 2 0 2 100%
SUBTOTAL 2,527 2,723 2,783 60 2%
1 This table shows funding levels for Departments or Independent agencies with more than $200 million in R&D activities in 2017.
2 Some numbers in the chapter text include non-R&D activities and thus will be different from the R&D numbers in this table.
3 In this Budget, Department of Energy began reporting additional administrative expenses, consistent with international and government-wide standards. This led to an increase in
reporting of R&D investments on the order of $2 to $3 billion a year.

20. CREDIT AND INSURANCE
ket imperfections that may prevent the private mar-

The Federal Government offers direct loans and loan
ket from efficiently providing credit and insurance.
guarantees to support a wide range of activities includ-
ing home ownership, education, small business, farming, The second section discusses individual credit pro-
energy efficiency, infrastructure investment, and exports. grams and the GSEs. Credit programs are broadly
Also, Government-sponsored enterprises (GSEs) operate classified into five categories: housing, education,
under Federal charters for the purpose of enhancing cred- small business and farming, energy and infrastruc-
it availability for targeted sectors. Through its insurance ture, and international lending.
programs, the Federal Government insures deposits at
depository institutions, guarantees private defined-bene- The third section reviews Federal deposit insurance,
fit pensions, and insures against some other risks such as pension guarantees, disaster insurance, and insur-
flood and terrorism. ance against terrorism and other security-related
This chapter discusses the roles of these diverse risks.
programs:
The first section emphasizes the roles of Federal
credit and insurance programs in addressing mar-
I. THE FEDERAL ROLE
Credit and insurance markets sometimes fail to func- together, instead of charging a high interest rate. In this
tion smoothly due to market imperfections. Relevant situation, many creditworthy borrowers may fail to ob-
market imperfections include information failures, tain credit even at a high interest rate. Ways to deal with
monitoring problems, limited ability to secure resources, this problem in the private sector include equity financing
insufficient competition, externalities, and financial mar- and pledging collateral. Federal credit programs play a
ket instability. Federal credit and insurance programs crucial role for those populations that are vulnerable to
may improve economic efficiency if they effectively fill this information failure and do not have effective means
the gaps created by market imperfections. Addressing to deal with it. Start-up businesses lacking a credit histo-
market imperfections, however, is a subtle task. To be ry, for example, are vulnerable to the information failure,
effective, a credit or insurance program should be care- but most of them are unable to raise equity publicly and
fully designed to reduce inefficiencies in the targeted area do not have sufficient collateral. Another example is stu-
without disturbing efficiently functioning areas. In ad- dents who have little income, little credit experience, and
dition to correcting market failures, Federal credit and no collateral to pledge. Without Federal credit assistance,
insurance programs may provide subsidies to serve other many in these groups may be unable to pursue their en-
policy purposes, such as reducing inequalities and extend- trepreneurial or academic goals. In addition, a moderate
ing opportunities to disadvantaged regions or segments subsidy provided by the Government can alleviate ad-
of the population. The effectiveness of credit assistance verse selection by attracting more low-risk borrowers,
in serving these purposes should be carefully compared although an excessive subsidy can cause economic inef-
with that of more direct policy tools, such as grants and ficiency by attracting many borrowers with unworthy or
tax credits. highly risky projects.
Information Failures. When lenders have insuf- Monitoring Needs. Monitoring is a critical part of
ficient information about borrowers, they may fail to credit and insurance businesses. Once the price (the in-
evaluate the creditworthiness of borrowers accurately. As terest rate or the insurance premium) is set, borrowers
a result, some creditworthy borrowers may fail to obtain and policyholders may have incentives to engage in risky
credit at a reasonable interest rate, while some high-risk activities. Insured banks, for example, might take more
borrowers obtain credit at an attractive interest rate. risk to earn a higher return. Although private lenders
The problem becomes more serious when borrowers are and insurers can deter risk-taking through covenants,
much better informed about their own creditworthiness re-pricing, and cancellation, Government regulation and
than lenders (asymmetric information). With asymmetric supervision can be more effective in some cases, especially
information, raising the interest rate can disproportion- where covering a large portion of the target population is
ately draw high-risk borrowers who care less about the important. For a complex business like banking, close ex-
interest rate (adverse selection). Thus, lenders may limit amination may be necessary to deter risk-taking. Without
the amount of credit to a group of borrowers with highly legal authority, close examination may be impractical.
uncertain creditworthiness, or even exclude the group all When it is difficult to prevent risk-taking, private insur-
307
ers may turn down many applicants and often cancel Externalities. Decisions at the individual level are
policies, which is socially undesirable in some cases, such not socially optimal when individuals do not capture the
as deposit insurance and pension guarantees. It is im- full benefit (positive externalities) or bear the full cost
portant to protect bank deposits to prevent disruption to (negative externalities) of their activities. Education, for
the financial market. Without pension guarantees, many example, generates positive externalities because the
retirees could experience financial hardships and strain general public benefits from the high productivity and
other social safety nets. good citizenship of a well-educated person. Pollution, in
Limited Ability to Secure Resources. The ability of contrast, is a negative externality, from which other peo-
private entities to absorb losses is often more limited than ple suffer. Without Government intervention, people may
that of the Federal Government. For some events poten- engage less than the socially optimal level in activities
tially involving a very large loss concentrated in a short that generate positive externalities and more in activities
time period, therefore, Government insurance can be more that generate negative externalities.
reliable. Such events include massive bank failures and Financial Market Instability. Another rationale
some natural and man-made disasters that can threaten for Federal intervention is to prevent instability in the
the solvency of private insurers. In addition, some lenders financial market. Without deposit insurance, for example,
may have limited funding sources. Small local banks, for the financial market would be much less stable. When an
example, may have to rely largely on local deposits. economic shock impairs the financial structure of many
Insufficient Competition. Competition can be insuf- banks, depositors may find it difficult to distinguish be-
ficient in some markets because of barriers to entry or tween solvent banks and insolvent ones. In this situation,
economies of scale. Insufficient competition may result failures of some banks might prompt depositors to with-
in unduly high prices of credit and insurance in those draw deposits from all banks (bank runs), making bank
markets. failures contagious. Deposit insurance is critical in pre-
venting bank runs, which harm the entire economy.
II. CREDIT IN VARIOUS SECTORS
Housing Credit Programs and GSEs hard-to-understand features such as low teaser rates
offered for periods as short as the first two years of the
Through housing credit programs, the Federal mortgage, high loan-to-value ratios (with some mortgages
Government promotes homeownership among various exceeding the value of the house), and interest-only loans
target groups, including low- and moderate-income peo- with balloon payments that require full payoff at a set
ple, veterans, and rural residents. Recently, the target future date. The Alt-A mortgage made credit easily avail-
market expanded dramatically due to the financial crisis. able by waiving documentation of income or assets. This
The consequences of inflated house prices and loose competition eroded the market share of FHAs single-fam-
mortgage underwriting during the housing bubble that ily loans, reducing it from 9 percent in 2000 to less than 2
peaked in 2007 created perilous conditions for many percent in 2005.
American homeowners. Millions of families were fore- Starting at the end of 2007, the availability of FHA and
closed upon and millions more found themselves owing Government National Mortgage Association (which sup-
more on their homes than their homes were worth. Private ports the secondary market for federally-insured housing
capital all but disappeared from the market. Without the loans by guaranteeing securities backed by mortgages
Federal support provided to the housing market since guaranteed by FHA, VA, and USDA) credit guarantees
2008, the situation would have been more problematic. has been an important factor countering the tightening of
Federal Housing Administration private-sector credit. The annual volume of FHAs single-
family mortgages soared from $52 billion in 2006 to $330
The Federal Housing Administration (FHA) guaran- billion in 2009.
tees mortgage loans to provide access to homeownership FHAs presence has supported the home purchase mar-
for people who may have difficulty obtaining a conven- ket and enabled many existing homeowners to re-finance
tional mortgage. FHA has been a primary facilitator of at todays lower rates. If not for such re-financing options,
mortgage credit for first-time and minority buyers, a many homeowners would remain stuck in high-interest
pioneer of products such as the 30-year self-amortizing mortgages and face higher risk of foreclosure given the
mortgage, and a vehicle to enhance credit for many mod- economic challenges resulting from the Great Recession
erate and low-income households. and decreased house prices.
The return of conventional financing to the mortgage
FHA and the Mortgage Market
marketwith appropriate safeguards for consumers and
In the early 2000s, FHAs market presence diminished investors including prudent underwriting and disclosure
greatly as low interest rates increased the affordability of of riskwill broaden both the options available to bor-
mortgage financing and more borrowers used emerging rowers and the sources of capital to fund those options.
non-prime mortgage products, including subprime and The Administration supports a greater role for non-feder-
Alt-A mortgages. Many of these products had risky and ally assisted mortgage credit, while recognizing that FHA
20. CREDIT AND INSURANCE 309
will continue to play an important role in the mortgage FHA accounts contain sufficient funds to pay anticipated
market going forward. claims and unlike private lenders, the guarantee on FHA
Although loan volume declined since its 2009 peak, and other Federal loans is backed by the full faith and
FHA enjoyed strong demand in 2015 as mortgage rates credit of the Federal Government and is not dependent on
remained low and the improving economy brought new capital reserves to honor its commitments.
home buyers into the market. Also contributing was a re- In 2009, the FHA capital reserve was broadened to
duction in FHA premiums, as discussed in detail below. include Home Equity Conversion Mortgages (HECMs)
FHAs new origination loan volume in 2015 was $213 bil- in addition to single-family purchase and re-finance (for-
lion and FHAs market share of home purchase financing ward) mortgages. This change has increased the volatility
was 21 percent. For 2017, the Budget projects FHA vol- of FHAs capital reserves. The financial performance of
ume will be $204 billion. HECMs is highly sensitive to changes in house prices and
interest rates. While the trend in capital reserves of for-
FHAs Budget Costs
ward mortgages has been consistently upward over the
FHAs budget estimates can be volatile and prone to last three years, HECM capital reserves experienced a
forecast error because default claim rates are sensitive to downward spike in 2014 followed by a large upward swing
a variety of dynamics. FHA insurance premium revenues in 2015. For 2015, the capital reserve ratio was 6.4 per-
are spread thinly but universally over pools of policy- cent for HECMs and 1.6 percent for forward mortgages.
holders. Mortgage insurance costs for FHA, however, are FHA increased insurance premiums to bolster its cap-
concentrated in only those borrowers who default and ital resources five times starting in 2008. For a typical
whose lender files a claim, with the average per claim cost borrower, the cumulative increases were 0.25 percentage
being much larger than the average premium income. points in the upfront premium and 0.85 percentage points
Therefore, if claims change by even a small fraction of in annual premiums. Given the improvement in FHAs fi-
borrowers (e.g., one percentage point), net FHA insurance nancial position, it makes sense to partially reverse these
costs will move by a multiple of that change. For other premium increases to promote access to housing credit.
forms of insurance, such as life and health, these changes A 0.50 percentage point reduction of annual premiums,
tend to gradually occur over time, allowing actuaries to from 1.35 percent to .85 percent, was rolled out in January
anticipate the effects and modify risk and pricing models 2015. Even with this reduction, FHA will collect premiums
accordingly. The history of FHA, however, has been spot- on new mortgages that are well above the estimated costs
ted with rapid, unanticipated changes in claim costs and of guaranteeing those mortgages against default. As a re-
recoveries. FHA is vulnerable to Black Swans, outlier sult, FHA will stay on a strong trajectory with its capital
events that are difficult to predict and have deep effect. reserve ratio. This reduction also provides pricing to new
For FHA, these include the collapse of house prices after FHA borrowers more in line with the stronger underwrit-
market bubbles burst and the effects of lending practices ing requirements they have to meet in order to qualify
with very high claim rates, such as the now illegal seller- and will make homeownership more likely for many bor-
financed down-payment mortgage. rowers, including those who have sufficient credit quality
One of the major benefits of an FHA-insured mortgage but would lack the income to support mortgage payments
is that it provides a homeownership option for borrowers at the higher premium levels.
who can make only a modest down-payment, but show In addition to the single-family mortgage insurance
that they are creditworthy and have sufficient income to provided through the MMI program, FHAs General
afford the house they want to buy. In 2015, over 72 per- Insurance and Special Risk Insurance (GISRI) loan
cent of new FHA loans were financed with less than five programs continue to facilitate the construction, rehabili-
percent down. The disadvantage to low down-payment tation, and refinancing of multifamily housing, hospitals
mortgages is that they have little in the way of an eq- and other health care facilities. GISRIs new origination
uity cushion should house prices decline or events such as loan volume in 2015 was $13.4 billion and the Budget
income loss or unexpected medical expenses make it dif- projects $13.8 billion for 2017, including $10.6 billion in
ficult for households to remain current on their mortgage multifamily loans and $3.1 billion in healthcare loans.
payment. When these occur, the net sales proceeds from In 2016, FHA will reduce upfront and annual premiums
home sales may not be sufficient to support exit strategies for affordable and energy efficient rental housing. For
that allow borrowers to completely pay off the debt and loans insured under FHAs three signature new construc-
relocate to more affordable housing. tion/substantial rehabilitation and refinance programs,
According to its annual actuarial analysis, in 2015 the annual premium will be reduced by a range of 10 to
FHA achieved its statutory minimum capital reserve 40 basis points. These targeted reductions will: (1) sup-
ratio of 2 percent for the first time since 2008. As the port the production and preservation of affordable rental
housing market has recovered and FHA has improved its housing; (2) incent energy efficiency improvements in
risk management, the actuarial review found that FHAs both affordable and market rate housing; and (3) improve
capital reserve increased by $41 billion over the last three housing choice for low-income families by tying certain
years. Even a low capital ratio as existed from 2009 to premium reductions to landlord acceptance of Federal
2014 does not threaten FHAs operations, however, ei- rental vouchers.
ther for its existing portfolio or for new books of business.
VA Housing Program increased market demand for mortgage credit in rural

areas, a possibility for which this funding level is accom-
The Department of Veterans Affairs (VA) assists vet- modative. Typical program funding utilization will be
erans, members of the Selected Reserve, and active duty within 80 percent of the funding level.
personnel in purchasing homes in recognition of their This funding level includes the continuation of an an-
service to the Nation. The housing program effectively nual and up-front fee structure. These fees reduce the
substitutes the Federal guarantee for the borrowers overall subsidy cost of the loans without adding signifi-
down payment, making the lending terms more favorable cant burden to the borrowers. The Budget also proposes
than loans without a VA guarantee. VA does not guaran- to make USDAs guaranteed home loan program a del-
tee the entire mortgage loan to veterans, but provides a egated underwriting program, allowing approved lenders
100 percent guarantee on the first 25 percent of losses with a strong track record with the program to make the
upon default. The number of loans that VA guaranteed loans on behalf of the government and no longer requir-
reached a new record level in 2015, as the tightened credit ing USDA to sign-off in conjunction with each loan. This
markets continued to make the VA housing program more change will make RHS more efficient and allow the single
attractive to eligible homebuyers. VA provided 264,057 family housing staff to refocus on other important needs.
zero down payment loans. The continued historically For USDAs single family housing direct loan program,
low interest rate environment of 2015 allowed 309,027 the 2017 Budget provides a loan level of $900 million,
Veteran borrowers to lower interest rates on their home which is expected to allow approximately 6,500 low to
mortgages through refinancing. VA provided over $38 bil- very-low income rural residents an opportunity to realize
lion in guarantees to assist 631,142 borrowers in 2015, the dream of home-ownership.
of which 238,013 were fee-exempt loans to Veterans with For USDAs multifamily housing portfolio, the Budget
service-connected disabilities. This followed $25 billion focuses primarily on portfolio management. Management
and 438,398 borrowers in 2014. includes the retention of its existing portfolio of afford-
VA, in cooperation with VA-guaranteed loan servicers, able rental housing as well as the rehabilitation of that
also assists borrowers through home retention options housing to continue to provide safe and decent housing for
and alternatives to foreclosure. VA intervenes when need- residents. USDA is working with OMB and other Federal
ed to help veterans and service members avoid foreclosure housing partners, as well as program participants, to
through loan modifications, special forbearances, repay- develop solutions that will continue to provide rental sub-
ment plans, and acquired loans; as well as assistance to sidies for the low and very-low income residents in those
complete compromise sales or deeds-in-lieu of foreclosure. properties with maturing mortgages at the lowest cost to
These joint efforts helped resolve over 83 percent of de- the government.The Budget fully funds this rehabilita-
faulted VA-guaranteed loans in 2015. tion effort by providing $66.5 million for the multifamily
Rural Housing Service housing revitalization activities, which include loan mod-
ifications, grants, zero percent loans, and soft second
The Rural Housing Service (RHS) at the U.S. loans as well as some funding for traditional multifam-
Department of Agriculture (USDA) offers direct and guar- ily housing direct loans to allow USDA to better address
anteed loans to help very-low- to moderate-income rural its inventory property. These activities allow borrowers to
residents buy and maintain adequate, affordable housing. restructure their debt so that they can effectively reha-
RHS housing loans and loan guarantees differ from other bilitate properties within the portfolio in order for them
Federal housing loan programs in that they are means- to continue to supply decent, safe, affordable rental hous-
tested, making them more accessible to low-income, rural ing to the low- and very-low-income population in rural
residents. For the direct loan program, approximately 40 America. The Budget also proposes to codify these activi-
percent of borrowers earn less than 50 percent of their ties into permanent law.
areas median income; the remainder earn between 50 In addition, rental assistance grants, which supplement
percent and 80 percent (maximum for the program) of tenant rental payments to the property owners and are vi-
area median income. The single family housing guar- tal to the proper underwriting of the multifamily housing
anteed loan program is designed to provide home loan direct loan portfolio, are funded at $1.405 billion, which is
guarantees for moderate-income rural residents whose sufficient to renew outstanding agreements. The Budget
incomes are between 80 percent and 115 percent (maxi- also provides $230 million in guaranteed multifamily
mum for the program) of area median income. housing loans and $15.4 million in budget authority for
The 2017 Budget continues USDA single family hous- the Farm Labor Housing grants and loans. Collectively,
ing assistance programs.Within its $24 billion guarantee the 2017 Budget request in the rural development mul-
loan level, the Budget expects RHS to potentially provide tifamily housing portfolio reflects the Administrations
over $3.0 billion in loan guarantees for low-income rural support for the poorest rural tenant population base.
borrowers, which could provide 20,800 new homeown-
Government-Sponsored Enterprises
ership opportunities to that income group. Overall, the
in the Housing Market
program could potentially provide approximately 160,000
new homeownership or refinancing opportunities to low- The Federal National Mortgage Association, or Fannie
to moderate-income rural residents in 2017. The Budget Mae, created in 1938, and the Federal Home Loan
assumes this level will only be reached in the event of Mortgage Corporation, or Freddie Mac, created in 1970,
were established to support the stability and liquidity of a 10 percent each year. To accelerate the wind-down
secondary market for residential mortgage loans. Fannie of the GSEs retained mortgage portfolios, Treasury
Maes and Freddie Macs public missions were later broad- revised the PSPA terms in August 2012, setting
ened to promote affordable housing. the effective portfolio limitation at $1.1 trillion as
Growing stress and losses in the mortgage markets in of December 31, 2013, and accelerating the reduc-
2007 and 2008 seriously eroded the capital of Fannie Mae tion in this limitation to 15 percent each year until
and Freddie Mac, and responsive legislation enacted in December 31, 2018, when the combined limitation
July 2008 strengthened regulation of the housing GSEs will be fixed at $500 billion ($250 billion for each
and provided the Treasury Department with authorities company).
to purchase GSE securities. In September 2008, reacting
to growing GSE losses and uncertainty that threatened to As of November 30, 2015, the combined debt and guar-
paralyze the mortgage markets, the GSEs independent anteed MBS of Fannie Mae and Freddie Mac totaled $5.1
regulator, the Federal Housing Finance Agency (FHFA), trillion.
placed Fannie Mae and Freddie Mac under Federal con- The mission of the FHLB System is broadly defined
servatorship, and Treasury began to exercise its purchase as promoting housing finance, and the System also has
authorities to provide support to the GSEs. The Budget specific requirements to support affordable housing. Its
continues to reflect the GSEs as non-budgetary entities in principal business remains lending (secured by mortgag-
keeping with their temporary status in conservatorship. es and financed by System debt issuances) to regulated
However, all of the current Federal assistance being pro- depository institutions and insurance companies engaged
vided to Fannie Mae and Freddie Mac, including capital in residential mortgage finance. Historically, investors in
provided by Treasury through the Senior Preferred Stock GSE debt have included thousands of banks, institutional
Purchase Agreements (PSPA), is shown on-budget, and investors such as insurance companies, pension funds,
discussed below. foreign governments and millions of individuals through
The Federal Home Loan Bank (FHLB) System, creat- mutual funds and 401k investments.
ed in 1932, is comprised of eleven individual banks with Together these three GSEs currently are involved, in
shared liabilities. Together they lend money to financial one form or another, with approximately half of the $11
institutionsmainly banks and thriftsthat are in- trillion residential mortgages outstanding in the U.S.
volved in mortgage financing to varying degrees, and they today.
also finance some mortgages using their own funds.
Regulatory Reform
Mission
The 2008 Housing and Economic Recovery Act (HERA)
The mission of the housing GSEs is to support certain reformed and strengthened the GSEs safety and sound-
aspects of the U.S. mortgage market. Fannie Mae and ness regulator by creating the Federal Housing Finance
Freddie Macs mission is to provide liquidity and stability Agency (FHFA), a new independent regulator for Fannie
to the secondary mortgage market and to promote afford- Mae, Freddie Mac, and the Federal Home Loan Banks.
able housing. Currently, they engage in two major lines of The FHFA authorities consolidate and expand upon the
business. regulatory and supervisory roles of what were previous-
ly three distinct regulatory bodies: the Federal Housing
1. Credit Guarantee BusinessFannie Mae and Finance Board as the FHLBs overseer; the Office of
Freddie Mac guarantee the timely payment of Federal Housing Enterprise Oversight as the safety and
principal and interest on mortgage-backed securi- soundness regulator of the other GSEs; and HUD as
ties (MBS). They create MBS by pooling mortgages their public mission overseer. FHFA was given substan-
acquired through either purchase from or swap ar- tial authority and discretion to influence the size and
rangements with mortgage originators. Over time composition of Fannie Mae and Freddie Mac investment
these MBS held by the public have averaged nearly portfolios through the establishment of housing goals,
40 percent of the U.S. mortgage market, and as of monitoring GSE compliance with those goals, and capital
November 30, 2015, they totaled $4.3 trillion. requirements.
FHFA is required to issue housing goals, such as for
2. Mortgage Investment BusinessFannie Mae and purchases of single-family mortgages provided to low-
Freddie Mac manage retained mortgage portfolios income families, for each of the regulated enterprises,
composed of their own MBS, MBS issued by others, including the FHLBs, with respect to single family and
and individual mortgages. The GSEs finance the multi-family mortgages and has the authority to require
purchase of these portfolio assets through debt is- a corrective housing plan if an enterprise does not meet
sued in the credit markets. As of November 30, 2015, its goals and statutory reporting requirements, and in
these retained mortgages, financed largely by GSE some instances impose civil money penalties. The housing
debt, totaled $698 billion. As a term of their PSPA goals for 2012 through 2014, promulgated on November
contracts with Treasury, the combined investment 13, 2012, established revised benchmarks for Fannie Mae
portfolios of Fannie Mae and Freddie Mac were lim- and Freddie Mac, comprising four goals and one subgoal
ited to no more than $1.8 trillion as of December 31, for single-family, and one goal and one subgoal for multi-
2009, and this limitation was directed to decline by family housing. FHFA determined that both Fannie Mae
and Freddie Mac exceeded the 2012 benchmark levels stock in each GSE in order to ensure that each company
on all of the single-family and multifamily goals, while maintains a positive net worth. In exchange for the sub-
in 2013 Fannie Mae fell short on one goal and Freddie stantial funding commitment, the Treasury received $1
Mac fell short on three goals. FHFAs evaluation of the billion in senior preferred stock for each GSE and warrants
GSEs performance in reaching the 2014 goals indicates to purchase up to a 79.9percent share of common stock at
that Fannie Mae achieved all its goals and that Freddie a nominal price. The initial agreements established fund-
Mac fell short on two goals. Freddie Mac will be required ing commitments for up to $100 billion in each of these
to submit a housing plan to address their plans to achieve GSEs. On February 18, 2009, Treasury announced that
those goals. On August 19, 2015, FHFA published a final the funding commitments for these agreements would
rule that establishes new affordable housing goals for be increased to $200billion for each GSE. On December
years 2015-2017, including for the first time a goal for 24, 2009, Treasury announced that the funding commit-
low-income rental units in small multifamily properties. ments in the purchase agreements would be modified to
The expanded authorities of FHFA also include the the greater of $200 billion or $200 billion plus cumulative
ability to place any of the regulated enterprises into net worth deficits experienced during 2010-2012, less any
conservatorship or receivership based on a finding of un- positive net worth remaining as of December 31, 2012.
der-capitalization or a number of other factors. Based on the financial results reported by each company
as of December 31, 2012, the cumulative funding commit-
Conservatorship
ment for Fannie Mae and Freddie Mac was set at $445.5
On September 6, 2008, FHFA placed Fannie Mae and billion. In total, as of December 31, 2015, $187.5 billion
Freddie Mac under Federal conservatorship. This action has been invested in the GSEs, and the initial liquidation
was taken in response to the GSEs declining capital ad- preference of the senior preferred stock held by Treasury
equacy and to support the safety and soundness of the has increased accordingly. The PSPAs also require that
GSEs, given the role they played in the secondary mort- Fannie Mae and Freddie Mac pay quarterly dividends to
gage market and the potential impact of their failure on Treasury. Prior to calendar year 2013, the quarterly divi-
broader financial markets. HERA provides that as con- dend amount was based on an annual rate of 10 percent of
servator FHFA may take any action that is necessary to the liquidation preference of Treasurys senior preferred
put Fannie Mae and Freddie Mac in a sound and solvent stock. Amendments to the PSPAs effected on August 17th,
condition and to preserve and conserve the assets of each 2012, replaced the 10 percent dividend with an amount
firm. As conservator, FHFA has assumed by operation of equivalent to the GSEs positive net worth above a capital
law the powers of the Board and shareholders at Fannie reserve amount. The capital reserve amount for each com-
Mae and Freddie Mac. FHFA has appointed Directors and pany was set at $3.0 billion for calendar year 2013, and
CEOs who are responsible for the day-to-day operations declines by $600 million at the beginning of each calendar
of the two firms. While in conservatorship, FHFA expects year thereafter until it reaches zero. Through December
Fannie Mae and Freddie Mac to continue to fulfill their 31, 2015, the GSEs have paid a total of $241.2 billion in
core statutory purposes, including their support for af- dividends payments to Treasury on the senior preferred
fordable housing discussed above. In its Strategic Plan stock. The Budget estimates additional dividend receipts
for the Conservatorships of Fannie Mae and Freddie Mac, of $151.5 billion from January 1, 2016, through FY 2026.
released in 2014, FHFA outlined three key goals for con- The cumulative budgetary impact of the PSPAs from
servatorship: 1) maintain, in a safe and sound manner, the establishment of the PSPAs through FY 2026 is es-
foreclosure prevention activities and credit availability for timated to be a net return to taxpayers of $205.2 billion.
new and refinanced mortgages to foster liquid, efficient, The Temporary Payroll Tax Cut Continuation Act of 2011
competitive and resilient national housing finance mar- signed into law on December 23, 2011, required that the
kets; 2) reduce taxpayer risk through increasing the role GSEs increase their fees on security guarantees issued
of private capital in the mortgage market; and 3) build a through FY 2021 by an average of at least 0.10 percent-
new single-family securitization infrastructure for use by age points above the average guarantee fee imposed in
the GSEs and adaptable for use by other participants in 2011. Revenues generated by this fee increase are remit-
the secondary market in the future. ted directly to the Treasury for deficit reduction and are
not included in the PSPA amounts. The Budget estimates
Department of Treasury GSE Support resulting deficit reductions from this fee of $40.5 billion
Programs under HERA from FY 2012 through FY 2026.
On September 7, 2008, the U.S. Treasury launched
three programs to provide temporary financial support 2. GSE MBS Purchase Programs
to the GSEs under the temporary authority provided in
HERA to purchase GSE securities. These purchase au- Treasury initiated a temporary program during the
thorities expired on December 31, 2009. financial crisis to purchase MBS issued by Fannie Mae
and Freddie Mac, which carry the GSEs standard guar-
1. PSPAs with Fannie Mae and Freddie Mac antee against default. The purpose of the program was to
promote liquidity in the mortgage market and, thereby,
Treasury entered into agreements with Fannie Mae affordable homeownership by stabilizing the interest rate
and Freddie Mac to make investments in senior preferred spreads between mortgage rates and corresponding rates
on Treasury securities. Treasury purchased $226 bil- fications have been initiated, resulting in more than
lion in MBS from September 2008 to December 31, 2009, 1.6 million homeowners entering permanent mortgage
when the statutory purchase authority that Treasury modifications. HAMP has also encouraged the mortgage
used for this program expired, and sold the last of its MBS industry to adopt similar programs that have helped mil-
holdings in March 2012. The MBS purchase program gen- lions more at no cost to the taxpayer. In December 2015,
erated $11.9 billion in net budgetary savings, calculated the Consolidated Appropriations Act, 2016 set December
on a net present value basis as required by the Federal 31, 2016 as the termination date for new applications
Credit Reform Act. under MHA. However, through HAMP and other TARP
housing programs, the Administration continues to sup-
3. GSE Credit Facility port homeowners who are facing foreclosure, those who
are struggling with increasing interest rates on their
Treasury promulgated the terms of a temporary se- mortgages, and those whose homes are underwater. For
cured credit facility available to Fannie Mae, Freddie more information on HAMP and other TARP housing pro-
Mac, and the Federal Home Loan Banks. The facility was grams, see the Budgetary Effects of the Troubled Asset
intended to serve as an ultimate liquidity backstop to Relief Program chapter of this volume.
the GSEs if necessary. No loans were needed or issued Fannie Mae and Freddie Mac also facilitate under-
through December 31, 2009, when Treasurys HERA pur- water refinancing through HARP. Under the program,
chase authority expired. borrowers with a mortgage that is owned by Fannie Mae
or Freddie Mac and who are current on their loan pay-
4. State Housing Finance Agency Programs ments may be eligible to refinance their mortgage to take
advantage of the current low interest rate environment
In December 2009, Treasury used its purchase au- regardless of their current loan-to-value (LTV) ratio.
thorities under HERA to initiate two programs to support Prior to HARP, the LTV limit of 80percent for conforming
state and local Housing Financing Agencies (HFAs). purchase mortgages without a credit enhancement such
Under the New Issue Bond Program (NIBP), Treasury as private mortgage insurance applied to refinancing of
purchased $15.3 billion in securities of Fannie Mae and mortgages owned by the GSEs. Thus, borrowers whose
Freddie Mac backed by new HFA housing bond issuances. home values had dropped such that their LTVs had in-
As of December 31 2015, NIBP balances had decreased creased above 80 percent could not take advantage of the
to approximately $7.5 billion. The Temporary Credit and refinance opportunity. With the introduction of HARP in
Liquidity Program (TCLP) provided HFAs with credit and 2009, eligible borrowers with LTVs up to 105 percent (lat-
liquidity facilities supporting up to $8.2 billion in existing er extended to 125 percent) could qualify. On October 24,
HFA bonds. The TCLP ended in July 2015 after the last 2011, FHFA announced that HARP would be enhanced
participating HFAs received alternative liquidity facili- by lowering the fees charged by Fannie Mae and Freddie
ties from private sector banks. Mac on these refinancings, streamlining the application
process, and removing the previous LTV cap of 125 per-
cent. In May of 2015, FHFA announced that it would
Recent GSE Role in Administration Initiatives
extend HARP through December 31, 2016. From the in-
to Relieve the Foreclosure Crisis and
ception of the program through October 2015, nearly 3.4
Support Access to Affordable Housing
million refinancings have been completed through HARP.
While under Federal conservatorship, Fannie Mae As the housing market strengthens, the Administration
and Freddie Mac have continued to play a leading role has worked to expand responsible lending to creditwor-
in Government and private market initiatives to pre- thy borrowers and to increase access to affordable rental
vent homeowners who are having difficulty making their housing for families not ready or wanting to buy a home.
mortgage payments from losing their homes. In March Under the direction of FHFA, the GSEs continue to play
2009, the Administration announced its Making Home a role in these efforts. In 2014, Fannie Mae and Freddie
Affordable (MHA) initiative, which includes the Home Mac announced a revised framework that clarifies the
Affordable Modification Program (HAMP) and the Home circumstances under which lenders may be required to
Affordable Refinance Program (HARP). repurchase a loan when the GSEs determine that the pur-
Fannie Mae and Freddie Mac are participating in chased loan does not meet their underwriting guidelines.
HAMP both for mortgages they own or guarantee and as In 2015, they continued these efforts by publishing guid-
the Treasury Departments contractual financial agents. ance that for the first time defines severity levels for loan
Under HAMP, investors, servicers, and borrowers re- origination defects and establishes a process for remedy-
ceive incentive payments to reduce eligible homeowners ing them, and by releasing updated guidance on servicing
monthly payments to affordable levels. The incentive pay- remedies.These steps are expected to help alleviate lend-
ments for the modification of loans not held by the GSEs er uncertainty that has contributed to increased credit
are paid by Treasurys Troubled Asset Relief Program overlays that drive up lending costs and reduce access to
(TARP) fund, while the incentive payments for the modi- credit. In December 2015, FHFA issued a proposed rule
fication of loans held by the GSEs are generally paid that establishes a framework for evaluating the GSEs
by the GSEs, with a small portion paid through TARP. progress toward serving three underserved markets, as
As of December 31, 2015, nearly 2.4 million trial modi- required by HERA: manufactured housing, affordable
housing preservation, and rural markets. Finally, FHFA tinue building a new single-family securitization platform
has directed the GSEs to begin setting aside 4.2 basis for the GSEs that can be adapted for use by non-GSE
points for each dollar of unpaid principal balance of new users in order to increase liquidity in the secondary mort-
business purchases (such as mortgages purchased for gage market.
securitization) in each year to fund several federal afford-
able housing programs created by HERA: the Housing Education Credit Programs
Trust Fund, the Capital Magnet Fund, and the HOPE
Reserve Fund. These set-asides, initially authorized by Historically, the Department of Education financed
HERA, were suspended by FHFA in November 2008 and student loans through two programs: the Federal Family
were reinstated effective January 1, 2015. The first set- Education Loan (FFEL) program and the William D. Ford
aside of approximately $373 million is projected to be Federal Direct Student Loan (Direct Loan) program. In
transferred to the affordable housing funds in early 2016, March 2010, President Obama signed the Student Aid
subject to terms and conditions as prescribed by FHFA. and Fiscal Responsibility Act (SAFRA) which ended the
FFEL program. On July 1, 2010, ED became the sole orig-
Future of the GSEs
inator of Federal student loans through the Direct Loan
To finish addressing the weaknesses exposed by the program, and despite significant technical challenges, ED
financial crisis, the housing finance system must be re- made all loans on time and without disruption.
formed, and Fannie Mae and Freddie Mac should be The Direct Loan program was authorized by the
wound down.The bipartisan progress in the Senate in the Student Loan Reform Act of 1993. Under the program, the
previous session was a meaningful step towards securing Federal Government provides loan capital directly to over
a system that aligns with many of the Administrations 6,000 domestic and foreign schools, which then disburse
principles for reform, including ensuring that private cap- loan funds to students. Loans are available to students
ital is at the center of the housing finance system so that and parents of students regardless of income, but the
taxpayer assistance is never again required, and that the terms of the loans differ. There are three types of Direct
new system supports broad access to credit and affordable Loans: Federal Direct Subsidized Stafford Loans, Federal
rental housing through programs like the Housing Trust Direct Unsubsidized Stafford Loans, and Federal Direct
and Capital Magnet Funds. Further, the Consolidated PLUS Loans. For Direct Subsidized Stafford loans, which
Appropriations Act, 2016, included a provision that pro- are available to undergraduate borrowers from low and
hibits Treasury from selling or otherwise disposing of moderate income families, the Federal Government pro-
the preferred stock it holds in Fannie Mae or Freddie vides more benefits, including not charging interest while
Mac until January 1, 2018, unless legislation instruct- the borrowers are in school and during certain deferment
ing Treasury on how to do so is enacted into law. Further, periods.
this provision recommends that legislation regarding the In 2013 President Obama signed the Bipartisan Student
future of Fannie Mae and Freddie Mac be enacted and, Loan Certainty Act which established interest rates for
notwithstanding the previous limitation, suggests that all types of new Direct Loans made on or after July 1,
Treasury should not sell or dispose of its stock until such 2013. Interest rates on Direct Loans are set annually
legislation is enacted. The Administration will continue based on Treasury rates but once the rate is set, the rate
to work with Congress to pass comprehensive reform, is fixed for the life of the loan. Interest rates are set by: (1)
centered on several core principles: require more private indexing the interest rate to the rate of ten-year Treasury
capital in the system; end the Fannie Mae/Freddie Mac notes; and (2) adding the indexed rate to a specific base
duopoly business model in order to improve system sta- percent for each loan type with specific caps for each loan
bility and better protect taxpayers; ensure broad access type. For Federal Direct Subsidized Stafford Loans and
for all creditworthy families to sustainable products like Federal Direct Unsubsidized Stafford Loans issued to un-
the 30-year fixed rate mortgage in good times and bad; dergraduate students, the rate is 2.05 percentage points
and help ensure sustainable rental options are widely above the Treasury 10-year note rate and capped at 8.25
available. percent. For Federal Direct Unsubsidized Stafford Loans
In the absence of comprehensive housing finance re- issued to graduate and professional students, the rate is
form legislation, the Administration continues to take 3.6 percentage points above the Treasury rate and capped
actions that balance the desire to reduce taxpayer risk at 9.5 percent. For Federal Direct PLUS Loans issued
with the need to support the continued flow of mortgage to parents and graduate and professional students, the
credit in a recovering housing market. Starting in 2013, rate is 4.6 percentage points above the Treasury rate and
Fannie Mae and Freddie Mac began to initiate a series capped at 10.5 percent.
of credit risk-sharing transactions with private market The Direct Loan program offers a variety of flexible
participants that add an additional layer of private loss repayment plans including income-driven ones for all stu-
coverage, further limiting taxpayer exposure to credit dent borrowers, regardless of the type of loan. In October
losses from the GSEs and potentially providing a model 2011, the Administration announced a Pay As You
for future reforms. As of October 2015, the GSEs have Earn (PAYE) initiative for certain eligible student bor-
transferred a significant portion of credit risk on single- rowers that set monthly loan payments at no more than
family mortgages with a total unpaid principal balance 10 percent of the borrowers discretionary incomes and
over $700 billion. The GSEs and FHFA also plan to con- with their remaining balances forgiven after 20 years. In
December 2015, similar benefits were extended to all stu- was increased to $26.5 billion following nearly $22 billion
dent borrowers, regardless of when they borrowed. The in lending net of cancellations in 2015, and the Budget in-
2017 Budget would continue to allow all borrowers access creases it to $27 billion to accommodate expected demand
to PAYE, but proposes reforms to ensure that the pro- as the economy and opportunities for small businesses
grams benefits are better targeted. grow. The 2017 Budget appropriations language also in-
In addition, the Federal Perkins Loan Program has pro- cludes a provision that would provide the Administrator
vided low interest loans to help students finance the costs of SBA flexibility to further increase the program level if
of postsecondary education. Students at approximately needed.
1,500 participating postsecondary institutions could ob- The 2017 Budget supports $42 billion in financing for
tain Perkins loans from the school. In 2016, Congress small businesses with no subsidy costs through the 7(a)
extended the authority to make loans under the existing General Business Loan program and the 504 Certified
program through September 30, 2017. The 2017 Budget Development Company (CDC) program. As noted, the 7(a)
proposes to create an expanded, modernized Perkins Loan program will support $27 billion in guaranteed loans that
program providing $8.5 billion in loan volume annually, will help small businesses operate and expand. The 504
beginning in the 2017-2018 school year, so that students program will support $7.5 billion in guaranteed loans for
will continue to have access to credit after the scheduled fixed-asset financing, and $7.5 billion in 504 guarantees
program termination. to allow small businesses to refinance to take advan-
The Department of Education offers two types of loan tage of current interest rates and free up resources for
forgiveness to incentivize student borrowers to enter expansion. In addition, SBA will supplement the capital
teaching careers in high-needs schools. The 2017 Budget of Small Business Investment Corporations (SBICs)with
consolidates into one new program these forgiveness pro- up to $4 billion inlong-term, guaranteed loans to support
grams and the TEACH Grant program. TEACH currently SBICs venture capital investmentsin small businesses.
offers annual grants to undergraduate and graduate stu- SBA is able to continue all borrower fee waivers on 7(a)
dents who agree to teach in high-needs subjects and loans less than $150 thousand as well as partial waivers
schools, which convert to loans for participants who do not on 7(a) loans less than $500 thousand to veteran-owned
fulfill their service requirements. Beginning in 2021, the businesses in the 2017 Budget.
proposed streamlined teacher loan forgiveness program The Budget also supports SBAs disaster direct loan
increases the maximum benefit available to teachers program at its 10-year average volume of $1.1 billion in
graduating from effective teacher preparation programs, loans, and includes $187 million to administer the pro-
seeks to incentivize retention by staggering forgiveness gram. Of this amount, $159 million is provided through
over five years, and maintains the requirement to teach the Budget Control Acts disaster relief cap adjustment
in a high-need school. for costs related to Stafford Act (Presidentially-declared)
disasters.
Small Business and Farm Credit For the 2017 Budget, SBA recorded a net downward
Programs and GSEs reestimate of $1.3 billion in the expected costs of its
outstanding loan portfolio, reflecting an improved loan
The Government offers direct loans and loan guarantees performance forecast, which will decrease the 2016 bud-
to small businesses and farmers, who may have difficulty get deficit.
obtaining credit elsewhere. It also provides guarantees The Budget also requests subsidy to support $44 mil-
of debt issued by certain investment funds that invest in lion in direct loans, and $31 million in technical assistance
small businesses. Two GSEs, the Farm Credit System and grant funds for the Microloan program. The Microloan
the Federal Agricultural Mortgage Corporation, increase program provides low-interest loan funds to non-profit in-
liquidity in the agricultural lending market. termediaries who in turn provide loans of up to $50,000
Loans to Small Businesses to new entrepreneurs.
The 2017 Budget also includes a mandatory propos-
The Small Business Administration (SBA) helps en- al to create the Scale-Up Manufacturing Investment
trepreneurs start, sustain, and grow small businesses. Companies (SUMIC) program within SBA that would
As a gap lender, SBA works to supplement market support young, innovative manufacturing technologies by
lending and provide access to credit where private lend- financing their scale-up from prototypes to commercial-
ers are reluctant to do so at a reasonable price without scale facilities in the United States. The SUMIC program
a Government guarantee. SBA also helps home- and is designed to generate $10 billion in investment activity
business-owners, as well as renters, cover the uninsured over five years, using $5 billion in Federal financing and a
costs of recovery from disasters through its direct loan matching amount of private funds to bridge a significant
program. At the end of 2015 SBAs outstanding balance of portion of the financing gap for small advanced manu-
direct and guaranteed loans totaled approximately $119 facturing startups. The program would support private
billion. Due to the improved economy, past fee waivers, funds in a similar way to how SBA operates its SBIC debt
and SBA improvements in streamlining lender documen- guarantee program, but of a much larger fund and proj-
tation requirements, demand for SBA guaranteed loans ect size necessary to support the needs of manufacturing
has significantly increased in the last two years. For this scale-up efforts. The estimated subsidy costs associated
reason, the 2016 limitation on SBAs 7(a) loan guarantees with each application for a Federal contribution to a fund
would be determined on a fund-by-fund basis using ac- ly expired on September 30, 2014, but has been extended
tual fund financial information. For purposes of the 2017 twice in annual appropriations bills and now expires in
Budget, a subsidy rate of 25 percent is assumed, based on 2016. The Bond Guarantee program does not require dis-
conservative cash flow assumptions and an annual fee to cretionary budget authority for credit subsidy but annual
offset some expected default costs. loan guarantee limitations must be appropriated. Through
To help small businesses drive economic recovery and September 30, 2015, Treasury had issued $852 million in
create jobs, the Small Business Jobs Act of 2010 created bond guarantee commitments to 16 CDFIs, supporting
two new mandatory programs that provide financing as- investments in low-income and underserved communi-
sistance to small businesses: State Small Business Credit ties. The Consolidated Appropriations Act, 2016, provides
Initiative (SSBCI) and Small Business Lending Fund. The $750 million in additional commitment authority, and the
Department of the Treasury administers those programs, Budget proposes to extend the Bond Guarantee program
and SSBCI remains highly active. SSBCI is designed to through 2017 with an annual commitment limitation of
support state programs that make new loans or invest- $1 billion and introduce reforms that will increase par-
ments to small businesses and small manufacturers. ticipation and ensure credit-worthy CDFIs have access to
SSBCI has offered states and territories (and in certain this important source of capital while continuing to main-
circumstances, municipalities) the opportunity to apply tain strong protections against credit risk.
for Federal funds to finance programs that partner with
Loans to Farmers
private lenders to extend new credit to small businesses
to create jobs. These funds have allowed States to create The Farm Service Agency (FSA) assists low-income
or improve various small business programs, including family farmers in starting and maintaining viable farm-
collateral support programs, capital access programs, ing operations. Emphasis is placed on aiding beginning
revolving loan and loan guarantee programs, loan par- and socially disadvantaged farmers. FSA offers operating
ticipation programs, and State venture capital programs. loans and ownership loans, both of which may be either
SSBCI guidelines state that all approved programs must direct or guaranteed loans. Operating loans provide credit
demonstrate a reasonable expectation of minimum over- to farmers and ranchers for annual production expenses
all leverage of $10 in new private lending for every $1 and purchases of livestock, machinery, and equipment,
in Federal funding. Treasury is providing approximately while farm ownership loans assist producers in acquiring
$1.5 billion for SSBCI, which translates into $15 billion and developing their farming or ranching operations. As
in new lending to small businesses at the 10-to-1 lever- a condition of eligibility for direct loans, borrowers must
age ratio. As of September 14, 2015, SSBCI had approved be unable to obtain private credit at reasonable rates
funding for 47 states, 5 territories, 4 municipalities, and and terms. As FSA is the lender of last resort, default
the District of Columbia for a total of nearly $1.5 billion rates on FSA direct loans are generally higher than those
in obligations, of which $1.35 billion had already been on private-sector loans. FSA-guaranteed farm loans are
disbursed. Through December 31st, 2014, SSBCI has made to more creditworthy borrowers who have access to
supported more than 12,400 loans or investments, which private credit markets. Because the private loan origina-
helped create 87 new businesses and are estimated to cre- tors must retain 10 percent of the risk, they exercise care
ate or save 140,000 American jobs. in examining the repayment ability of borrowers. The
The Budget proposes a new authorization of $1.5 billion subsidy rates for the direct programs fluctuate largely be-
for a second round of the SSBCI to build on the momen- cause of changes in the interest component of the subsidy
tum of the programs first round, strengthen the Federal rate.
governments relationship with state economic develop- The number of loans provided by these programs has
ment agencies, and provide capital to Americas diverse varied over the past several years. In 2015, FSA provided
community of entrepreneurs. The proposal requires $1 loans and loan guarantees to more than 37,000 family
billion of the funding to be competitively awarded to farmers totaling $5.7 billion. Direct and guaranteed loan
States best able to target local market needs, promote in- programs provided assistance totaling $2.5 billion to
clusion, attract private capital for start-up and scale-up beginning farmers during 2015. Loans for socially dis-
businesses, strengthen regional entrepreneurial ecosys- advantaged farmers totaled $827 million, of which $438
tems, and evaluate results. The remaining $500 million million was in the farm ownership program and $389 mil-
will be allocated to States according to a need-based for- lion in the farm operating program. The average size of
mula reflecting economic factors such as job losses and farm ownership loans was consistent over the past two
pace of economic recovery. years, with new customers receiving the bulk of the direct
Treasurys Community Development Financial loans. The majority of assistance provided in the operat-
Institutions (CDFI) Fund Bond Guarantee program, ing loan program during 2015 was to beginning farmers
also authorized in the Small Business Jobs Act of 2010, as well. Overall, demand for FSA loansboth direct and
provides CDFIs access to long term capital to fund large guaranteedcontinues to be high. More conservative
economic development projects such as multi-family rent- credit standards in the private sector continue to drive ap-
al properties, charter schools, and health care centers in plicants from commercial credit to FSA direct programs.
low-income communities. Treasury is authorized to guar- Low grain prices and uncertainty over interest rates con-
antee up to 10 bond issuances per year with a $100 million tinue to cause lenders to force their marginal borrowers
minimum individual bond size. Program authority initial- to FSA for credit. In the 2017 Budget, FSA proposes to
make $6.7 billion in direct and guaranteed loans through on September 30, 2015, compared with 16.9 percent on
discretionary programs, including guaranteed conserva- September 30, 2014. Capital consisted of $44.9 billion in
tion loans. The overall loan level for conservation loans is unrestricted capital and $4.0 billion in restricted capital
unchanged from the 2016 requested level of $150 million. in the Farm Credit Insurance Fund, which is held by the
Lending to beginning farmers was strong during 2015. Farm Credit System Insurance Corporation (FCSIC). For
FSA provided direct or guaranteed loans to more than the first nine months of calendar year 2015, net income
20,500 beginning farmers. Loans provided under the equaled $3.5 billion compared with $3.6 billion for the
Beginning Farmer Down Payment Loan Program repre- same period of the previous year. The small decline in
sented 37 percent of total direct ownership loans made net income resulted from a slight increase in noninterest
during the year, slightly lower than the previous year. expense.
Sixty-four percent of direct operating loans were made Over the 12-month period ending September 30, 2015,
to beginning farmers, an increase of 4 percent in dol- nonperforming loans as a percentage of total loans out-
lar volume over 2015. Overall, as a percentage of funds standing decreased from 0.85 percent to 0.76 percent.
available, lending to beginning farmers was 7 percent- System assets moderately grew by 7.1 percent during that
age points above the 2014 level, propelled by a 5 percent period, primarily due to increases in real estate mortgage
increase in ownership loans and 9 percent increase in loans and agribusiness loans. Real estate mortgage loans
operating loans made to beginning farmers. Lending to increased due to continued demand for financing crop-
minority and women farmers was a significant portion land. The increase in agribusiness loans was due to an
of overall assistance provided, with $827 million in loans increase in advances on existing processing and market-
and loan guarantees provided to more than 9,200 farming loans.
ers. This represents an increase of 8 percent in the overall Over the 12-month period ending September 30, 2015,
number of direct loans to minority and women borrowers. the Systems loans outstanding grew by $18.8 billion, or
Outreach efforts by FSA field offices to reach out to be- 9.0 percent, while over the past three years they grew
ginning and minority farmers and promote FSA funding by $41.7 billion, or 23.0 percent. As required by law, bor-
have resulted in increased lending to these groups. rowers are also stockholder-owners of System banks and
FSA continues to evaluate the farm loan programs in associations. As of September 30, 2015, System institu-
order to improve their effectiveness. FSA released a new tions had 504,568 of these stockholders-owners.
Microloan program to increaselending to small niche pro- The number of FCS institutions continues to decrease
ducers and minorities. This program has been expanded because of consolidation. As of September 30, 2015, the
to include guaranteed as well as direct loans. This pro- System consisted of four banks and 76 associations,
gram dramatically simplifies application procedures for compared with seven banks and 104 associations in
small loans, and implements more flexible eligibility and September 2002. Of the 80 FCS banks and associations,
experience requirements. The demand for the micro- 76 of them had one of the top two examination ratings (1
loan program continues to grow while delinquencies and or 2 on a 1 to 5 scale) and accounted for 99 percent of gross
defaults remain at or below those of the regular FSA oper- Systems assets. Three FCS institutions had a rating of 3,
ating loan program. FSA has also developed a nationwide and 1 institution was rated a 4.
continuing education program for its loan officers to en- In 2014, the pace of new lending to young, beginning,
sure they remain experts in agricultural lending, and it and small farmers exceeded the pace in overall farm lend-
is transitioning all information technology applications ing by Farm Credit System institutions. The number of
for direct loan servicing into a single, web-based applica- loans made in 2014 to young and beginning farmers in-
tion that will expand on existing capabilities to include creased by 2.0 percent and 1.8 percent from 2013, while
all special servicing options. Its implementation will al- overall the number of farm loans made by the System
low FSA to better service its delinquent and financially fell 1.8 percent. The number of loans to small farmers
distressed borrowers. declined by 1.4 percent, but because small farmer loans
The Farm Credit System (Banks and Associations) declined less than overall farm loans, the share of small
farmer loans increased as well. Loans to young, begin-
The Farm Credit System (FCS or System) is a ning, and small farmers and ranchers represented 16.9
Government-sponsored enterprise (GSE) composed of a percent, 21.2 percent, and 40.2 percent, respectively, of
nationwide network of borrower-owned cooperative lend- the total new farm loans made in 2014.
ing institutions originally authorized by Congress in 1916. The dollar volume of new loans made to young and
The FCSs mission continues to be providing sound and beginning categories rose in 2014 from 2013 by 5.0 per-
dependable credit to American farmers, ranchers, produc- cent and 3.2 percent, respectively. The Systems overall
ers or harvesters of aquatic products, their cooperatives, volume of new farm loans grew by 1.8 percent. Therefore,
and farm-related businesses. In addition, they serve ru- the share of total System farm loan volume made to these
ral America by providing financing for rural residential categories rose from that of 2013. Loan volume to small
real estate, rural communication, energy and water infra- farmers decreased 5.2 percent from 2013. Loans to young,
structure, and agricultural exports. beginning, and small farmers and ranchers represented
The financial condition of the Systems banks and as- 11.3 percent, 14.8 percent, and 13.9 percent, respectively,
sociations remains fundamentally sound. The ratio of of the total dollar volume of all new farm loans made in
capital to assets has remained stable at 16.8 percent 2014. Young, beginning, and small farmers are not mutu-
ally exclusive groups and, thus, cannot be added across tal program activity, $11.1 billion were on-balance sheet
categories. Maintaining special policies and programs loans and guaranteed securities, and $4.5 billion were
for the extension of credit to young, beginning, and small off-balance-sheet obligations. Total assets were $14.9 bil-
farmers and ranchers is a legislative mandate for the lion, with non-program investments (including cash and
System. cash equivalents) accounting for $3.5 billion of those as-
The System, while continuing to record strong earn- sets. Farmer Macs net income attributable to common
ings and capital growth, remains exposed to a variety of stockholders (net income) for the first three quarters
risks associated with its portfolio concentration in agri- of calendar year 2015 was $32.3 million. Net income was
culture and rural America. In 2015, downward pressure stable compared to the same period in 2014 during which
on grain prices stemmed from large supplies relative to Farmer Mac reported net income of $32.6 million.
demand following bumper crops in recent years for the Farmer Macs earnings can be substantially influenced
major grains. Low grain and oilseed prices have helped by unrealized fair-value gains and losses. For example,
control feed costs for livestock, poultry, and dairy farm- fair-value changes on financial derivatives resulted in an
ers, but margins for these subsectors have been squeezed unrealized gain of $0.9 million for the first three quarters
by weaker output prices. The housing sector continues of 2015, compared with unrealized losses of $12.5 mil-
to improve, which should translate into improved credit lion for the same period in 2014 (both pre-tax). Although
conditions for the housing related sectors such as timber unrealized fair-value changes experienced on financial
and nurseries. Overall, the agricultural sector remains derivatives temporarily impact earnings and capital,
subject to risks such as a farmland price decline, which those changes are not expected to have any permanent
actually occurred in 2015 in the Midwest and other parts effect if the financial derivatives are held to maturity, as
of the country, a potential rise in interest rates, continued is expected.
volatility in commodity prices, weather-related catas-
trophes, and long-term environmental risks related to Energy and Infrastructure Credit Programs
climate change.
The FCSIC, an independent Government-controlled This Administration is committed to constructing a
corporation, ensures the timely payment of principal and new foundation for economic growth and job creation, and
interest on FCS obligations on which the System banks clean energy is a critical component of that. The general
are jointly and severally liable. On September 30, 2015, public, as well as individual consumers and owners, ben-
the assets in the Insurance Fund totaled $4.0 billion. efits from clean energy and well-developed infrastructure.
As of September 30, 2015, the Insurance Fund as a per- Thus, the Federal Government promotes clean energy
centage of adjusted insured debt was 1.94 percent. This and infrastructure development through various credit
was slightly below the statutory secure base amount of 2 programs.
percent. During the first nine months of calendar year
Credit Programs to Promote
2015, outstanding insured System obligations grew by 2.7
Clean and Efficient Energy
percent.
Federal Agricultural Mortgage The Department of Energy (DOE) administers two
Corporation (Farmer Mac) credit programs that serve to reduce emissions and en-
hance energy efficiency: a loan guarantee program to
Farmer Mac was established in 1988 as a federally support innovative energy technologies and a direct loan
chartered instrumentality of the United States and an in- program to support advanced automotive technologies.
stitution of the FCS to facilitate a secondary market for The Energy Policy Act of 2005 authorized DOE to
farm real estate and rural housing loans. Farmer Mac is issue loan guarantees for projects that employ innova-
not liable for any debt or obligation of the other System in- tive technologies to reduce air pollutants or man-made
stitutions, and no other System institutions are liable for greenhouse gases under the Title 17 loan guarantee
any debt or obligation of Farmer Mac. The Farm Credit program. Congress provided $4 billion in loan volume au-
System Reform Act of 1996 expanded Farmer Macs role thority for Title 17 in 2007, and the 2009 Consolidated
from a guarantor of securities backed by loan pools to a Appropriations Act provided an additional $47 billion in
direct purchaser of mortgages, enabling it to form pools loan volume authority, allocated as follows: $18.5 billion
to securitize. In May 2008, the Food, Conservation and for nuclear power facilities, $2 billion for front-end nu-
Energy Act of 2008 (2008 Farm Bill) expanded Farmer clear enrichment activities, $8 billion for advanced fossil
Macs program authorities by allowing it to purchase and energy technologies, and $18.5 billion for energy efficien-
guarantee securities backed by rural utility loans made cy, renewable energy, and transmission and distribution
by cooperatives. projects. The 2011 appropriations reduced the available
Farmer Mac continues to meet core capital and regu- loan volume authority for energy efficiency, renewable
latory risk-based capital requirements. As of September energy, and transmission and distribution projects by
30, 2015, Farmer Macs total outstanding program volume $17 billion and provided $170 million in credit subsidy
(loans purchased and guaranteed, standby loan purchase to support renewable energy or energy efficient end-use
commitments, and AgVantage bonds purchased and guar- energy technologies. In 2015 DOE added $1 billion from
anteed) amounted to $15.6 billion, which represents an existing unallocated mixed-use authority to existing loan
increase of 11.4 percent from the level a year ago. Of to- solicitations and clarified eligibility for distributed energy
projects. The Presidents 2017 Budget requests $4 billion Presidents Budget is $1.23 billion. These funds are avail-
in mixed-use loan authority. able to communities of 10,000 or fewer residents.
The American Reinvestment and Recovery Act of The Community Facility (CF) Program targets grants
2009 amended the programs authorizing statute to al- and direct loans to rural communities with fewer than
low loan guarantees on a temporary basis for commercial 20,000 residents. The 2017 Budget includes $25 million
or advanced renewable energy systems, electric power for the CF grants to expand the community facility grant
transmission systems, and leading edge biofuel projects, program to address ongoing needs and emerging priori-
providing $2.5 billion in credit subsidy for loan guaran- ties such as Promise Zones and Strike Force Communities.
tees. Authority for the temporary program to extend new These funds will allow USDA to be responsive to new
loans expired September 30, 2011. DOE provided loan needs in communities across rural America and target
guarantees to 28 projects totaling over $16 billion in them in a flexible way. In addition, the Budget includes a
guaranteed debt including: 12 solar generation, 4 solar direct CF loan level of $2.2 billion.
manufacturing, 4 wind generation, 3 geothermal, 2 bio- USDA also provides grants, direct loans, and loan guar-
fuels, and 3 transmission/energy storage projects. Four antees to assist rural businesses,cooperatives,nonprofits,
projects withdrew prior to any disbursement of funds. and farmers in creating new community infrastructure
From 2014-2015, DOE closed on three loan guarantees to- (i.e. educational and healthcare networks) and to diver-
taling approximately $8 billion to support the construction sifythe rural economy and employment opportunities.In
of two new commercial nuclear power reactors. Currently 2017, USDA proposes to provide $935 million in loan guar-
DOE has open solicitations for Renewable Energy and antees and direct loans to entities that serve communities
Efficient Energy, Advanced Fossil, and Advanced Nuclear of 25,000 or fewer residents through the Intermediary
projects. Relending program and to entities that serve communi-
The Advanced Technology Vehicle Manufacturing ties of 50,000 or fewer residents through the Business
(ATVM) Direct Loan program was created to support the and Industry guaranteed loan program and the Rural
development of advanced technology vehicles and associ- Microentrepreneur Assistance program. These loans are
ated components in the United States that would improve structured to save or create jobs and stabilize fluctuating
vehicle energy efficiency by at least 25 percent relative to rural economies.
a 2005 Corporate Average Fuel Economy standards base- The Rural Business Service is also responsible for the
line. In 2009, Congress appropriated $7.5 billion in credit Rural Energy for America program for which the Budget
subsidy to support a maximum of $25 billion in loans un- includes $68.5 million in funding to support $357 million
der ATVM. The program provides loans to automobile and in loan guarantees and grants to promote energy efficien-
automobile part manufacturers for the cost of re-equip- cies, renewable energy, and small business development
ping, expanding, or establishing manufacturing facilities in rural communities.
in the United States, and for other costs associated with
Transportation Infrastructure
engineering integration.
Electric and Telecommunications Loans Federal credit programs offered through the
Department of Transportation (DOT) fund critical
Rural Utilities Service (RUS) programs of the United transportation infrastructure projects, often using
States Department of Agriculture (USDA) provide loans innovative financing methods. The two predominant pro-
for rural electrification, telecommunications, distance grams are the program authorized by the Transportation
learning, and telemedicine, and also provide grants for Infrastructure Finance and Innovation Act (TIFIA) and
distance learning and telemedicine (DLT). the Railroad Rehabilitation and Improvement Financing
The Budget includes $6.5 billion in direct loans for (RRIF) program.
electricity distribution, construction of renewable energy Established by the Transportation Equity Act of the
facilities, transmission, and carbon capture projects on 21st century (TEA-21) in 1998, the TIFIA program is
facilities to replace fossil fuels. The Budget also provides designed to fill market gaps and leverage substantial
$690 million in direct telecommunications loans, $39 mil- private co-investment by providing supplemental and
lion in broadband grants, and $35 million in DLT grants. subordinate capital to projects of national or regional
USDA Rural Infrastructure and significance. Through TIFIA, DOT provides three types
Business Development Programs of Federal credit assistance to highway, transit, rail, and
intermodal projects: direct loans, loan guarantees, and
USDA provides grants, loans, and loan guarantees to lines of credit. The 61 TIFIA-assisted loans account for
communities for constructing facilities such as healthcare almost $83 billion of infrastructure investment in the
clinics, police stations, and water systems. Direct loans United States. Government commitments in these part-
are available at lower interest rates for the poorest com- nerships constitute over $23 billion in Federal assistance
munities. These programs have very low default rates. with a budgetary cost of approximately $1.5 billion.
That coupled with the historically low funding costs for TIFIA can help advance qualified, large-scale projects
the Government has resulted in negative subsidy rates that otherwise might be delayed or deferred because of
for these programs. size, complexity, or uncertainty over the timing of rev-
The program level for the Water and Wastewater enues at a relatively low budgetary cost. Each dollar of
treatment facility loan and grant program in the 2017 subsidy provided for TIFIA can provide approximately
$10 in credit assistance, and leverage an additional $20 Eligible projects under the program will encompass the
to $30 in non-Federal transportation infrastructure in- transportation, water, energy, and broadband sectors, as
vestment. The Fixing Americas Surface Transportation well as certain social infrastructure, such as educational
(FAST) Act of 2015 authorizes TIFIA at $275 million in facilities, and must meet all applicable environmental
fiscal year 2016, escalating to $300 million by fiscal year and labor standards.The Budget estimates that the FAIR
2020. program will provide $15 billion in financing support over
DOT has also provided direct loans and loan guaran- the current 10 year budget window (2017-2026), with an
tees to railroads since 1976 for facilities maintenance, average transaction size of $300 million. The proposal dif-
rehabilitation, acquisitions, and refinancing. Federal as- fers from the Administrations National Infrastructure
sistance was created to provide financial assistance to Bank (NIB) proposal, described more fully below, because
the financially-challenged portions of the rail industry. it targets lending at zero financing subsidy and does
However, following railroad deregulation in 1980, the not require the formation of a new entity. The Budget
industrys financial condition began to improve, larger estimates approximately $2.3 million per year of admin-
railroads were able to access private credit markets, and istrative expenses. This program may ultimately serve as
interest in Federal credit support began to decrease. a bridge to the creation of a NIB.
Also established by TEA-21 in 1998, the RRIF program
National Infrastructure Bank
may provide loans or loan guarantees with an interest
rate equal to the Treasury rate for similar-term securi- To direct Federal resources for infrastructure to proj-
ties. TEA-21 also stipulates that non-Federal sources ects that demonstrate the most merit and may be difficult
pay the subsidy cost of the loan, thereby allowing the to fund under the current patchwork of Federal programs,
program to operate without Federal subsidy appropria- the President has called for the creation of an independent,
tions. The RRIF program assists projects that improve non-partisan National Infrastructure Bank (NIB), led by
rail safety, enhance the environment, promote economic infrastructure and financial experts.The NIB would offer
development, or enhance the capacity of the national rail broad eligibility and unbiased selection for transporta-
network. While refinancing existing debt is an eligible use tion, water, and energy infrastructure projects. Projects
of RRIF proceeds, capital investment projects that would would have a clear public benefit, meet rigorous economic,
not occur without a RRIF loan are prioritized. Since its in- technical and environmental standards, and be backed by
ception, $2.7 billion in direct loans have been made under a dedicated revenue stream. Geographic, sector, and size
the RRIF program. considerations would also be taken into account. Interest
The FAST Act included programmatic changes to en- rates on loans issued by the NIB would be indexed to
hance the RRIF program to mirror the qualities of TIFIA, United States Treasury rates, and the maturity could
including broader eligibility, a loan term that can be as be extended up to 35 years, giving the NIB the ability to
long as 35 years from project completion, and a fully sub- be a patient partner side-by-side with State, local, and
ordinated loan under certain conditions. Additionally, in private co-investors. To maximize leverage from Federal
2016 Congress reprogrammed $1.96 million in unobli- investments, the NIB would finance no more than 50 per-
gated balances to assist Class II and Class III Railroads cent of the total costs of any project.
in preparing and applying for direct loans and loan
guarantees. International Credit Programs
Financing Americas Infrastructure
Renewal (FAIR) program Seven Federal agenciesthe Department of Agriculture
(USDA), the Department of Defense, the Department of
The Budget proposes to establish a Financing State, the Department of the Treasury, the Agency for
Americas Infrastructure Renewal (FAIR) program with- International Development (USAID), the Export-Import
in the Department of the Treasury that would provide Bank, and the Overseas Private Investment Corporation
direct loans to U.S. infrastructure projects developed (OPIC)provide direct loans, loan guarantees, and in-
through a public-private partnership (P3). The program surance to a variety of private and sovereign borrowers.
seeks to reduce the financing cost gap between P3s and These programs are intended to level the playing field
traditional procurement, which will level the playing field for U.S. exporters, deliver robust support for U.S. goods
for P3s and encourage the public sector, including State and services, stabilize international financial markets,
and local governments, to evaluate the merits of P3s for a enhance security and promote sustainable development.
given project.While P3s are not a solution to the Nations
Leveling the Playing Field
overall infrastructure funding needs, which continue to
deserve greater Federal investment, they may generate Federal export credit programs counter official financ-
certain public benefits. P3s are a financing and procure- ing that foreign governments around the world, largely in
ment tool that, in some circumstances, can accelerate the Europe and Japan but also increasingly in emerging mar-
delivery of complex projects, leverage the resources and kets such as China and Brazil, provide their exporters,
expertise of the private sector, mitigate construction and usually through export credit agencies (ECAs). The U.S.
operational risks to the public sector, and reduce the like- Government has worked since the 1970s to constrain offi-
lihood of deferred maintenance on a project. cial credit support through a multilateral agreement in the
Organization for Economic Cooperation and Development
(OECD). In its current form, this agreement has virtu- Using Credit to Promote Sustainable Development
ally eliminated direct interest rate subsidies, significantly
constrained tied-aid grants, and standardized the fees for Credit is an important tool in U.S. bilateral assistance to
corporate and sovereign lending across all OECD ECAs promote sustainable development. USAIDs Development
bringing the all-in costs of OECD export credit financing Credit Authority (DCA) allows USAID to use a variety of
broadly in line with market levels. In addition to ongo- credit tools to support its development activities abroad.
ing OECD negotiations, U.S. Government efforts resulted DCA provides non-sovereign loan guarantees in targeted
in the 2012 creation of the International Working Group cases where credit serves more effectively than tradition-
(IWG) on export credits. This group includes China and al grant mechanisms to achieve sustainable development.
other non-OECD providers of export credits in discus- DCA is intended to mobilize host country private capital
sions on a broader framework that would bring common to finance sustainable development in line with USAIDs
practices to ECAs throughout the world. strategic objectives. Through the use of partial loan guar-
The Export-Import Bank provides export credits, in the antees and risk sharing with the private sector, DCA
form of direct loans or loan guarantees, to U.S. export- stimulates private-sector lending for financially viable
ers who meet basic eligibility criteria and who request development projects, thereby leveraging host-country
the Banks assistance. USDAs Export Credit Guarantee capital and strengthening sub-national capital markets
Programs (also known as GSM programs) similarly help in the developing world.
to level the playing field. Like programs of other agri- OPIC mobilizes private capital to help solve critical
cultural exporting nations, GSM programs guarantee challenges such as renewable energy and infrastructure
payment from countries and entities that want to import development, and in doing so, advances U.S. foreign policy.
U.S. agricultural products but cannot easily obtain credit. OPIC achieves its mission by providing investors with fi-
Stabilizing International Financial Markets nancing, guarantees, political risk insurance, and support
for private equity investment funds. These programs are
Consistent with U.S. obligations in the International intended to create more efficient financial markets, even-
Monetary Fund regarding global financial stabil- tually encouraging the private sector to supplant OPIC
ity, the Exchange Stabilization Fund managed by the finance in developing countries.
Department of the Treasury may provide loans or credits
Ongoing Coordination
to a foreign entity or government of a foreign country. A
loan or credit may not be made for more than six months International credit programs are coordinated through
in any 12-month period unless the President gives the two groups to ensure consistency in policy design and cred-
Congress a written statement that unique or emergency it implementation. The Trade Promotion Coordinating
circumstances require that the loan or credit be for more Committee (TPCC) works within the Administration to
than six months. develop a National Export Strategy to make the delivery
Supporting the Nations International Partners of trade promotion support more effective and convenient
for U.S. exporters.
The U.S. Government, through USAID, can extend The Interagency Country Risk Assessment System
short-to-medium-term loan guarantees that cover poten- (ICRAS) standardizes the way in which most agencies
tial losses that might be incurred by lenders if a country that lack sufficient historical experience to budget for
defaults on its borrowings; for example, the U.S. may the cost associated with the risk of international lend-
guarantee another countrys sovereign bond issuance. The ing. The cost of lending by these agencies is governed by
purpose of this tool is to provide the Nations sovereign proprietary U.S. Government ratings, which correspond
international partners access to necessary, urgent, and to a set of default estimates over a given maturity. The
relatively affordable financing during temporary periods methodology establishes assumptions about default risks
of strain when they cannot access such financing in inter- in international lending using averages of international
national financial markets, and to support critical reforms sovereign bond market data. The strength of this method
that will enhance long term fiscal sustainability, often in is its link to the market and an annual update that ad-
concert with support from international financial institu- justs the default estimates to reflect the most recent risks
tions such as the International Monetary Fund. The long observed in the market.
term goal of sovereign loan guarantees is to help lay the
Promoting Economic Growth and Poverty
economic groundwork for the Nations international part-
Reduction through Debt Sustainability
ners to graduate to an unenhanced bond issuance in the
international capital markets. For example, as part of the The Enhanced Heavily Indebted Poor Countries
U.S. response to fiscal crises, the U.S. Government has ex- (HIPC) Initiative reduces the debt of some of the poorest
tended sovereign loan guarantees to Tunisia, Jordan, and countries with unsustainable debt burdens that are com-
Ukraine to enhance their access to capital markets, while mitted to economic reform and poverty reduction.
promoting economic policy adjustment.
III. INSURANCE PROGRAMS
Deposit Insurance addition to raising the minimum reserve ratio, the Wall
Street Reform Act also:
Federal deposit insurance promotes stability in the U.S.
financial system. Prior to the establishment of Federal Eliminated the FDICs requirement to rebate premi-
deposit insurance, depository institution failures often ums when the DIF reserve ratio is between 1.35 and
caused depositors to lose confidence in the banking system 1.5 percent;
and rush to withdraw deposits. Such sudden withdrawals
caused serious disruption to the economy. In 1933, in the Gave the FDIC discretion to suspend or limit re-
midst of the Great Depression, a system of Federal de- bates when the DIF reserve ratio is 1.5 percent or
posit insurance was established to protect depositors and higher, effectively removing the 1.5 percent cap on
to prevent bank failures from causing widespread disrup- the DIF; and
tion in financial markets.
Today, the Federal Deposit Insurance Corporation
Required the FDIC to offset the effect on small in-
sured depository institutions (defined as banks with
(FDIC) insures deposits in banks and savings associa- assets less than $10 billion) when setting assess-
tions (thrifts) using the resources available in its Deposit ments to raise the reserve ratio from 1.15 to 1.35
Insurance Fund (DIF). The National Credit Union percent.
Administration (NCUA) insures deposits (shares) in most
credit unions through the National Credit Union Share In implementing the Wall Street Reform Act, the FDIC
Insurance Fund (SIF). (Some credit unions are privately issued a final rule setting a long-term (i.e., beyond 2025)
insured.) As of September 30, 2015, the FDIC insured reserve ratio target of 2 percent, a goal that FDIC con-
$6.4 trillion of deposits at 6,279 commercial banks and siders necessary to maintain a positive fund balance
thrifts, and the NCUA insured $940 billion of shares at during economic crises while permitting steady long-term
6,102 credit unions. assessment rates that provide transparency and predict-
ability to the banking sector. This rule, coupled with other
Recent Reforms
provisions of the Wall Street Reform Act, will significantly
Since its creation, the Federal deposit insurance sys- improve the FDICs capacity to resolve bank failures and
tem has undergone many reforms. As a result of the 2008 maintain financial stability during economic downturns.
crisis, several reforms were enacted to protect both the The Wall Street Reform Act also permanently increased
immediate and longer-term integrity of the Federal de- the insured deposit level to $250,000 per account at banks
posit insurance system. The Helping Families Save Their or credit unions insured by the FDIC or NCUA.
Homes Act of 2009 (P.L. 11122) provided NCUA with Recent Fund Performance
tools to protect the Share Insurance Fund and the fi-
nancial stability of the credit union system. Notably, the After seven consecutive quarters of negative balances,
Helping Families Save Their Homes Act: the DIF balance became positive on June 30, 2011, stand-
ing at $3.9 billion on an accrual basis, then doubling to
Established the Temporary Corporate Credit Union $7.8 billion on September 30, 2011. As of September 30,
Stabilization Fund (TCCUSF), allowing NCUA to 2015, the DIF fund balance stood at $70.1 billion. The
segregate the losses of corporate credit unions and growth in the DIF balance is a result of fewer bank fail-
providing a mechanism for assessing those losses to ures and higher assessment revenue. The reserve ratio on
federally insured credit unions over an extended pe- September 30, 2015 was 1.09 percent.
riod of time; As of September 30, 2015, the number of insured in-
stitutions on the FDICs problem list (institutions with
Provided flexibility to the NCUA Board by permit- the highest risk ratings) totaled 203, which represented
ting use of a restoration plan to spread insurance a decrease of more than 74 percent from December 2010,
premium assessments over a period of up to eight the peak year for bank failures during the recent crisis.
years or longer in extraordinary circumstances, if Furthermore, the assets held by problem institutions de-
the SIF equity ratio fell below 1.2 percent; and creased by nearly 87 percent.
Permanently increased the Share Insurance Funds The SIF ended September 2015 with assets of $12.5
borrowing authority to $6 billion. billion and an equity ratio of 1.29 percent. If the equity
ratio increases above the normal operating level of 1.30
The Dodd-Frank Wall Street Reform and Consumer percent, a distribution is normally paid to member credit
Protection (Wall Street Reform) Act of 2010 included unions to reduce the equity ratio to the normal operating
provisions allowing the FDIC to more effectively and ef- level. However, the Helping Families Save Their Homes
ficiently manage the DIF. The Act requires the FDIC to Act requires that the SIF distribution be directed to
achieve a minimum DIF reserve ratio (ratio of the de- Treasury for the repayment of any outstanding TCCUSF
posit insurance fund balance to total estimated insured loans before a distribution can be paid to member cred-
deposits) to 1.35 percent by 2020, up from 1.15 percent. In it unions. In 2015, the equity ratio did not exceed 1.30
percent. As of September 30, 2015, the TCCUSF had a tive to MSR. On November 6, 2015, the FDIC published
$2.3 billion loan outstanding from the Department of the a notice of proposed rulemaking (as required by the Wall
Treasury. Street Reform Act) that would lower overall assessments
The health of the credit union industry continues to and impose a 4.5 basis point surcharge on large banks,
improve. Consequently, the ratio of insured shares in starting in the first quarter after the DIF reserve ratio
problem institutions to total insured shares decreased to reaches 1.15 percent and continuing until the reserve
0.81 percent in September 2015 from a high of 5.7 percent ratio reaches 1.35 percent. FDIC expects to collect these
in December 2009. With the improving health of credit surcharges during 2017 and 2018 and the Budget esti-
unions, NCUA has been steadily reducing SIF loss re- mates reflect the proposed assessment rates and a DIF
serves. As of September 30, 2015, the SIF had set aside reserve ratio of 1.35 percent in 2020.
$169.5 million in reserves to cover potential losses, a re-
duction of 31 percent from the $244 million set-aside as of Pension Guarantees
September 30, 2013.
Restoring the Deposit Insurance Funds The Pension Benefit Guaranty Corporation (PBGC)
insures the pension benefits of workers and retirees in
Pursuant to the Wall Street Reform Act, the restora- covered defined-benefit pension plans. PBGC operates
tion period for the FDICs DIF reserve ratio to reach 1.35 two legally distinct insurance programs: single-employer
percent was extended to 2020. (Prior to the Act, the DIF plans and multiemployer plans.
reserve ratio was required to reach the minimum target Single-Employer Program. Under the single-employer
of 1.15 percent by the end of 2016.) In late 2009, the FDIC program, PBGC pays benefits, up to a guaranteed level,
Board of Directors adopted a final rule requiring insured when a companys plan closes without enough assets
institutions to prepay quarterly risk-based assessments to pay future benefits. PBGCs claims exposure is the
for the fourth quarter of CY 2009 and for all of CY 2010, amount by which qualified benefits exceed assets in in-
2011, and 2012. The FDIC collected approximately $45 sured plans. In the near term, the risk of loss stems from
billion in prepaid assessments pursuant to this rule. financially distressed firms with underfunded plans. In
Unlike a special assessment, the prepaid assessments did the longer term, loss exposure results from the possibility
not immediately affect bank earnings; it was booked as that well-funded plans become underfunded due to inade-
an asset and amortized each quarter by that quarters as- quate contributions, poor investment results, or increased
sessment charge. This prepaid assessment, coupled with liabilities, and that the healthy firms sponsoring those
annual assessments on the banking industry, provided the plans become distressed.
FDIC with ample operating cash flows to effectively and PBGC monitors companies with underfunded plans
efficiently resolve bank failures during the short period in and acts to protect the interests of the pension insur-
which the DIF balance was negative. Although the FDIC ance programs stakeholders where possible. Under its
has authority to borrow up to $100 billion from Treasury Early Warning Program, PBGC works with companies to
to maintain sufficient DIF balances, the Budget does not strengthen plan funding or otherwise protect the insur-
anticipate FDIC utilizing its borrowing authority because ance program from avoidable losses. However, PBGCs
the DIF is projected to maintain positive operating cash authority to manage risks to the insurance program is
flows over the entire 10-year budget horizon. limited. Most private insurers can diversify or reinsure
Since 2009 NCUA has successfully restored the re- their catastrophic risks as well as flexibly price these
serve ratio of the SIF to the normal operating level. risks. Unlike private insurers, federal law does not allow
Additionally, NCUA continues to seek compensation from PBGC to deny insurance coverage to a defined-benefit
the parties that created and sold troubled assets to the plan or adjust premiums according to risk. Both types of
failed corporate credit unions. As of September 30, 2015, PBGC premiumsthe flat rate (a per person charge paid
NCUAs gross recoveries from securities underwriters to- by all plans) and the variable rate (paid by some under-
tal more than $1.9 billion, helping to minimize losses and funded plans) are set in statute.
future assessments on federally insured credit unions. Claims against PBGCs insurance programs are highly
These recoveries have also accelerated repayment of the variable. One large pension plan termination may result
TCCUSFs outstanding U.S. Treasury borrowings. in a larger claim against PBGC than the termination of
Budget Outlook many smaller plans. The future financial health of the
PBGC will continue to depend largely on the termination
The Budget estimates DIF net outlays of -$68.0 bil- of a limited number of very large plans.
lion over the current 10-year budget window (2017-2026). Single employer plans generally provide benefits to
Over the previous 10-year window of 2016-2025, net out- the employees of one employer. When an underfunded
lays are -$68.2 billion. This $68.2 billion in net inflows to single employer plan terminates, usually through the
the DIF is $6 billion lower than estimated for the 2016 bankruptcy process, PBGC becomes trustee of the plan,
Mid-Session Review (MSR). The latest public data on the applies legal limits on payouts, and pays benefits. The
banking industry led to a reduction in bank failure esti- amount of benefit paid is determined after taking into
mates, reducing receivership proceeds, resolution outlays, account (a) the benefit that a beneficiary had accrued in
and premiums necessary to reach the minimum Wall the terminated plan, (b) the availability of assets from the
Street Reform Act DIF reserve ratio of 1.35 percent rela- terminated plan to cover benefits, and (c) the legal maxi-
mum benefit level set in statute. In 2015, the maximum calculated based on the benefit that a participant would
annual payment guaranteed under the single-employer have received under the insolvent plan, subject to the legal
program was $60,136 for a retiree aged 65. This limit is multiemployer maximum set in statute. The maximum
indexed for inflation. guaranteed amount depends on the participants years
PBGCs single-employer program has incurred sub- of service and the rate at which benefits are accrued. In
stantial losses over the past 15 years from underfunded 2015, for example, for a participant with 30 years of ser-
plan terminations. Table 20-1 shows the ten largest plan vice, PBGC guarantees 100 percent of the pension benefit
termination losses in PBGCs history. Nine of the ten hap- up to a yearly amount of $3,960. If the pension exceeds
pened since 2001. that amount, PBGC guarantees 75 percent of the rest of
the pension benefit up to a total maximum guarantee of
Multiemployer Plans. Multiemployer plans are col- $12,870 per year. This limit has been in place since 2011.
lectively bargained pension plans maintained by one or In recent years, many multiemployer pension plans
more labor unions and more than one unrelated employ- have become severely underfunded as a result of unfavor-
er, usually within the same or related industries. PBGCs able investment outcomes, employers withdrawing from
role in the multiemployer program is more like that of a plans, and demographic challenges. In 2001, only 15 plans
re-insurer; if a company sponsoring a multiemployer plan covering about 80,000 participants were under 40 percent
fails, its liabilities are assumed by the other employers funded using estimated market rates. By 2011, this had
in the collective bargaining agreement, not by PBGC, al- grown to almost 200 plans covering almost 1.5 million
though employers can withdraw from a plan for an exit participants. While many plans have benefited from an
fee. PBGC becomes responsible for insurance coverage improving economy and will recover, a small number of
when the plan runs out of money to pay benefits at the plans are severely underfunded and, absent any changes,
statutorily guaranteed level, which usually occurs af- projected to become insolvent within ten years.
ter all contributing employers have withdrawn from the As of September 30, 2015, the single-employer and
plan, leaving the plan without a source of income. PBGC multi-employer programs reported deficits of $24.1 bil-
provides insolvent multiemployer plans with financial as- lion and $52.3 billion, respectively. While both programs
sistance in the form of loans sufficient to pay guaranteed are projected to be unable to meet their long-term ob-
benefits and administrative expenses. Since multiemploy- ligations under current law, the challenges facing the
er plans do not receive PBGC assistance until their assets multiemployer program are more immediate. In its 2015
are fully depleted, financial assistance is almost never Annual Report, PBGC reported that it had just $2 billion
repaid. Benefits under the multiemployer program are in accumulated assets from premium payments made by
Table 201. TOP 10 FIRMS PRESENTING CLAIMS (1975-2014)

Single-Employer Program
Fiscal Year(s) of Percent of Total
Firm Plan Termination(s) Claims (by firm) Claims (1975-2014)
1 United Airlines 2005 $7,304,186,216 14.98%

2 Delphi 2009 $6,382,168,004 13.09%
3 Bethlehem Steel 2003 $3,702,771,656 7.59%
4 US Airways 2003, 2005 $2,708,858,934 5.55%
5 LTV Steel* 2002, 2003, 2004 $2,116,397,590 4.34%
6 Delta Air Lines 2006 $1,720,156,505 3.53%
7 National Steel 2003 $1,319,009,116 2.70%
8 Pan American Air 1991, 1992 $841,082,434 1.72%
9 Trans World Airlines 2001 $668,377,105 1.37%
10 Weirton Steel 2004 $640,480,969 1.31%
Top 10 Total $27,403,488,529 56.19%
All Other Total $21,368,826,989 43.81%
TOTAL $48,772,315,518 100.00%
Sources: PBGC Fiscal Year Closing File (9/30/14), PBGC Case Management System,
and PBGC Participant System (PRISM).
Due to rounding of individual items, numbers and percentages may not add up to totals.
Data in this table have been calculated on a firm basis and, except as noted, include all
trusteed plans of each firm.
Values and distributions are subject to change as PBGC completes its reviews and
establishes termination dates.
* Does not include 1986 termination of a Republic Steel plan sponsored by LTV.
multiemployer plans, which it projected would be deplet- Administration believes additional increases in single-
ed by 2025. If the program runs out of cash, the only funds employer premiums are unwise at this time and would
available to support benefits would be the premiums that unnecessarily create further disincentives to maintain-
continue to be paid by remaining plans; this could result ing defined benefit pension plans. This level of additional
in benefits being cut much more deeply, to a small fraction multiemployer premium revenue would nearly eliminate
of current guarantee levels. the risk of the multiemployer program becoming insol-
To address the problems facing the multiemployer pro- vent within 20 years.
gram and the millions of Americans who rely on those The Budget assumes that the Board will raise these
plans for their retirement security, the Congress passed revenues by using its premium-setting authority to create
The Multiemployer Pension Reform Act, which was in- a variable-rate premium (VRP) and an exit premium in
cluded in the Consolidated and Further Continuing the multiemployer program. A multiemployer VRP would
Appropriations Act signed on December 16, 2014. The law require plans to pay additional premiums based on their
includes significant reforms to the multiemployer pen- level of underfundingas is done in the single-employer
sion plan system, including provisions that allow trustees program. An exit premium assessed on employers that
of multiemployer plans facing insolvency to apply to the withdraw from a plan would compensate PBGC for the
Department of Treasury to reduce benefits by temporar- additional risk imposed on it when healthy employers
ily or permanently suspending benefits. The law does not exit.
allow suspensions for individuals over age 80 or for those
receiving a disability retirement benefit. A participant Disaster Insurance
or beneficiarys monthly benefit cannot be reduced be-
low 110 percent of the PBGC guarantee. It also increases Flood Insurance
PBGC premiums from the $13 per person to $26 begin-
ning in 2015. While the legislation is an important first The Federal Government provides flood insurance
step, it will not be enough to improve PBGCs solvency through the National Flood Insurance Program (NFIP),
for more than a very short period of time. PBGC projects which is administered by the Federal Emergency
that it is likely to become insolvent by 2025, extending its Management Agency of the Department of Homeland
projected insolvency date by three years compared to the Security (DHS).Flood insurance is available to homeown-
2013 projection. ers and businesses in communities that have adopted and
In addition, Congress enacted premium increases in enforce appropriate floodplain management measures.
the single-employer program as part of the Bipartisan Coverage is limited to buildings and their contents. At the
Budget Act of 2015 (BBA). By increasing both the flat- end of fiscal year 2015, the program had over 5.1 million
rate and variable-rate premiums, the Act will raise as policies in more than 22,100 communities with $1.23 tril-
estimated $4 billion over the 10-year budget window. This lion of insurance in force.
additional revenue will improve the financial outlook for Prior to the creation of the program in 1968, many
the single-employer program, which was already project- factors made it cost prohibitive for private insurance com-
ed to see a large reduction in its deficit over the next 10 panies alone to make affordable flood insurance available.
years. In response, the NFIP was established to make insurance
Premiums. Both programs are underfunded, with coverage widely available, to combine a program of insur-
combined liabilities exceeding assets by $76 billion at ance with flood mitigation measures to reduce the nations
the end of 2015. While the single-employer programs fi- risk of loss from flood, and to minimize Federal disaster-
nancial position is projected to improve over the next 10 assistance expenditures. The NFIP requires participating
years, in part because Congress has raised premiums in communities to adopt certain building standards and take
that program several times in recent years, the multiem- other mitigation efforts to reduce flood-related losses, and
ployer program is projected to run out of funds in 2024. operates a flood hazard mapping program to quantify
Particularly in the multiemployer program, premium geographic variation in the risk of flooding. These efforts
rates remain much lower than what a private financial have resulted in substantial reductions in the risk of
institution would charge for insuring the same risk and flood-related losses nationwide. However, structures built
well below what is needed to ensure PBGCs solvency. prior to flood mapping and NFIP floodplain management
To address these concerns, the Budget proposes to give requirements, which make up 20 percent of the total poli-
the PBGC Board the authority to adjust premiums. The cies in force, currently pay less than fully actuarial rates
2016 Budget proposed to raise premiums by $19 billion, and continue to pose relatively high risk.
with premiums to be split between the multiemployer A major goal of the National Flood Insurance Program
and single-employer programs based on the size of their is to ensure that property owners are compensated for
deficits. Given the $4 billion in recent premium increas- flood losses through flood insurance, rather than through
es enacted in the Bipartisan Budget Act (BBA) of 2015 taxpayer-funded disaster assistance. The agencys mar-
and the single-employer programs improving financial keting strategy aims to increase the number of Americans
projections, the Budget directs the Board to raise $15 bil- insured against flood losses and improve retention of poli-
lion in additional premium revenue within the Budget cies among existing customers. The strategy includes:
window only from the multiemployer program. The
1. Providing financial incentives to the private insur- those occasions, the NFIP exercises its borrowing author-
ers that sell and service flood policies for the Federal ity through the Treasury to meet flood insurance claim
Government to expand the flood insurance business. obligations. While the program needed appropriations in
the early 1980s to repay the funds borrowed during the
2. Conducting the national marketing and advertising 1970s, it was able to repay all borrowed funds with inter-
campaign, FloodSmart, which uses TV, radio, print est using only premium dollars between 1986 and 2004.
and online advertising, direct mailings, and public In 2005, however, hurricanes Katrina, Rita, and Wilma
relations activities to help overcome denial and re- generated more flood insurance claims than the cumula-
sistance and increase demand. tive number of claims paid from 1968 to 2004. Hurricane
Sandy in 2012 generated $8.3 billion in flood insurance
3. Fostering lender compliance with flood insurance claims. As a result, the Administration and Congress have
requirements through training, guidance materials, increased the borrowing authority for the fund to $30.4
and regular communication with lending regulators billion. On December 31, 2014, the NFIP repaid $1 billion
and the lending community. of outstanding borrowing, reducing the programs out-
standing debt to $23 billion.
4. Conducting NFIP training for insurance agents via The catastrophic nature of the 2005 hurricane sea-
instructor-led seminars, online training modules, son also triggered an examination of the program, and
and other vehicles. the Administration worked with the Congress to improve
the program. On July 6, 2012, the Biggert Waters Flood
5. Seeking opportunities to simplify and clarify NFIP Insurance Reform Act of 2012 (BW-12) was signed into
processes and products to make it easier for agents law. In addition to reauthorizing the NFIP for 5 years, the
to sell and for consumers to buy. bill required the NFIP generally to move to full risk-based
premium rates and strengthened the NFIP financially
These strategies resulted in steady policy growth for and operationally. BW-12 also required FEMA, in con-
many years, peaking in 2008 at 5.62 million policies. From junction with the National Academy of Sciences (NAS),
2009-2013, in the aftermath of the economic recession, conduct a study regarding the affordability of the NFIP
policy growth stagnated and total policies in effect ranged to policyholders. In 2013, the NFIP began phasing in risk-
between 5.55 million and 5.61 million. In fiscal year 2014, based premiums for certain properties, as required by the
when policy premiums were increased in compliance with law. In March 2014, HFIAA was signed into law, further
the Biggert-Waters legislation, policy counts dropped reforming the NFIP and revising many sections of BW-12.
4.3% to 5.3 million. Additionally, in fiscal year 2015, when Notably, HFIAA repealed many of the largest premium
a surcharge on all policyholders was introduced in compli- increases introduced by BW-12 and required retroactive
ance with the Homeowner Flood Insurance Affordability refunds of collected BW-12 premium increases, introduced
Act of 2014 (HFIAA), policy counts dropped an additional a phase-in to higher full-risk premiums for structures
3.8% to 5.1 million. newly mapped into the Special Flood Hazard Area, and
DHS has a multi-pronged strategy for reducing future created a Flood Insurance Advocate.
flood damage. The NFIP offers flood mitigation assis- In 2015, FEMA initiated a Hurricane Sandy NFIP
tance grants to assist flood victims to rebuild to current Claims Review Process to ensure that policyholders im-
building codes, including higher base flood elevations, pacted by Hurricane Sandy receive every dollar they are
thereby reducing the likelihood of future flood damage. entitled to under their policy. In many cases, the review
In particular, flood mitigation assistance grants targeted validates that the original payment was correct. In others,
toward repetitive and severe repetitive loss properties not the review indicates that additional payment is warrant-
only help owners of high-risk property, but also reduce ed. FEMA directed insurance companies to issue checks
the disproportionate drain these properties cause on the to those who were determined to have been underpaid af-
National Flood Insurance Fund, through acquisition, relo- ter the completion of the claim review. Also in 2015, NAS
cation, or elevation of select properties. DHS is working to completed two studies related to NFIP affordability, and
ensure that the flood mitigation grant program is closely FEMA now has 18 months to develop an affordability
integrated with other FEMA mitigation grant programs, framework that can inform NFIP reauthorization. The
resulting in better coordination and communication current NFIP authorization ends September 30, 2017.
with State and local governments. Further, through the
Crop Insurance
Community Rating System, DHS adjusts premium rates
to encourage community and State mitigation activities Subsidized Federal crop insurance, administered by
beyond those required by the NFIP. These efforts, in ad- USDAs Risk Management Agency (RMA) on behalf of
dition to the minimum NFIP requirements for floodplain the Federal Crop Insurance Corporation (FCIC), assists
management, save over $1 billion annually in avoided farmers in managing yield and revenue shortfalls due
flood damages claims. to bad weather or other natural disasters, and is com-
Due to the catastrophic nature of flooding, with hur- monly known as multi-peril crop insurance (MPCI).
ricanes Katrina and Sandy as notable examples, insured The program is a cooperative partnership between the
flood damages far exceeded premium revenue in some Federal Government and the private insurance industry.
years and depleted the programs reserve account. On Private insurance companies sell and service crop in-
surance policies. The Federal Government, in turn, pays approximately 86 percent of the total U.S. planted acres of
private companies an administrative and operating ex- the 10 crops were covered by crop insurance. Producers can
pense subsidy to cover expenses associated with selling purchase both yield and revenue-based insurance products
and servicing these policies. The Federal Government which are underwritten on the basis of a producers APH.
also provides reinsurance on MPCI policies through the Revenue insurance programs protect against loss of revenue
Standard Reinsurance Agreement (SRA) and pays compa- resulting from low prices, low yields, or a combination of both.
nies an underwriting gain if they have a profitable year. Revenue insurance has enhanced traditional yield insurance
However, the private companies also rely on commercial by adding price as an insurable component. In the current
reinsurance for premium retained after reinsurance pro- program, the farmer can opt to cover the projected or the
vided by the SRA. For the 2017 Budget, the payments harvest price. Traditional revenue insurance only protects
to the companies are projected to be $2.5 billion in com- against a projected price decline, where the farmer is guar-
bined subsidies. The Federal Government also subsidizes anteed a price at the time of planting.Revenue coverage that
premiums for farmers as a way to encourage farmers to protects against the price at the time of harvest guarantees
participate in the program and purchase higher levels of the price to the farmer for the higher of the projected price
coverage. or the harvest price. The harvest price protection policies are
The 2017 Budget includes two proposals that are de- more costly than traditional revenue coverage and therefore
signed to optimize the current crop insurance program so more heavily subsidized by the government. Almost all farm-
that it will continue to provide a quality safety net at a ers choose the harvest price option because taxpayers pay
lower cost: such a large portion of the extra premium and in some cases,
1. Reduce premium subsidy by 10 percentage points this heavy subsidy results in windfall profits to the farmer.
for revenue coverage that includes additional cov- In addition to price and revenue insurance, FCIC has
erage for the price at harvest. This would simplify made available other plans of insurance to provide protec-
revenue insurance by reducing indemnity payments tion for a variety of crops grown across the United States.
based on the higher of the market price right before For example, area plans of insurance offer protection based
planting or the harvest price. This would, in turn, on a geographic area (most commonly, a county), and do not
reduce the potential for windfall profits from this directly insure an individual farm. Often, the loss trigger
additional coverage. Under this coverage, farmers is based on an index, such as a rainfall or vegetative index,
pay an out-of-pocket premium which more closely which is established by a Government entity (for example,
matches the market price of the coverage purchased. NOAA or USGS). One such plan is the pilot Rainfall and
As a result, the number farmers choosing the more Vegetation Index plan, which insures against a decline in an
expensive coverage for price hedging will decrease. index value covering Pasture, Rangeland, and Forage. These
Over 10 years the government will save $16.9 bil- pilot programs meet the needs of livestock producers who
lion, of which 7.6 percent will be from subsidies that purchase insurance for protection from losses of forage pro-
the government pays the insurance companies. duced for grazing or harvested for hay. In 2015, there were
28,779 Rainfall and Vegetation Index policies earning pre-
2. Reform the prevented planting program by: elimi- mium, covering about 56 million acres of pasture, rangeland
nating prevented planting optional +5 and +10 and forage. As of December 2015, there was about $1.2 billion
coverage, and requiring a 60 percent transitional in liability, with $142 million in indemnities paid to livestock
yield be applied to the producers Actual Production producers who purchased coverage.
History (APH) for those who receive a prevented A crop insurance policy also contains coverage compen-
planting payment. This is expected to save $1.07 bil- sating farmers when they are prevented from planting their
lion over 10 years and improve the accuracy of the crops due to weather and other perils. When an insured
prevented planting coverage as well as promote ad- farmer cant plant the planned crop within the planting time
ditional food production. period because of excessive drought or moisture, the farmer
may file a prevented planting claim, which pays the farmer a
The most basic type of crop insurance is catastrophic portion of the full coverage level. It is optional for the farmer
coverage (CAT), which compensates the farmer for losses in to plant a second crop on the acreage. If the farmer does, the
excess of 50 percent of the individuals average yield at 55 prevented planting claim on the first crop is reduced and the
percent of the expected market price. The CAT premium is farmers APH is recorded for that year. If the farmer does
entirely subsidized, and farmers pay only an administrative not plant a second crop, the farmer gets the full prevented
fee. Higher levels of coverage, called buy-up, are also avail- planting claim, and the farmers APH is held harmless for
able. A portion of the premium for buy-up coverage is paid premium calculation purposes the following year. USDA
by FCIC on behalf of producers and varies by coverage level recently conducted a study to determine if the prevented
- generally, the higher the coverage level, the lower the per- planting costs were accurately priced for all crops and have
cent of premium subsidized. The remaining (unsubsidized) considered policy changes for prevented planting based on
premium amount is owed by the producer and represents an the studys findings.
out-of-pocket expense. RMA is continuously working to develop new prod-
For 2015, the 10 principal crops, (barley, corn, cotton, grain ucts and to expand or improve existing products in order
sorghum, peanuts, potatoes, rice, soybeans, tobacco, and to cover more agricultural commodities. Under section
wheat) accounted for over 80 percent of total liability, and 508(h) of the Federal Crop Insurance Act, RMA may ad-
vance payment of up to 50 percent of expected reasonable deductible of 20 percent of the prior years direct earned pre-
research and development costs for FCIC Board approved miums, an insurer co-payment of 15 percent of insured losses
Concept Proposals prior to the complete submission of the of up to $100 billion above the deductible, and a $100 million
policy or plan of insurance. Numerous private products minimum event cost triggering Federal coverage. The 2007
have been approved through the 508(h) authority, in- extension also required Treasury to recoup 133 percent of all
cluding Downed Rice Endorsement, Machine Harvested Federal payments made under the program up to $27.5 bil-
Cucumbers, APH Olive, Camelina, Pulse Crop Revenue, lion, and accelerated deadlines for recoupment of any Federal
Fresh Market Beans, and Louisiana Sweet Potato. payments made before September 30, 2017.
Last, the Agricultural Act of 2014 (2014 Farm Bill) ex- In January 2015, Congress passed the Terrorism Risk
panded FCICs authority to approve products developed Insurance Extension Act of 2015 (P.L. 1141), which ex-
under the 508(h) process, authorized new plans, and man- tended TRIP for six more years, through December 31,
dated specific research and development priorities. For 2020 and made several program changes to further reduce
example, in 2015 RMA implemented the Supplemental Federal liability. Over the first five extension years, the
Coverage Option for major crops and the Stacked Risk loss threshold that triggers Federal assistance will be in-
Income Protection for upland cotton. These area plans creased by $20 million each year to $200 million in 2019,
were mandated by the 2014 Farm Bill and supplement and the Governments share of losses above the deductible
an underlying MPCI policy. In addition, in 2015 FCIC ap- will decrease from 85 to 80 percent over the same period.
proved and implemented a Peanut Revenue plan and a The 2015 extension also requires Treasury to recoup 140
Whole Farm Revenue Protection plan, which were also percent of all Federal payments made under the program
mandated by the 2014 Farm Bill. RMA also implement- up to a mandatory recoupment amount which increases by
ed the APH Yield Exclusion option in 2015. Additional $2 billion each year until 2019 when the threshold will be
Research and Development priorities mandated by the set at $37.5 billion. Effective January 1, 2020, the man-
2014 Farm Bill included biomass and sweet sorghum datory recoupment amount will be indexed to a running
energy insurance, catastrophic programs for swine and three-year average of the aggregate insurer deductible of
poultry, margin coverage for catfish, and insurance for 20 percent of direct-earned premiums. These programmatic
organic crops. In some instances RMA contracts with reforms will facilitate, over the longer term, full transition
qualified entities to develop feasibility studies or develop of the program to the private sector. The Budget baseline
the products. includes the estimated Federal cost of providing terrorism
For more information and additional crop insurance risk insurance, reflecting the 2015 TRIA extension. Using
program details, please reference RMAs web site (www. market data synthesized through a proprietary model, the
rma.usda.gov). Budget projects annual outlays and recoupment for TRIP.
While the Budget does not forecast any specific triggering
Insurance against Security-Related Risks events, the Budget includes estimates representing the
weighted average of TRIP payments over a full range of
Terrorism Risk Insurance possible scenarios, most of which include no notional ter-
rorist attacks (and therefore no TRIP payments), and some
The Terrorism Risk Insurance Program (TRIP) was of which include notional terrorist attacks of varying mag-
authorized under P.L. 107-297 to help ensure the continued nitudes. On this basis, the Budget projects net spending of
availability of property and casualty insurance following $1.4 billion over the 20172021 period and $1.2 billion over
the terrorist attacks of September 11, 2001. TRIPs initial the 20172026 period.
three-year authorization enabled the Federal Government to
Aviation War Risk Insurance
establish a system of shared public and private compensation
for insured property and casualty losses arising from certified In December 2014, Congress sunset the premium avia-
acts of foreign terrorism. In 2005, Congress passed a two-year tion war risk insurance program, thereby sending U.S.
extension (P.L. 109-144), which narrowed the Governments air carriers back to the commercial aviation insurance
role by increasing the private sectors share of losses, reduc- market for all of their war risk insurance coverage.The
ing lines of insurance covered by the program, and adding a non-premium program is authorized through December
threshold event amount triggering Federal payments. 31, 2018. It provides aviation insurance coverage for
In 2007, Congress enacted a further seven-year extension aircraft used in connection with certain Government con-
of TRIP and expanded the program to include losses from do- tract operations by a Department or Agency that agrees
mestic as well as foreign acts of terrorism (P.L. 110-318). For to indemnify the Secretary of Transportation for any loss-
all seven extension years, TRIP maintained a private insurer es covered by the insurance.
Chart 20-1. Face Value of Federal

Dollars in trillions
Credit Outstanding
2.8
2.6
2.4 Loan Guarantees
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6 Direct Loans
0.4
0.2
0.0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Table 202. ESTIMATED FUTURE COST OF OUTSTANDING DIRECT LOANS AND LOAN GUARANTEES
Estimated Estimated
Future Costs Future Costs
Program Outstanding of 2014 Outstanding of 2015
2014 Outstanding1 2015 Outstanding1
Direct Loans:2
Federal Student Loans 734 37 839 26
Education Temporary Student Loan Purchase Authority 84 13 77 12
Rural Utilities Service and Rural Telephone Bank 56 2 52 2
Farm Service Agency, Rural Development, Rural Housing 54 6 55 6
Export-Import Bank 22 3 23 2
Advance Technology Vehicle Manufacturing, Title 17 Loans 15 2 16 2
Housing and Urban Development 14 8 19 11
State Housing Finance Authority Direct Loans 9 1 8 1
Transportation Infrastructure Finance and Innovation Act Loans 9 * 11 *
Disaster Assistance 7 1 6 1
International Assistance 5 1 3 1
Public Law 480 4 2 3 2
Troubled Asset Relief Program (TARP)3 3 1 1 *
Small Business Lending Fund (SBLF)3 3 * 2 *
Other direct loan programs3 27 9 29 8
Total direct loans 1,046 15 1,145 2
Guaranteed Loans:2
FHA Mutual Mortgage Insurance Fund 1,132 25 1,123 10
Department of Veterans Affairs (VA) Mortgages 398 9 462 10
Federal Student Loan Guarantees 242 * 220 *
FHA General and Special Risk Insurance Fund 153 9 149 6
Farm Service Agency, Rural Development, Rural Housing 124 5 134 6
Small Business Administration (SBA) Business Loan Guarantees4 99 2 106 2
Export-Import Bank 63 2 62 2
International Assistance 24 2 24 2
Commodity Credit Corporation Export Loan Guarantees 4 * 3 *
Title 17 Loan Guarantees 3 * 3 *
Government National Mortgage Association (GNMA)4 ......... * ......... *
Other guaranteed loan programs3 11 1 13 1
Total guaranteed loans 2,253 55 2,300 38
Total Federal credit 3,299 40 3,445 36
* $500 million or less.
1 Future costs represent balance sheet estimates of allowance for subsidy cost, liabilities for loan guarantees, and estimated uncollectible principal and interest.
2 Excludes loans and guarantees by deposit insurance agencies and programs not included under credit reform, such as Tennessee Valley Authority loan guarantees. Defaulted
guaranteed loans that result in loans receivable are included in direct loan amounts.
3 As authorized by the statute, table includes TARP and SBLF equity purchases, and International Monetary Fund (IMF) transactions resulting from the 2009 Supplemental
Appropriations Act. Future costs for TARP and IMF transactions are calculated using the discount rate required by the Federal Credit Reform Act adjusted for market risks, as directed in
legislation. IMF activity is accounted for on a present value basis beginning in FY 2016 as directed by P. L. 114-113 Consolidated Appropriations Act, 2016. IMF activity will no longer be
reflected in this table as of the end of FY 2015.
4 To avoid double-counting, outstandings for GNMA and SBA secondary market guarantees, and TARP FHA Letter of Credit program are excluded from the totals.
Table 203. DIRECT LOAN SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 20152017
(Dollar amounts in millions)
2015 Actual 2016 Enacted 2017 Proposed
Agency and Program Account Subsidy Subsidy Subsidy
Subsidy budget Loan Subsidy budget Loan Subsidy budget Loan
rate 1 authority levels rate 1 authority levels rate 1 authority levels
Agriculture:
Agricultural Credit Insurance Fund Program Account 2.18 49 2,272 0.49 16 2,899 1.24 40 3,097
Farm Storage Facility Loans Program Account 3.00 5 180 1.64 5 320 1.33 5 309
Rural Electrification and Telecommunications Loans Program Account 5.19 188 3,644 3.96 269 6,817 4.53 327 7,190
Distance Learning, Telemedicine, and Broadband Program ......... ......... ......... 22.80 15 65 ......... ......... .........
Rural Water and Waste Disposal Program Account 0.61 7 1,106 2.61 36 1,364 4.34 45 1,037
Rural Community Facilities Program Account 12.41 213 1,713 8.04 177 2,200 2.56 56 2,200
Multifamily Housing Revitalization Program Account 53.42 25 47 52.31 22 42 54.49 19 34
Rural Housing Insurance Fund Program Account 8.73 85 968 8.33 84 1,007 8.44 86 1,017
Rural Microenterprise Investment Program Account 12.81 * 2 11.33 1 11 12.40 4 32
Intermediary Relending Program Fund Account 30.80 6 19 27.62 5 19 28.99 6 19
Rural Economic Development Loans Program Account 12.77 5 39 13.39 5 37 14.23 13 89
Commerce:
Fisheries Finance Program Account 4.83 3 57 3.09 4 124 0.33 * 124
Education:
Historically Black College and University Capital Financing Program
Account 5.94 12 183 6.67 20 302 7.14 20 282
TEACH Grant Program Account 16.57 16 95 13.05 12 95 11.88 12 104
Federal Perkins Loan Program Account ......... ......... ......... ......... ......... ......... 13.67 640 4,684
Federal Direct Student Loan Program Account 2.67 4,333 162,312 5.28 8,365 158,278 5.08 8,292 163,161
Energy:
Title 17 Innovative Technology Loan Guarantee Program 1.24 21 1,691 0.34 28 8,200 2 0.87 27 3,100
Advanced Technology Vehicles Manufacturing Loan Program Account 7.28 19 259 5.01 170 3,400 2 4.75 119 2,500
Consumer Operated and Oriented Plan Program Contingency Fund 48.22 42 88 ......... ......... ......... ......... ......... .........
Homeland Security:
Disaster Assistance Direct Loan Program Account 96.35 15 16 91.05 46 50 91.03 46 50
FHA-Mutual Mortgage Insurance Program Account ......... ......... ......... ......... ......... 5 ......... ......... 5
FHA-General and Special Risk Program Account 10.83 11 106 10.91 27 250 11.19 39 350
State:
Repatriation Loans Program Account 52.65 1 2 53.18 1 2 53.42 1 2
Transportation:
Federal-Aid Highways 7.48 223 2,982 6.85 252 3,673 6.73 251 3,736
Railroad Rehabilitation and Improvement Program 2.09 21 982 ......... ......... 600 ......... ......... 600
Treasury:
Community Development Financial Institutions Fund Program Account 0.87 3 343 2 0.40 3 775 2 0.28 3 1,025
Veterans Affairs:
Veterans Housing Benefit Program Fund 7.03 1 8 24.94 74 298 23.01 92 401
Native American Veteran Housing Loan Program Account 11.24 1 6 14.49 2 16 14.86 2 16
Environmental Protection Agency:
Water Infrastructure Finance And Innovation Program Account ......... ......... ......... ......... ......... ......... 2 1.53 15 980
International Assistance Programs:
Foreign Military Financing Loan Program Account ......... ......... ......... 22.34 63 2,700 25.23 141 2,700
Overseas Private Investment Corporation Program Account 7.79 94 1,206 2 5.80 58 1,000 2 5.64 73 1,300
Small Business Administration:
Table 203. DIRECT LOAN SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 20152017Continued
Agency and Program Account

Subsidy Subsidy Subsidy
Disaster Loans Program Account 12.43 36 293 12.10 133 1,100 14.42 159 1,100
Business Loans Program Account 10.12 3 34 8.87 3 35 9.08 4 44
Export-Import Bank of the United States:
Export-Import Bank Loans Program Account 8.27 6 73 ......... ......... ......... ......... ......... .........
National Infrastructure Bank:
National Infrastructure Bank Program Account ......... ......... ......... ......... ......... ......... 2 12.26 123 1,000
Total N/A 4,370 180,726 N/A 8,066 195,684 N/A 8,392 202,288
N/A = Not applicable
*$500,000 or less
1Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
2Rate reflects notional estimate. Estimates will be determined at the time of execution and will reflect the terms of the contracts and other characteristics.
Table 204. LOAN GUARANTEE SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 20152017
Agency and Program Account Subsidy Subsidy Subsidy
Agriculture:
Agricultural Credit Insurance Fund Program Account 0.35 12 3,407 0.31 11 3,543 0.38 14 3,582
Commodity Credit Corporation Export Loans Program Account 0.69 12 1,811 0.51 28 5,500 0.58 32 5,500
Rural Water and Waste Disposal Program Account 0.59 * 15 0.55 * 16 0.48 * 16
Rural Community Facilities Program Account 4.78 6 135 2.36 6 246 2.24 2 78
Rural Housing Insurance Fund Program Account 0.61 115 18,737 0.17 31 18,130 0.79 161 20,411
Rural Business Program Account 5.11 53 1,044 3.88 59 1,520 4.01 44 1,099
Rural Business Investment Program Account .......... .......... .......... .......... .......... .......... 12.51 3 21
Rural Energy for America Program 10.58 17 161 6.60 16 236 4.64 19 411
Biorefinery Assistance Program Account 40.32 18 45 22.42 45 199 2 20.81 42 201
Commerce:
Economic Development Assistance Programs .......... .......... .......... .......... .......... .......... 7.00 5 70
Health Resources and Services .......... .......... .......... 2.67 * 9 4.30 * 6
Indian Housing Loan Guarantee Fund Program Account 1.16 9 772 0.63 7 1,151 0.41 5 1,200
Native Hawaiian Housing Loan Guarantee Fund Program Account 0.62 * 11 0.51 * 25 0.28 * 23
Native American Housing Block Grant 11.21 2 14 11.46 3 27 11.20 3 27
Community Development Loan Guarantees Program Account 2.42 3 123 .......... .......... 300 .......... .......... 300
FHA-Mutual Mortgage Insurance Program Account 5.71 13,085 229,143 3.49 7,837 224,438 4.08 9,085 222,832
FHA-General and Special Risk Program Account 4.12 550 13,334 3.24 438 13,555 3.40 457 13,410
Interior:
Indian Guaranteed Loan Program Account 6.68 7 100 5.88 7 114 6.32 7 106
Transportation:
Minority Business Resource Center Program 2.27 * 1 2.50 * 13 2.36 * 14
Maritime Guaranteed Loan (Title XI) Program Account 6.09 1 12 8.11 42 514 .......... .......... ..........
Veterans Affairs:
Veterans Housing Benefit Program Fund 0.27 405 149,822 0.25 346 138,275 0.51 584 114,493
International Assistance Programs:
Loan Guarantees to Israel Program Account .......... .......... .......... .......... .......... 1,000 .......... .......... 1,000
Ukraine Loan Guarantees Program Account 44.65 447 1,000 29.93 299 1,000 .......... .......... ..........
MENA Loan Guarantee Program Account 12.37 186 1,500 5.81 29 500 26.08 261 1,000
Development Credit Authority Program Account 6.30 37 581 4.53 50 1,106 4.95 71 1,434
Overseas Private Investment Corporation Program Account 9.01 270 3,000 6.26 188 3,000 5.29 169 3,200
Disaster Loans Program Account .......... .......... .......... .......... .......... .......... 2.17 1 77
Business Loans Program Account 0.07 26 34,956 .......... .......... 57,500 .......... .......... 58,000
Business Loans Program Account (Legislative Proposal) .......... .......... .......... .......... .......... .......... 2 25.00 1,250 5,000
Export-Import Bank of the United States:
Export-Import Bank Loans Program Account 2.98 367 12,311 4.22 639 15,140 5.79 1,182 20,425
National Infrastructure Bank:
National Infrastructure Bank Program Account .......... .......... .......... .......... .......... .......... 2 14.83 30 200
Total N/A 13,171 472,035 N/A 8,241 487,057 N/A 8,745 474,136
ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT
LIMITATIONS
Government National Mortgage Association:
Guarantees of Mortgage-backed securities Loan Guarantee Program
Account 0.28 1,221 435,939 0.29 958 330,200 0.37 1,328 359,000
Secondary Market Guarantee Program .......... .......... 6,236 .......... .......... 12,000 .......... .......... 12,000
Total, secondary guarantee loan commitments N/A 1,221 442,175 N/A 958 342,200 N/A 1,328 371,000
N/A = Not applicable.
*$500,000 or less
1 Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
2 Rate reflects notional estimate. Estimates will be determined at the time of execution and will reflect the terms of the contracts and other characteristics.
Table 205. SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES1

Actual Estimate
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Direct Loans:
Obligations 75.6 812.9 246.0 296.3 191.1 174.4 174.0 181.3 195.7 202.3
Disbursements 41.1 669.4 218.9 186.7 170.0 157.5 155.4 161.4 169.0 182.0
New subsidy budget authority 2 3.7 140.1 9.2 15.7 27.2 29.8 22.4 4.9 8.1 8.5
Reestimated subsidy budget authority 2,3 0.8 0.1 125.1 66.8 16.8 19.7 0.8 10.1 7.9 .........
Total subsidy budget authority 2.8 140.0 134.3 82.5 10.4 49.4 23.2 15.1 0.1 8.5
Loan guarantees:
Commitments 4 367.7 879.2 507.3 446.7 479.7 536.6 350.8 478.3 499.1 486.0
Lender disbursements 4 354.6 841.5 494.8 384.1 444.3 491.3 335.6 461.6 454.5 442.1
New subsidy budget authority 2 1.4 7.8 4.9 7.4 6.9 17.9 13.7 11.9 7.1 7.5
Reestimated subsidy budget authority 2,3 3.6 0.5 7.6 4.0 4.9 20.8 1.2 1.1 13.6 .........
Total subsidy budget authority 2.2 7.3 2.7 11.4 11.8 2.8 12.5 13.1 20.7 7.5
1 As authorized by statute, table includes TARP and SBLF equity purchases, and International Monetary Fund (IMF) transactions resulting from the 2009 Supplemental Appropriations
Act.
2 Credit subsidy costs for TARP and IMF transactions are calculated using the discount rate required by the Federal Credit Reform Act adjusted for market risks, as directed in
legislation.
3 Includes interest on reestimate.
4 To avoid double-counting, the face value of GNMA and SBA secondary market guarantees and the TARP FHA Letter of Credit program are excluded from the totals.
21. BUDGETARY EFFECTS OF THE TROUBLED ASSET RELIEF PROGRAM
This chapter reports on the cost and budgetary effects A description of the market impact of TARP programs,
of Treasurys Troubled Asset Relief Program (TARP), followed by a detailed analysis of the assets purchased
consistent with Sections 202 and 203 of the Emergency through TARP, is provided at the end of this report.
Economic Stabilization Act (EESA) of 2008 (P.L. 110
343), as amended. The cost estimates in this report reflect Method for Estimating the Cost
transactions as of September 30, 2015, and expected fu- of TARP Transactions
ture transactions as reflected in the Budget and required
under EESA. Where noted, a descriptive analysis of ad- Under EESA, Treasury has purchased different types
ditional transactions that occurred after September 30, of financial instruments with varying terms and condi-
2015, is provided. For information on subsequent TARP tions. The budget reflects the costs of these instruments
program developments, please consult the Treasury using the methodology as provided by Section 123 of
Departments TARP Monthly Reports to Congress. EESA EESA.
authorized Treasury to purchase or guarantee troubled The estimated costs of each transaction reflect the
assets and other financial instruments to restore liquid- underlying structure of the instrument. To date, TARP
ity and stability to the financial system of the United financial instruments have included direct loans, struc-
States while protecting taxpayers. Treasury has used its tured loans, equity, loan guarantees, and direct incentive
authority under EESA to restore confidence in U.S. finan- payments. The costs of equity purchases, loans, guaran-
cial institutions, to restart markets critical to financing tees, and loss sharing are the net present value of cash
American household and business activity, and to ad- flows to and from the Government over the life of the in-
dress housing market problems and the foreclosure crisis. strument, per the Federal Credit Reform Act (FCRA) of
Under EESA, TARP purchase authority was limited to 1990; as amended (2 U.S.C. 661 et seq.), with an EESA-
$700 billion in obligations at any one time, as measured required adjustment to the discount rate for market risks.
by the total purchase price paid for assets and guaran- Costs for the incentive payments under TARP housing
teed amounts outstanding. The Helping Families Save programs, other than loss sharing under the Federal
Their Homes Act of 2009 (P.L. 111-22) reduced total TARP Housing Administration (FHA) Refinance program, in-
purchase authority by $1.3 billion, and in July 2010, the volve financial instruments without any provision for
Dodd-Frank Wall Street Reform and Consumer Protection future returns and are recorded on a cash basis.1
Act (P.L. 111-203) further reduced total TARP purchase For each of these instruments, cash flow models2
authority to a maximum of $475 billion in cumulative obli- are used to estimate future cash flows to and from the
gations. On October 3, 2010, Treasurys authority to make Government over the life of a program or facility. Each
new TARP commitments expired. Treasury continues to cash flow model reflects the specific terms and conditions
manage existing investments and is authorized to expend of the program, and technical assumptions regarding
previously-committed TARP funds pursuant to obliga- the underlying assets, risk of default or other losses, and
tions entered into prior to October 3, 2010. Additionally, other factors that may affect cash flows to and from the
in December 2015, the Consolidated Appropriations Act, Government. For instruments other than direct incentive
2016 (P.L. 114-113) granted Treasury authority to make payments, projected cash flows are discounted using the
an additional $2.0 billion in commitments through the appropriate Treasury rates, adjusted for market risks as
TARP Hardest Hit Fund (HHF) and fixed the termina- prescribed under EESA. Risk adjustments to the discount
tion date for new applications under the Making Home rates are intended to capture a risk premium for uncer-
Affordable initiative (MHA) as December 31, 2016. tainty around future cash flows, and were made using
The Administrations current estimate of TARPs available data and methods. Consistent with the require-
lifetime deficit cost for its $454.6 billion in cumulative
obligations is $34.5 billion (see Tables 211 and 216). 1 Section 123 of the EESA provides the Administration the author-
Section 123 of EESA requires TARP costs to be estimated ity to record TARP equity purchases pursuant to the FCRA, with re-
quired adjustments to the discount rate for market risks. The MHA
on a net present value basis, adjusted to reflect a premi- programs and HHF involve the purchase of financial instruments that
um for market risk. As investments are liquidated, their have no provision for repayment or other return on investment, and do
actual costs (including any market risk effects) become not constitute direct loans or guarantees under FCRA. Therefore these
known and are reflected in reestimates. It is likely that purchases are recorded on a cash basis. Administrative expenses are
the total cost of TARP to taxpayers will eventually be recorded for all of TARP under the Office of Financial Stability and the
Special Inspector General for TARP on a cash basis, consistent with oth-
lower than current estimates as the forecast market risk er Federal administrative costs, but are recorded separately from TARP
premiums are replaced by actual costs, but the total cost program costs.
will not be fully known until all TARP investments have 2 The basic methods for each of these models are outlined in Chapter
been extinguished. 21 of the Analytical Perspectives volume of the 2015 Budget, Financial
Stabilization Efforts and Their Budgetary Effects.
335
ment under FCRA to reflect the lifetime present value subsidy cost of TARP is likely to be lower than the cur-
cost, subsidy cost estimates are reestimated every year an rent estimate because projected cash flows are discounted
instrument is outstanding, with a final closing reestimate using a risk adjustment to the discount rate as required
once an instrument is fully liquidated. Reestimates up- by EESA. This requirement adds a premium to current
date the cost for actual transactions, and updated future estimates of TARP costs on top of market and other risks
expectations. When all investments in a given cohort are already reflected in the estimated cash flows with the
liquidated, their actual costs (including any market risk public. Over time, the added risk premium for uncertainty
effects) become known and are reflected in final closing on future estimated TARP cash flows is returned to the
reestimates. General Fund through subsidy reestimates as actual cash
Table 211. CHANGE IN PROGRAMMATIC COSTS OF TROUBLED ASSET RELIEF PROGRAM

Change from 2016 Budget to
2016 Budget 2017 Budget 2017 Budget
TARP Programs
TARP Estimated Cost TARP Estimated Cost TARP Estimated Cost
Obligations 1 (+) / Savings () Obligations 1 (+) / Savings () Obligations 1 (+) / Savings ()
Equity Programs 336.0 5.7 335.8 5.8 0.1 *
Structured and Direct Loan Programs 76.2 16.3 76.2 16.7 ......... 0.4
Guarantee Programs 2 5.0 3.9 5.0 3.9 ......... .........
TARP Housing Programs 3 38.4 37.4 37.5 34.7 0.9 2.8
Total programmatic costs 4 455.6 55.6 454.6 53.2 1.0 2.3
Memorandum:
Deficit impact with interest on reestimates5 37.4 34.5 3.0
1 TARP obligations are net of cancellations.
2 The total assets supported by the Asset Guarantee Program were $301 billion.
3 TARP obligations include FHA Refinance Letter of Credit first loss coverage of eligible FHA insured mortgages.
4 Total programmatic costs of TARP exclude interest on reestimates.
5 The total deficit impact of TARP as of September 30, 2015 includes $17.43 billion in subsidy cost for TARP investments in AIG. Additional proceeds of $17.55 billion resulting from
Treasury holdings of non-TARP shares in AIG are not included.
TARP Program Costs and Current Value of Assets flows become known. TARPs overall cost to taxpayers
will not be fully known until all TARP investments are
This section provides the special analysis required un- extinguished.
der Sections 202 and 203 of EESA, including estimates of
Current Value of Assets
the cost to taxpayers and the budgetary effects of TARP
transactions as reflected in the Budget.3 This section The current value of future cash flows related to TARP
explains the changes in TARP costs, and includes alterna- transactions can also be measured by the balances in the
tive estimates as prescribed under EESA. It also includes programs non-budgetary credit financing accounts. Under
a comparison of the current cost estimates with previous the FCRA budgetary accounting structure, the net debt or
estimates provided by OMB and by the Congressional cash balances in non-budgetary credit financing accounts
Budget Office (CBO). at the end of each fiscal year reflect the present value of
Table 211, above, summarizes the cumulative and an- anticipated cash flows to and from the public.5 Therefore,
ticipated activity under TARP, and the estimated lifetime the net debt or cash balances reflect the expected present
budgetary cost reflected in the Budget, compared to esti- value of the asset or liability. Future collections from the
mates from the 2016 Budget. The direct impact of TARP publicsuch as proceeds from stock sales, or payments
on the deficit is projected to be $34.5 billion, down $3.0 of principal and interestare financial assets, just as fu-
billion from the $37.4 billion estimate in the 2016 Budget. ture payments to the public are financial liabilities. The
The total programmatic cost represents the lifetime net current year reestimates true-up assets and liabilities,
present value cost of TARP obligations from the date of setting the net debt or cash balance in the financing ac-
disbursement, which is now estimated to be $53.2 billion, count equal to the present value of future cash flows.
a figure that excludes interest on reestimates.4 The final Table 212 shows the actual balances of TARP financ-
3 The analysis does not assume the effects on net TARP costs of a
ing accounts as of the end of each fiscal year through
recoupment proposal required by Section 134 of EESA. However, the 5 For example, to finance a loan disbursement to a borrower, a direct
Budget includes a financial fee proposal that satisfies this requirement loan financing account receives the subsidy cost from the program ac-
(see chapter 12, Governmental Receipts, in this volume). count, and borrows from the Treasury the difference between the face
4 With the exception of MHA and HHF, all the other TARP invest- value of the loan and the subsidy cost. As loan and interest payments
ments are reflected on a present value basis pursuant to FCRA and from the public are received, the value is realized and these amounts are
EESA. used to repay the financing accounts debt to Treasury.
21. BUDGETARY EFFECTS OF THE TROUBLED ASSET RELIEF PROGRAM 337
Table 212. TROUBLED ASSET RELIEF PROGRAM CURRENT VALUE1

Actual Estimate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Financing Account Balances:

Troubled Asset Relief Program Equity Purchase
Financing Account 105.4 76.9 74.9 13.6 6.6 0.9 0.4 0.4 0.4 0.3 0.2 0.1 0.1 0.1 0.1 * * *
Troubled Asset Relief Program Direct Loan Financing
Account 23.9 42.7 28.5 17.9 3.1 0.2 0.1 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Troubled Assets Insurance Financing Fund Guaranteed
Loan Financing Account 0.6 2.4 0.8 0.8 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Troubled Assets Relief Program FHA Refinance Letter
of Credit Financing Account ......... ......... * * * * * * * * * * ......... ......... ......... ......... ......... .........
Total Financing Account Balances 129.9 122.0 104.1 32.2 9.7 0.7 0.3 0.4 0.4 0.3 0.2 0.1 0.1 0.1 0.1 * * *
1 Current value as reflected in the 2017 Budget. Amounts exclude housing activity under the Making Home Affordable initiative and the Hardest Hit Fund as these programs are
reflected on a cash basis.
2015, and projected balances for each subsequent year Estimate of the Deficit, Debt Held by
through 2026.6 Based on actual net balances in financing the Public, and Gross Federal Debt,
accounts at the end of 2009, the value of TARP assets to- Based on the EESA Methodology
taled $129.9 billion. As of September 30, 2015, total TARP
net asset value has decreased to $0.3 billion as repay- The estimates of the deficit and debt in the Budget re-
ments, repurchases, and other liquidations have reduced flect the impact of TARP as estimated under FCRA and
the inventory of TARP assets. Estimates in 2016 and be- Section 123 of EESA. The deficit estimates include the
yond reflect estimated TARP net asset values over time, budgetary costs for each program under TARP, adminis-
and future anticipated transactions. The overall balance trative expenses, certain indirect interest effects of credit
of the financing accounts is estimated to continue falling programs, and the debt service cost to finance the pro-
over the next few years, as TARP investments continue to gram. As shown in Table 21-3, direct activity under TARP
wind down. is expected to increase the 2016 deficit by $5.5 billion.
The value of TARP equity purchases reached a high This reflects estimated TARP programmatic and admin-
of $105.4 billion in 2009, and has since declined signifi- istrative outlays of $5.6 billion, offset by $0.2 billion in
cantly with the wind down of American International downward reestimates on TARP investments, including
Group (AIG) funding and repayments from large fi- interest on reestimates, and $0.1 billion in interest ef-
nancial institutions. In December 2014, TARP finished fects. The estimates of U.S. Treasury debt attributable to
winding down its equity investments in Ally, leaving TARP include borrowing to finance both the deficit im-
remaining equity investments concentrated in only pacts of TARP activity and the cash flows to and from
two programs, the Capital Purchase Program and the the Government reflected as a means of financing in the
Community Development Capital Initiative. The value TARP financing accounts. Estimated debt due to TARP at
of the TARP equity portfolio is anticipated to continue the end of 2016 is $25.9 billion.
declining as participants repurchase stock and as- Debt held by the public net of financial assets reflects
sets are sold. TARP direct loans were fully liquidated the cumulative amount of money the Government has
in January 2014. The Asset Guarantee Program con- borrowed from the public for the program and not repaid,
cluded with the February 2013 liquidation of trust minus the current value of financial assets acquired with
preferred shares Treasury received from the Federal the proceeds of this debt, such as loan assets, or equity
Deposit Insurance Company (FDIC), following termi- held by the Government. While debt held by the public is
nation of the guarantee on Citigroup assets, and shows one useful measure for examining the impact of TARP, it
no financing account balance as of the end of 2013. provides incomplete information on the programs effect
The FHA Refinance Letter of Credit financing account on the Governments financial condition. Debt held by the
reflects net cash balances, showing the reserves set public net of financial assets provides a more complete
aside to cover TARPs share of default claims for FHA picture of the Governments financial position because it
Refinance mortgages over the letter of credit facility reflects the net change in the Governments balance sheet
which expires in December 2022. These reserves are due to the program.
projected to fall as claims are paid and as TARP cover- Debt net of financial assets due to TARP is estimated to
age expires. be $25.4 billion as of the end of 2016. This is $1.0 billion
lower than the projected debt held net of financial assets
for 2016 that was reflected in the 2016 Budget. However,
6 Reestimates for TARP are calculated using actual data through debt net of financial assets is anticipated to continue in-
September 30, 2015, and updated projections of future activity. Thus, creasing annually, as debt is incurred to finance TARP
the full impacts of TARP reestimates are reflected in the 2016 financing housing program costs and debt service.
account balances.
Table 213. TROUBLED ASSET RELIEF PROGRAM EFFECTS ON THE DEFICIT AND DEBT1
(Dollars in billions)
Actual Estimate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Deficit Effect:
Programmatic and administrative
expenses 151.3 109.6 37.3 24.6 8.5 3.6 2.9 5.4 4.3 2.7 2.2 1.3 0.8 0.6 0.3 * * *
Interest effects2, 3 * * * * * * * 0.1 0.5 0.8 1.1 1.3 1.4 1.5 1.6 1.6 1.6 1.7
Total deficit impact 151.3 109.6 37.3 24.7 8.5 3.6 2.9 5.5 4.7 3.5 3.3 2.7 2.2 2.1 1.9 1.6 1.7 1.7
Debt held by the public:
Deficit impact 151.3 109.6 37.3 24.7 8.5 3.6 2.9 5.5 4.7 3.5 3.3 2.7 2.2 2.1 1.9 1.6 1.7 1.7
Net disbursements of credit financing
accounts 129.9 7.9 17.8 71.9 22.5 9.0 0.4 0.1 * 0.1 0.1 * * * * * * *
Total change in debt held by the public 281.2 117.5 55.1 47.2 31.0 12.6 2.5 5.7 4.7 3.5 3.1 2.6 2.2 2.1 1.9 1.6 1.7 1.7
Debt held by the public 281.2 163.6 108.5 61.3 30.3 17.6 20.2 25.9 30.5 34.0 37.1 39.7 41.9 44.0 45.9 47.5 49.2 50.9
Debt held by the public net of financial
assets:
Debt held by the public 281.2 163.6 108.5 61.3 30.3 17.6 20.2 25.9 30.5 34.0 37.1 39.7 41.9 44.0 45.9 47.5 49.2 50.9
Less financial assets net of liabilities 129.9 122.0 104.1 32.2 9.7 0.7 0.3 0.4 0.4 0.3 0.2 0.1 0.1 0.1 0.1 * * .........
Debt held by the public net of
financial assets 151.3 41.6 4.4 29.0 20.5 17.0 19.9 25.4 30.2 33.7 37.0 39.6 41.8 43.9 45.8 47.4 49.1 50.9
1 Table reflects the deficit effects of the TARP program, including administrative costs and interest effects.
2 Projected Treasury interest transactions with credit financing accounts are based on the market-risk adjusted rates. Actual credit financing account interest transactions reflect the
appropriate Treasury rates under the FCRA.

3 Includes estimated debt service effects of all TARP transactions that affect borrowing from the public.
Under FCRA, the financing account earns and pays Therefore, the net present value cost of the assets is re-
interest on its Treasury borrowings at the same inter- flected on-budget, and the gross value of these assets is
est rate used to discount cash flows for the credit subsidy reflected in the financing accounts.8 If these purchases
cost. Section 123 of EESA requires an adjustment to the were instead presented in the Budget on a cash basis,
discount rate used to value TARP subsidy costs to ac- the Budget would reflect outlays for each disbursement
count for market risks. However, actual cash flows as of (whether a purchase, a loan disbursement, or a default
September 30, 2015, already reflect the effect of any in- claim payment), and offsetting collections as cash is re-
curred market risks to that point, and therefore actual ceived from the public, with no obvious indication of
financing account interest transactions reflect the FCRA whether the outflows and inflows leave the Government
Treasury interest rates, with no additional risk adjust- in a better or worse financial position, or what the net
ment.7 Future cash flows reflect a risk adjusted discount value of the transaction is.
rate and the corresponding financing account interest
Revised Estimate of the Deficit, Debt Held
rate, consistent with the EESA requirement. For ongoing
by the Public, and Gross Federal Debt
TARP credit programs, the risk adjusted discount rates
Based on the Cash-basis Valuation
on future cash flows result in subsidy costs that are high-
er than subsidy costs estimated under FCRA. The estimated effects of TARP transactions on the defi-
cit and debt, as calculated on a cash basis, are reflected in
Estimates on a Cash Basis Table 214. For comparison, the estimates in Table 213
The value to the Federal Government of the assets ac- reflect TARP transactions effects as calculated consistent
quired through TARP is the same whether the costs of with FCRA and Section 123 of EESA.
acquiring the assets are recorded in the Budget on a cash If TARP transactions were reported on a cash basis, the
basis, or a credit basis. As noted above, the Budget records annual budgetary effect would include the full amount of
the cost of equity purchases, direct loans, and guarantees Government disbursements for activities such as equity
as the net present value cost to the Government, dis- purchases and direct loans, offset by cash inflows from
counted at the rate required under FCRA and adjusted dividend payments, redemptions, and loan repayments
for market risks as required under Section 123 of EESA. occurring in each year. For loan guarantees, the deficit
would show fees, claim payouts, or other cash transac-
7 As TARP transactions wind down, the final lifetime cost estimates
tions associated with the guarantees as they occurred.
under the requirements of Section 123 of EESA will reflect no adjust- Updates to estimates of future performance would affect
ment to the discount rate for market risks, as these risks have already
been realized in the actual cash flows. Therefore, the final subsidy cost
for TARP transactions will equal the cost per FCRA, where the net pres- 8 For MHA programs and HHF, Treasurys purchases of financial in-
ent value costs are estimated by discounting cash flows using Treasury struments do not result in the acquisition of assets with potential for
rates. future cash flows, and therefore are recorded on a cash basis.
Table 214. TROUBLED ASSET RELIEF PROGRAM EFFECTS ON THE DEFICIT AND DEBT CALCULATED ON A CASH BASIS
(Dollars in billions)
Actual Estimate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Deficit Effect:
Programmatic and administrative expenses 278.4 122.3 58.1 48.9 31.6 12.8 2.5 5.6 4.2 2.6 2.0 1.3 0.7 0.5 0.3 * * *
Debt service 2 2.8 4.7 3.0 1.7 0.6 0.2 * 0.1 0.5 0.8 1.1 1.3 1.4 1.5 1.6 1.6 1.6 1.7
Total deficit impact 281.2 117.5 55.1 47.2 31.0 12.6 2.5 5.7 4.7 3.5 3.1 2.6 2.2 2.1 1.9 1.6 1.7 1.7
1 Table reflects deficit effect of budgetary costs, substituting estimates calculated on a cash basis for estimates calculated under FCRA and Sec. 123 of EESA.
2 Includes estimated debt service effects of all TARP transactions affecting borrowing from the public.
Interest transactions with credit financing accounts

the deficit in the year that they occur, and there would not include interest paid to Treasury on borrowing by the
be credit reestimates. financing accounts, offset by interest paid by Trea-
Under cash basis reporting, TARP would increase the sury on the financing accounts uninvested balances.
deficit in 2016 by an estimated $5.7 billion, so if this basis Although the financing accounts are non-budgetary,
was used the 2016 deficit would be $0.2 billion higher than Treasury payments to these accounts and receipt
the $5.5 billion estimate now reflected in the Budget. The of interest from them are budgetary transactions
deficit would be higher because downward subsidy rees- and therefore affect net outlays and the deficit. For
timates, which reduce the deficit, are not included under TARP financing accounts, projected interest trans-
cash basis reporting. Under FCRA, the marginal change actions are based on the market risk adjusted rates
in the present value attributable to better-than-expected used to discount the cash flows. The projected net fi-
future inflows from the public would be recognized up nancing account interest paid to Treasury at market
front in a downward reestimate, in contrast to a cash- risk adjusted rates is $28 million in 2016 and after
based treatment that would show the annual marginal a slight increase in 2017, declines over time as the
changes in cash flows. However, the impact of TARP on financing accounts repay borrowing from Treasury
the Federal debt, and on debt held net of financial assets, through investment sale proceeds and repayments
is the same on a cash basis as under FCRA. Because debt on TARP equity purchases and direct loans.
held by the public and debt net of financial assets are the
same on a cash and present value basis, these data are The full impact of TARP on the deficit includes the es-
not repeated in Table 21-4. timated cost of Treasury borrowing from the publicdebt
servicefor the outlays listed above. Debt service is esti-
Portion of the Deficit Attributable to
mated at $141 million for 2016 and is expected to increase
TARP, and the Extent to Which the Deficit
to $1.7 billion by 2026, largely due to outlays for TARP
Impact is Due to a Reestimate
housing programs. Total debt service will continue over
Table 213 shows the portion of the deficit attributable time after TARP winds down, due to the financing of past
to TARP transactions. The major components of TARPs TARP costs.
$5.5 billion deficit effects in 2016 are as follows:
Analysis of TARP Reestimates
TARP reestimates and interest on reestimates will
decrease the deficit by $0.2 billion in 2016. This The costs of outstanding TARP assistance are re-
includes $0.4 billion in increased subsidy costs for estimated annually by updating cash flows for actual
TARP programs, and is reduced by $0.6 billion in in- experience and new assumptions, and adjusting for any
terest on reestimates. changes by either recording additional subsidy costs
(an upward technical and economic reestimate) or by
Outlays for TARP housing programs are estimated reducing subsidy costs (a downward reestimate). The re-
at $5.3 billion in 2016, which includes outlays un- estimated dollar amounts to be recorded in 2016 reflect
der the MHA initiative and HHF. Outlays for TARP TARP disbursements through September 30, 2015, while
housing programs are estimated to increase slightly reestimated subsidy rates reflect the full lifetime costs,
in the near term as a result of new HHF obligation including anticipated future disbursements. Detailed
authority included in P.L. 114-113, before declining information on upward and downward reestimates to pro-
gradually through 2024. gram costs is reflected in Table 215.
Administrative expense outlays for TARP are esti- The current reestimate of -$0.2 billion reflects a de-
mated at $235 million in 2016, and are expected to crease in estimated TARP costs from the 2016 Budget.
decrease annually thereafter as TARP winds down. This decrease was due in large part to improved market
Outlays for the Special Inspector General for TARP conditions and continued progress winding down TARP
are estimated at $49 million in 2016. investments over the past year.
Table 215. TROUBLED ASSET RELIEF PROGRAM REESTIMATES

Net lifetime
reestimate TARP
TARP Program and Cohort Year Current Current amount, disbursements
Original reestimate reestimate excluding as of
subsidy rate rate amount interest 09/30/2015
Equity Programs:
Automotive Industry Financing Program (AIFP) - Equity:
2009 54.52% 6.48% * 6.5 12.5
2010 30.25% 16.81% ......... 1.6 3.8
Capital Purchase Program (CPP):
2009 26.99% 6.82% 0.1 65.7 204.6
2010 5.77% 0.47% * * 0.3
AIG Investment Program (AIG):
2009 82.78% 21.88% ......... 38.5 67.8
Public-Private Investment Program (PPIP) - Equity:
2009 34.62% 20.41% ......... 0.3 0.7
2010 22.97% 51.02% * 3.7 5.5
Targeted Investment Program (TIP):
2009 48.85% 8.47% ......... 23.2 40.0
Community Development Capital Initiative (CDCI):
2010 48.06% 17.61% * 0.2 0.6
Subtotal Equity Programs 0.1 139.7 335.8
Structured and Direct Loan Programs:
Automotive Industry Financing Program (AIFP) - Debt:
2009 58.75% 21.70% 0.1 19.9 63.4
Public Private Investment Program (PPIP) - Debt:
2009 2.52% 0.29% ......... * 1.4
2010 10.85% 1.84% ......... 1.3 11.0
Small Business 7(a) program (SBA 7(a)):
2010 0.48% 1.35% ......... * 0.4
Term-Asset Backed Securities Loan Facility (TALF)1:
2009 104.23% 605.59% ......... 0.4 0.1
Subtotal Structured and Direct Loan Programs 0.1 18.9 76.2
Guarantee Programs2:
Asset Guarantee Program (AGP)3:
2009 0.25% 1.20% ......... 1.4 301.0
FHA Refinance Letter of Credit4:
2011 1.26% 0.37% * * 0.1
2012 4.00% 1.41% * * 0.2
2013 2.48% 1.32% * * 0.2
2015 1.64% 1.82% * * 0.1
Subtotal Guarantee Program * 1.4 301.5
Total TARP 0.2 160.0 713.6
The Term-Asset Backed Securities Loan Facility original subsidy rate reflects the anticipated collections for Treasurys $20 billion commitment, as a percent of estimated lifetime
disbursements of roughly $0.1 billion.
2 Disbursement amounts for Guarantee Programs reflect the face value of the assets supported by the guarantees.
3 The TARP obligation for this program was $5 billion, the maximum contingent liability while the guarantee was in force.
4 The FHA Refinance Letter of Credit, which is considered a TARP Housing Program, is also a guarantee program subject to FCRA.
Differences Between Current and

Previous OMB Estimates billion. $2.7 billion of this decrease is due to reduced esti-
mated outlays within TARP housing programs.
As shown in Table 216, the 2017 Budget reflects a to- The estimated 2017 TARP deficit impact reflected in
tal TARP deficit impact of $34.5 billion. This is a decrease Table 216 differs from the programmatic cost of $53.2 bil-
of $3.0 billion from the 2016 Budget projection of $37.4 lion in the Budget because the deficit impact includes $18.7
Table 216. DETAILED TARP PROGRAM LEVELS AND COSTS

2016 Budget 2017 Budget

Program
TARP Subsidy TARP Subsidy
Obligations Costs Obligations Costs
Equity Purchases:
Capital Purchase Program (CPP) 204.9 8.4 204.9 8.4
AIG Investment Program (AIG) 67.8 17.4 67.8 17.4
Targeted Investment Program (TIP) 40.0 3.6 40.0 3.6
Automotive Industry Financing Program (AIFP) - Equity 16.3 2.7 16.3 2.8
Public-Private Investment Program (PPIP) - Equity 6.4 2.5 6.2 2.5
Community Development Capital Initiative (CDCI) 0.6 0.1 0.6 0.1
Subtotal equity purchases 336.0 5.7 335.8 5.8
Structured and Direct Loan Programs:
Automotive Industry Financing Program (AIFP) - Debt 63.4 16.7 63.4 17.1
Term Asset-Backed Securities Loan Facility (TALF) 0.1 0.5 0.1 0.6
Public-Private Investment Program (PPIP) - Debt 12.4 0.1 12.4 0.1
Small Business 7(a) Program (SBA 7(a)) 0.4 * 0.4 *
Subtotal direct loan programs 76.2 16.3 76.2 16.7
Guarantee Programs:
Asset Guarantee Program (AGP) 1 5.0 3.9 5.0 3.9
Subtotal asset guarantees 5.0 3.9 5.0 3.9
TARP Housing Programs:
Making Home Affordable (MHA) Programs 29.8 29.8 27.8 25.1
Hardest Hit Fund 7.6 7.6 9.6 9.6
Subtotal non-credit programs 37.4 37.4 37.4 34.7
FHA Refinance Letter of Credit 1.0 * 0.1 *
Subtotal TARP housing programs 38.4 37.4 37.5 34.7
Totals 455.6 55.6 454.6 53.2
Memorandum:
Interest on reestimates 18.1 18.7
Deficit impact with interest on reestimates 2
37.4 34.5
1 The total assets supported by the Asset Guarantee Program were $301 billion.
2 Total programmatic costs of TARP exclude interest on reestimates of $18.1 billion in the 2016 Budget and $18.7 billion in the 2017
Budget. Interest on reestimates is an adjustment that accounts for the time between the original subsidy costs and current estimates; such
adjustments impact the deficit but are not direct programmatic costs.
billion in cumulative downward adjustments for interest projects $28 billion in total TARP housing expenditures,
on subsidy reestimates. See footnote 2 in Table 216. while the Budget reflects a $35 billion estimate. Other dif-
ferences between CBO and OMB cost estimates for TARP
Differences Between OMB and CBO Estimates have diminished over time as TARP equity programs
Table 217 compares the OMB estimate for TARPs have wound down and differences in assumptions for the
deficit impact to the deficit impact estimated by CBO in future performance of equity investments in the program
its Report on the Troubled Asset Relief ProgramMarch have been eliminated.
2015.9
TARP Market Impact
CBO estimates the total cost of TARP at $28 billion,
based on estimated lifetime TARP disbursements of $440 TARPs support to the banking sector through the
billion. The Budget reflects the total deficit cost at $34 Capital Purchase Program, Targeted Investment
billion, based on current estimates of $455 billion in pro- Program, Asset Guarantee Program, and the Community
gram obligations. The main difference between OMB and Development Capital Initiative helped stabilize the fi-
CBO cost estimates is the difference in the estimated cost nancial system and strengthen the financial position of
of TARP housing programs, which stems from divergent the Nations banking institutions. With the auto indus-
demand and participation rate assumptions. The CBO try profitable and growing again, in December 2014,
Treasury sold all its remaining shares of Ally Financial
9 Available at: www.cbo.gov/sites/default/files/114th-congress- 2015- (the successor organization to General Motors Acceptance
2016/reports/50034-TARP.pdf
Table 217. COMPARISON OF CBO AND OMB TARP COSTS

Program Estimates of Deficit Impact

CBO Cost OMB Cost
Estimate Estimate
Capital Purchase Program 16 16
Targeted Investment Program & Asset Guarantee Program 8 8
AIG assistance 15 15
Automotive Industry Financing Program 12 12
Term Asset-Backed Securities Loan Facility 1 1
Public-Private Investment Programs 3. 3 3
Other programs 4 * *
TARP housing programs 5 28 35
Total 28 34
* Amounts round to less than $1 billion.
Totals include interest on reestimates.
CBO estimates from March 2015, available at www.cbo.gov/sites/default/files/114th-
congress-2015-2016/reports/50034-TARP.pdf
Includes both debt and equity purchases.
4 Other programs reflects an aggregate cost for CDCI and small business programs. In previous
Budgets, Other programs included AGP and PPIP.

5 OMB Cost Estimate for TARP housing programs reflect legislation passed in December 2015.
Corporation (GMAC)), recouping a total of $70.5 bil- yet completed a HAMP application. See the Credit and
lion from the original investment. With this sale, the Insurance chapter in this volume for more information
Automotive Industry Financing Program was effectively on the Administrations efforts to support the housing
wound down. Treasury retains the right to receive pro- market.
ceeds from Chrysler and General Motors (GM) liquidation
trusts, and in 2015 received $100.2 million and $8.3 mil- Description of Assets Purchased
lion, respectively, and could continue to receive future Through TARP, by Program
cash flows from further liquidation and/or legal proceed- Capital Purchase Program (CPP): Pursuant to
ings. Sales of TARP assets occurring after September 30, EESA, Treasury created the CPP in October 2008 to
2015, are not included in the cost analysis provided in this restore confidence throughout the financial system by
report. ensuring that the Nations banking institutions had a
The Administrations housing programs implemented sufficient capital cushion against potential future losses
through TARP have helped stabilize the housing mar- and to support lending to creditworthy borrowers. All eli-
ket and kept millions of borrowers in their homes. As of gible CPP recipients completed funding applications by
December 31, 2015, more than 1.6 million borrowers have December 31, 2009, and Treasury purchased $204.9 bil-
received permanent mortgage modifications through the lion in preferred stock in 707 financial institutions under
Home Affordable Modification Program (HAMP), which CPP. As of November 30, 2015, Treasury had received ap-
amounts to an estimated $40 billion in realized monthly proximately $199.6 billion in principal repayments and
mortgage payment savings for these homeowners. In ad- $27.1 billion in revenues from dividends, interest, war-
dition to helping these borrowers, the Administrations rants, gains/other interest and fees. CPP cash proceeds of
TARP housing programs have been a catalyst for private $226.6 billion now exceed Treasurys initial investment
sector mortgage modifications. Since April 2009, HAMP, by $21.7 billion. As of September 30, 2015, $0.3 billion re-
FHA, and the private sector HOPE NOW alliance have mained outstanding under the program.
initiated more than 10 million mortgage modifications, Community Development Capital Initiative
which is nearly double the number of foreclosures com- (CDCI): The CDCI program invested lower-cost capital in
pleted in the same period. In late 2014, the Administration Community Development Financial Institutions (CDFIs),
announced several enhancements to housing programs which operate in markets underserved by traditional fi-
under MHA designed to motivate borrowers to continue nancial institutions. In February 2010, Treasury released
making their modified mortgage payments, strengthen program terms for the CDCI program, under which par-
the safety net for homeowners facing continuing finan- ticipating institutions received capital investments of up
cial hardships, and help homeowners in MHA programs to 5 percent of risk-weighted assets and pay dividends to
build equity in their homes, further stabilizing neighbor- Treasury of as low as 2 percent per annum. The dividend
hoods. Also, in July 2015, the Administration announced rate increases to 9 percent after eight years. CDFI credit
a streamlined modification process under HAMP to assist unions were able to apply to TARP for subordinated debt
homeowners who are seriously delinquent and have not at rates equivalent to those offered to CDFI banks and
thrifts. These institutions could apply for capital invest- quired outside of TARP from FRBNY. With this final sale,
ments of up to 3.5 percent of total assets an amount Treasury and FRBNY fully recovered all funds commit-
approximately equivalent to the 5 percent of risk-weight- ted to stabilize AIG during the financial crisis.10 In March
ed assets available under the CDCI program to banks and 2013, Treasury sold its remaining 2.7 million warrants
thrifts. TARP capital of $570 million has been committed for $25.2 million and has fully exited its investment in
to this program. As of November 30, 2015, Treasury has AIG. (A summary of the deal terms and transactions can
received $173 million in cash back on its CDCI invest- be found in the Financial Stabilization Efforts and their
ments and $445 million remains outstanding. Budgetary Effects Chapter of the Analytical Perspectives
Capital Assistance Program (CAP) and Other volume of the 2014 Budget.) In total, TARPs AIG commit-
Programs: In 2009, Treasury worked with Federal bank- ments totaled $67.8 billion and, with the program closed,
ing regulators to develop a comprehensive stress test yielded $55.3 billion in total cash back.
known as the Supervisory Capital Assessment Program Targeted Investment Program (TIP): The goal of
(SCAP) to assess the health of the nations 19 larg- TIP was to stabilize the financial system by making invest-
est bank holding companies. In conjunction with SCAP, ments in institutions that are critical to the functioning
Treasury announced that it would provide capital under of the financial system. Investments made through TIP
TARP through the Capital Assistance Program (CAP) to sought to avoid significant market disruptions resulting
institutions that participated in the stress tests as well from the deterioration of one financial institution that
as others. Only one TARP institution (Ally Financial) could threaten other financial institutions and impair
required additional funds under the stress tests, but re- broader financial markets, and thereby pose a threat to
ceived them through the Automotive Industry Financing the overall economy. Under TIP, Treasury purchased $20
Program (AIFP), not CAP. CAP closed on November 9, billion in preferred stock from Citigroup and $20 billion in
2009, without making any investments and did not incur preferred stock from Bank of America. Treasury also re-
any losses to taxpayers. Following the release of the stress ceived stock warrants from each company. Both Citigroup
test results, banks were able to raise hundreds of billions and Bank of America repaid their TIP investments in full
of dollars in private capital. in December 2009, along with dividend payments of ap-
American International Group (AIG) Investments: proximately $3.0 billion. In March 2010, Treasury sold
During the financial crisis, the Federal Reserve Bank of all of its Bank of America warrants for $1.2 billion, and
New York (FRBNY) and Treasury provided financial sup- in January 2011, Treasury sold Citigroup warrants ac-
port to AIG in order to mitigate broader systemic risks quired through TIP for $190.4 million. In total, TARPs
that would have resulted from the disorderly failure TIP commitments totaled $40 billion and, with the pro-
of the company. To prevent the company from entering gram closed, yielded $44.4 billion in total cash back.
bankruptcy and to resolve the liquidity issues it faced, the Asset Guarantee Program (AGP): The AGP was cre-
FRBNY provided an $85 billion line of credit to AIG in ated to provide Government assurances for assets held
September 2008 and received preferred shares that enti- by financial institutions that were critical to the func-
tled it to 79.8 percent of the voting rights of AIGs common tioning of the Nations financial system. Under the AGP,
stock. After TARP was enacted, FRBNY and Treasury Treasury and FDIC guaranteed up to $5 billion and $10
continued to work to facilitate AIGs execution of its plan billion, respectively, of potential losses incurred on a $301
to sell certain of its businesses in an orderly manner, pro- billion portfolio of financial assets held by Citigroup. In
mote market stability, and protect the interests of the U.S. exchange, Treasury received $4 billion of preferred stock
Government and taxpayers. As of December 31, 2008, that was later converted to trust preferred securities;
when purchases ended, Treasury had purchased $40 bil- FDIC received $3 billion in preferred stock.11 The pre-
lion in preferred shares from AIG through TARP, which ferred stock provided an 8 percent annual dividend. On
were subsequently converted into common stock. In April December 23, 2009, in connection with Citigroups TIP
2009, Treasury also extended a $29.8 billion line of credit, repayment, Citigroup and the Government terminated
of which AIG drew down $27.8 billion, in exchange for the AGP agreement. Treasury and FDIC did not pay any
additional preferred stock. The remaining $2 billion obli- losses under the agreement, and retained $5.2 billion of
gation was subsequently canceled. the $7 billion in trust preferred securities that were part
AIG executed a recapitalization plan with FRBNY, of the initial agreement with Citigroup. TARP retained
Treasury, and the AIG Credit Facility Trust in January $2.2 billion of the trust preferred securities, as well as
2011 that allowed for the acceleration of the Governments warrants for common stock shares that were issued by
exit from AIG. Following the restructuring and AIGs en- Citigroup as consideration for the guarantee. Treasury
suing public offering in May 2011, Treasury had a 77
percent ownership (or 1.45 billion shares) stake in AIG, 10 Treasurys investment in AIG common shares consisted of shares
which represented a 15 percentage point reduction from acquired in exchange for preferred stock purchased with TARP funds
Treasurys 92 percent ownership stake in January 2011. (TARP shares) and shares received from the trust created by FRBNY for
Throughout 2012, Treasury completed public offerings the benefit of Treasury as a result of its loan to AIG (non-TARP shares).
Treasury collected proceeds of $17.5 billion for its non-TARP shares in
to further reduce its AIG ownership stake. In December AIG.
2012, Treasury sold its remaining balance of AIG common 11 Trust preferred securities are financial instruments that have the
stock in a public offering that reduced Treasurys AIG following features: they are taxed like debt; counted as equity by regula-
common stock position to zero, including its shares actors; are generally longer term; haveearly redemption features; make
quarterly fixed interest payments; and mature at face value.
sold the trust preferred securities on September 30, 2010, Warranty Programs have closed and, in aggregate, these
and the warrants on January 25, 2011. On December investments yielded $1.2 billion in total cash back. TARPs
28, 2012, Treasury received $800 million in additional AIFP disbursementsincluding the GM, Chrysler, Ally
Citigroup trust preferred securities from FDIC and, in (GMAC), Supplier, and Warranty Programstotaled
2013, sold them for $894 million. In total, with the pro- $79.7 billion and, with all programs effectively wound
gram closed, TARPs Citigroup asset guarantees yielded down, AIFP yielded $70.5 billion in total cash back.
$3.9 billion in total cash back. TARP maintains an interest in the ongoing bankruptcy
In May 2009, Bank of America announced a similar proceedings of the automotive entities it invested in. In
asset guarantee agreement with respect to approximate- 2015, TARP received payments of $100.2 million from the
ly $118 billion in Bank of America assets, but the final Chrysler bankruptcy proceedings and $8.3 million from
agreement was never executed. As a result, in 2009, Bank the GM bankruptcy proceedings. Additional future pay-
of America paid a termination fee of $425 million to the ments are possible, but not anticipated.
Government. Of this amount, $276 million was paid to Credit Market Programs: The Credit Market
TARP, $92 million was paid to FDIC, and $57 million Programs were designed to facilitate lending that sup-
was paid to the Federal Reserve. In total, AGP obligated ports consumers and small businesses, through the
$5 billion, but never paid a claim, and with the program Term Asset-Backed Securities Loan Facility (TALF),
closed, TARPs AGP guarantees yielded $4.1 billion in to- the CDCI discussed previously, and the Small Business
tal cash back. Administrations guaranteed loan program (SBA 7(a)).
Automotive Industry Support Programs: In Term Asset-Backed Securities Loan Facility (TALF):
December 2008, in order to mitigate a systemic threat to The TALF was a joint initiative with the Federal Reserve
the Nations economy and a potential loss of thousands that provided financing (TALF loans) to private investors
of jobs, Treasury established several programs to prevent to help facilitate the restoration of efficient and robust
the collapse of the domestic automotive industry. Through secondary markets for various types of credit. Treasury
the Automotive Industry Financing Program (AIFP), provided protection to the Federal Reserve through a
TARP made emergency loans to Chrysler, Chrysler loan to TALFs special purpose vehicle (SPV), which was
Financial, and GM. Additionally, TARP bought equity in originally available to purchase up to $20 billion in assets
Ally Financial, formerly GMAC, and assisted Chrysler that would be acquired in the event of default on Federal
and GM during their bankruptcy proceedings. Reserve financing. In March 2009 Treasury disbursed
Treasury has liquidated its AIFP holdings and AIFP $0.1 billion of this amount to the TALF SPV to implement
is now closed. In total, of the $12.4 billion committed to the program. In July 2010, Treasury, in consultation with
Chrysler, TARP was repaid $11.1 billion in total cash the Federal Reserve, reduced the maximum amount of as-
back.12 On December 9, 2013, TARP sold its last remain- sets Treasury would acquire to $4.3 billion, or 10 percent
ing shares in GM, recouping $39.0 billion from TARPs of the total $43 billion outstanding in the facility when
$49.5 billion investment in GM.13 On January 16, 2014, the program was closed to new lending on June 30, 2010.
Treasury announced that TARP had sold 410,000 shares In June 2012, Treasury, in consultation with the Federal
of Ally common equity for $3 billion in a private place- Reserve, further reduced its loss-coverage to $1.4 billion.
ment offering. Treasury sold Ally common stock as part Finally, Treasury and the Federal Reserve announced in
of Allys initial public offering on April 15, 2014, for $2.4 January 2013 that Treasurys commitment of TARP funds
billion in additional proceeds and $181 million associated to provide credit protection was no longer necessary due
with the over-allotment option that was exercised in May to the fact that the accumulated fees collected through
2014. TARP conducted two trading plans between August TALF exceeded the total principal amount of TALF loans
14, 2014, and October 16, 2014, resulting in collections of outstanding. As of November 30, 2015, Treasury had ac-
$464 million. On December 18, 2014, TARP sold its re- cumulated income of $685 million from TALF.
maining 54.9 million shares of Ally common stock in an Small Business 7(a) Program (SBA 7(a)): In March
underwritten offering, completing the wind down of its 2009, Treasury and the Small Business Administration
remaining investments through the AIFP and recovering (SBA) announced a Treasury program to purchase SBA-
$1.3 billion. In total, Treasury recovered $19.6 billion on guaranteed securities (pooled certificates) to re-start the
its investment in Ally, roughly $2.4 billion more than the secondary market in these loans. Through a pilot pro-
original investment of $17.2 billion. gram, Treasury purchased 31 SBA-guaranteed securities
Through the Auto Supplier Support Program (Supplier with an aggregate face value of approximately $368 mil-
Program) and the Auto Warranty Commitment Program lion. Treasury reduced its commitment to the SBA 7(a)
(Warranty Program), Treasury disbursed $1.1 billion in Program from $1 billion to $370 million, as demand for
direct loans to GM and Chrysler to support auto parts the Program waned due to a significantly improved sec-
manufacturers and suppliers. Both the Supplier and ondary market for these securities following the original
12 Chrysler repayments of $11.1 billion include $560 million in pro-
announcement of the Program. In January 2012, Treasury
completed the final disposition of its SBA 7(a) securities
ceeds from the sale of Treasurys 6 percent fully diluted equity interest
in Chrysler to Fiat and Treasurys interest in an agreement with the portfolio. The SBA 7(a) Program received total proceeds
United Automobile Workers retiree trust that were executed on July of $376 million, representing a gain of approximately $8
21, 2011. million to taxpayers.
13 This excludes the $884 million loan to GM that was converted to
GMAC common stock.

Public Private Investment Program (PPIP): deed-in-lieu of foreclosure opportunities to borrowers

Treasury announced the Legacy Securities Public-Private when a modification is not possible, as well as assistance
Investment Partnership (PPIP) on March 23, 2009, to help to borrowers who are unemployed or underwater (owe
restart the market for legacy mortgage-backed securities, more than their home is worth). Under MHA programs,
thereby helping financial institutions begin to remove Treasury contracts with servicers to modify loans or pro-
these assets from their balance sheets and allowing for a vide other foreclosure alternatives in accordance with the
general increase in credit availability to consumers and programs guidelines, and to make incentive payments to
small businesses. Under the Program, Public-Private the borrowers, servicers, and, in some programs, investors
Investment Funds (PPIFs) were established by private for those modifications or other foreclosure alternatives.
sector fund managers for the purchase of eligible lega- On June 26, 2014, the Administration announced that
cy securities from banks, insurance companies, mutual the application deadline for MHA would be extended
funds, pension funds, and other eligible sellers as defined to December 31, 2016. In December 2015, P.L. 114-113
under EESA. On June 30, 2010, PPIP closed for new set December 31, 2016 as the termination date for new
funding and as of December 2012 the PPIFs can no lon- MHA applications and prohibited further extensions.
ger deploy capital and make new investments. Treasury As of September 30, 2015, TARP has paid $12.24 billion
was authorized to continue to manage these investments in MHA related incentive payments and an additional
for up to five additional years, and as of September 30, $15.54 billion in TARP funds have been obligated but not
2015, all PPIFs have been terminated. As of November 30, yet disbursed.
2015, after obligating $18.6 billion, PPIP investments had HFA Hardest-Hit Fund (HHF): The $9.6 billion HHF
yielded $22.5 billion in total cash back. provides the eligible entities of HFAs from 18 states
TARP Housing Programs: To mitigate foreclo- and the District of Columbia with funding to design
sures and preserve homeownership, in February 2009 and implement innovative programs to prevent foreclo-
the Administration announced a comprehensive hous- sures and bring stability to local housing markets. The
ing program utilizing up to $50 billion in TARP funding. Administration targeted areas hardest hit by unemploy-
The Government-Sponsored Enterprises: Fannie Mae and ment and home price declines through the program. The
Freddie Mac participated in the Administrations pro- flexibility of HHF funds enables states to design and tai-
grams both as Treasurys financial agents for Treasurys lor innovative programs to meet the unique needs of their
contracts with servicers, and by implementing similar communities. Over the past five years, the Administration
policies for their own mortgage portfolios. These housing has taken key actions to help communities turn the cor-
programs are focused on creating sustainably-affordable ner to recovery, including working with Alabama, Indiana,
mortgages for responsible homeowners who are making a Illinois, Michigan, Ohio, South Carolina, and Tennessee to
good faith effort to make their mortgage payments, while use their HHF funds for blight elimination. In addition,
mitigating the spillover effects of foreclosures on neigh- Arizona, Florida, Illinois, Kentucky, North Carolina, and
borhoods, communities, the financial system, and the Rhode Island offer Down Payment Assistance Programs,
economy. Following the enactment of the 2010 Wall Street making assistance available to moderate-income home-
Reform Act, Treasury reduced its commitments to TARP buyers in counties that continue to demonstrate housing
housing programs to $45.6 billion. These programs fall market distress. In December 2015, P.L. 114-113 extend-
into three initiatives: ed Treasurys authority to incur certain obligations for
HHF funds through December 31, 2017; Treasury expects
Making Home Affordable (MHA); to allocate $2 billion in additional HHF funds to currently
participating jurisdictions in early 2016.
Housing Finance Agency (HFA) Hardest-Hit Fund FHA Refinance Program: This program, which is ad-
(HHF); and ministered by the FHA and supported by TARP, was
Federal 14
Housing Administration (FHA) Refinance initiated in September 2010 and allows eligible borrowers
Program. who are current on their mortgages, but owe more than
their home is worth, to refinance into an FHA-guaranteed
Making Home Affordable (MHA): Programs under loan if the lender writes off at least 10 percent of the exist-
MHA include the Home Affordable Modification Program ing loan. $8.1 billion was originally committed through a
(HAMP), FHA-HAMP15, the Second Lien Modification letter of credit agreement with Citigroup to cover a share
Program (2MP), and Rural Development-HAMP.16 of any losses on the loans and administrative expenses.
MHA also includes the Home Affordable Foreclosure In 2013, Treasurys commitment to cover a share of any
Alternatives Program, which provides short sale and losses under the FHA Refinance Program was reduced
from $8.1 billion to $1.0 billion. In March 2015, Treasurys
14 The FHA Refinance Program is run by the Department of Housing
commitment was further reduced from $1.0 billion to $0.1
and Urban Development (HUD), but is supported by Treasury through
TARP with $100 million to cover a share of any losses on these particu-
billion, and the Program was extended through December
lar FHA Refinance loans. This program has also been referred to as the 31, 2016. As of November 30, 2015, TARPs remaining
FHA Short Refinance Program or Option in other reporting. commitment to the FHA Refinance Program was $0.1
15 FHA-HAMP is administered by HUD; Treasury provides incen- billion.
tives for servicers and borrowers who qualify for Treasury FHA-HAMP
16 For additional information on MHA programs, visit: www.making-
homeaffordable.gov.
22. HOMELAND SECURITY FUNDING ANALYSIS
Section 889 of the Homeland Security Act of 2002 re- area estimates over time based on additional analysis or
quires that a homeland security funding analysis be changes in the way specific activities are characterized,
incorporated in the Presidents Budget. This analysis ad- aggregated, or disaggregated.
dresses that legislative requirement and covers homeland As reported in the Fiscal Year 2016 Presidents budget,
security funding and activities of all Federal agencies, not DOD refined its characterization of homeland security-
just those carried out by the Department of Homeland related activities to report its spending for this purpose
Security (DHS). Since not all activities carried out by DHS more accurately. This effort resulted in an approximately
constitute traditional homeland security funding (e.g. re- $4 billion reduction in estimated homeland security fund-
sponse to natural disasters and Coast Guard search and ing for DOD relative to what was previously estimated
rescue activities), DHS estimates in this section do not for 2014, for example. The majority of this reduction is
encompass the entire DHS budget. As also required in the related to lower estimated Army National Guard and
Homeland Security Act of 2002, this analysis includes es- Reserve personnel costs due to a more accurate allocation
timates of State, local, and private sector expenditures on methodology for estimating National Guardsmen and
homeland security activities. Reservist assignments. The composition of these assign-
The Presidents highest priority is to keep the American ments changed due to troop withdrawal from Afghanistan
people safe. Homeland security budgetary priorities will and associated reductions in manpower required for pre-
continue to be informed by careful, government-wide stra- deployment training and backfilling troops who were
tegic analysis and review. deployed. In addition, DOD previously included some ac-
tivities focused outside of the continental United States,
Data Collection Methodology and Adjustments, which have been removed from current homeland securi-
Including for the Department of Defense ty estimates. Examples include overseas activities by the
Special Operations Command related to counterterrorism
The Federal spending estimates in this analysis uti- and Marine Corps activities related to countering impro-
lize funding and programmatic information collected vised explosive devices. DOD and OMB worked together
on the Executive Branchs homeland security efforts. to restate past estimates using the refined methodology.
Throughout the budget formulation process, the Office of The results of this effort are shown in Table 22-10.
Management and Budget (OMB) collects three-year fund- During this effort, DOD also identified adjustments
ing estimates and associated programmatic information necessary to maintain consistency throughout the da-
from all Federal agencies with homeland security respon- tabase. DOD determined that the funding methodology
sibilities. These estimates do not include the efforts of used prior to Fiscal Year 2012 to account for Protecting
the Legislative or Judicial branches. Information in this Infrastructure and Critical Key Assets (PICKA) was
chapter is augmented by a detailed appendix of account- different than the current methodology. DOD previ-
level funding estimates, which is available on the internet ously included funding for both domestic and select
at: www.budget.gov/budget/Analytical_Perspectives and international activities as PICKA. In this revision, DOD
on the Budget CD-ROM. normalized the historical data to reflect the current prac-
To compile this data, agencies report information us- tice of reporting only the United States-based portion
ing standardized definitions for homeland security. The of those activities related to DODs homeland security
data provided by the agencies are developed at the ac- mission. DOD is still reporting the same programs over
tivity level, which incorporates a set of like programs or the Fiscal Year 2004-2017 period; however, this revision
projects, at a level of detail sufficient to consolidate the provides a better accounting of the estimated homeland
information to determine total Governmental spending security funding within those programs prior to Fiscal
on homeland security. Year 2012. Therefore, to allow data comparisons, DOD re-
To the extent possible, this analysis maintains pro- stated PICKA funding data for the Fiscal Year 2004-2011
grammatic and funding consistency with previous period, as shown in the other adjustments row.
estimates. Some discrepancies from data reported in Further adjustments were also required to correct
earlier years arise due to agencies improved ability to Prior Year and Budget Year 2012 data entry errors. Net
extract homeland security-related activities from host corrections of these errors are shown in the Fiscal Year
programs and refine their characterizations, as was the 2012 column in the other adjustments row.
case with Department of Defense (DOD) data last year
(see paragraph below). As in the Budget, where appropri- Federal Expenditures
ate, the data is also updated to reflect agency activities,
Congressional action, and technical re-estimates. In addi- Total funding for homeland security has grown signifi-
tion, the Administration may refine definitions or mission cantly since the attacks of September 11, 2001. For 2017,
347
the Presidents Budget includes $70.5 billion of gross this by targeting layered resources toward the highest
budget authority for homeland security activities, a $1.2 risks and sharing information so that frontline personnel
billion (1.7 percent) decrease below the 2016 level, attrib- can stay ahead of potential adversaries. The majority of
utable, in part, to the non-recurrence of 2014, 2015, and funding for border and transportation security is in DHS
2016 authority to build a nationwide interoperable public ($25.5 billion, or 83.7 percent), largely for U.S. Customs
safety broadband network for first responders and relat- and Border Protection (CBP), the Transportation
ed programs. Excluding mandatory spending, fees, and Security Administration (TSA), the U.S. Coast Guard,
the Department of Defenses (DOD) homeland security and U.S. Immigration and Customs Enforcement (ICE).
budget, the 2017 Budget proposes a net, non-Defense, dis- Other Federal Departments, such as the Department of
cretionary budget authority level of $50.4 billion, which is State ($4.4 billion, or 14.4 percent), also play a signifi-
an increase of $5.2 billion (11.5 percent) above the 2016 cant role. Many of these activities support the Obama
level (see Table 221). Administrations emphasis on reducing the illicit flow of
A total of 29 agency budgets include Federal homeland drugs, currency, weapons, and people across our borders
security funding in 2017. Six agenciesthe Departments as well as targeting transnational criminal organizations
of Homeland Security (DHS), Defense (DOD), Health and operating along the Southwest border and elsewhere.
Human Services (HHS), Justice (DOJ), State (DOS), and Funding for domestic counterterrorism contains
Energy (DOE)account for approximately $66.4 billion Federal and Federally-supported efforts to identify,
(94.3 percent) of total Government-wide gross discretion- thwart, and prosecute terrorists in the United States.
ary homeland security funding in 2017. It includes pursuit not only of the individuals directly
As required by the Homeland Security Act, this analy- involved in terrorist activity but also their sources of sup-
sis presents homeland security risk and spending in three port: the people and organizations that knowingly fund
broad categories: Prevent and Disrupt Terrorist Attacks; the terrorists and those that provide them with logistical
Protect the American People, Our Critical Infrastructure, assistance. In todays world, preventing and interdicting
and Key Resources; and Respond To and Recover From terrorist activity within the United States is a priority
Incidents. for law enforcement at all levels of government. The larg-
est contributors to the domestic counterterrorism goal in
Prevent and Disrupt Terrorist Attacks 2017 are law enforcement organizations, including DOJ
($3.4 billion or 60.1 percent), largely for the FBI and DHS
Activities in the areas of intelligence-and-warning ($2.2 billion or 38.3 percent), largely for ICE.
and domestic counterterrorism aim to disrupt the ability
of terrorists to operate within our borders and prevent Protect the American People, Our Critical
the emergence of violent radicalization. Intelligence- Infrastructure, and Key Resources
and-warning funding covers activities designed to detect
terrorist activity before it manifests itself in an attack so Critical infrastructure includes the assets, systems,
that proper preemptive, preventive, and protective action and networks, whether physical or virtual, so vital to the
can be taken. Specifically, it is made up of efforts to iden- United States that their destruction would have a debili-
tify, collect, analyze, and distribute source intelligence tating effect on national economic or homeland security,
information or the resultant warnings from intelligence public health or safety, or any combination thereof. Key
analysis. It also includes information sharing activities resources are publicly or privately controlled resources
among Federal, State, and local governments, relevant essential to the minimal operations of the economy and
private sector entities, and the public at large; it does not government whose disruption or destruction could have
include most foreign intelligence collection, although the significant consequences across multiple dimensions, in-
resulting intelligence may inform homeland security ac- cluding national monuments and icons.
tivities. In 2017, funding for intelligence-and-warning is Efforts to protect the American people include de-
distributed between DOJ (79 percent), primarily in the fending against catastrophic threats through research,
Federal Bureau of Investigation ($217.7 million), and development, and deployment of technologies, systems,
National Security Division ($97.3 million) for activities to and medical measures to detect and counter the threat
deny terrorists and terrorist-related weapons and mate- of chemical, biological, radiological, and nuclear (CBRN)
rials entry into our country and across all international weapons. Funding encompasses activities to protect
borders. Funding includes measures to protect border against, detect, deter, or mitigate the possible terrorist
and transportation systems, such as screening airport use of CBRN weapons through detection systems and
passengers, detecting dangerous materials at ports over- procedures, improving decontamination techniques, and
seas and at U.S. ports-of-entry, and patrolling our coasts the development of medical countermeasures, such as
and the land between ports-of-entry. Securing our borders vaccines, drugs and diagnostics to protect the public from
and transportation systems is a complex task. Security the threat of a CBRN attack or other public health emer-
enhancements in one area may make another avenue gency. The agencies with the most significant resources
more attractive to terrorists. Therefore, our border and to help develop and field technologies to counter CBRN
transportation security strategy aims to make the U.S. threats are: HHS ($2.9 billion, or 43.8 percent) largely
borders smarter while facilitating the flow of legiti- for research at the National Institutes of Health (NIH);
mate visitors and commerce. Government programs do DOD ($2.1 billion, or 31.7 percent) largely for Research
22. HOMELAND SECURITY FUNDING ANALYSIS 349
Development and Testing; and DHS ($1.2 billion, or 18.9 17.5 percent of the 2017 total). Twenty other agencies in-
percent) largely for research in science and technology. clude emergency preparedness and response funding. The
Protecting the Nations critical infrastructure and key Presidents 2017 request reflects a decrease of $1.1 billion
resources (CI/KR) is a complex challenge for two reasons: (14.6 percent) below the 2016 level, primarily attributable
(1) the diversity of infrastructure and (2) the high level of to the non-recurrence of 2014, 2015, and 2016 authority to
private ownership of the Nations critical infrastructure build a nationwide interoperable public safety broadband
and key assets. Efforts to protect CI/KR include unifying network for first responders and related programs.
disparate efforts to protect critical infrastructure across
the Federal Government and with State, local, and private Continue to Strengthen the Homeland
stakeholders; accurately assessing CI/KR and prioritizing Security Foundation
protective action based on risk; and reducing threats and
vulnerabilities in cyberspace. Securing cyberspace is a Preventing and disrupting terrorist attacks; protecting
top priority of the Obama Administration both to protect the American people, critical infrastructure, and key re-
Americans and our way of life and as a foundation for sources; and responding to and recovering from incidents
continuing to grow the Nations economy. DOD continues that do occur are enduring homeland security responsibil-
to report the largest share of funding for protecting CI/KR ities. For the long-term fulfillment of these responsibilities
for 2017 ($10.3 billion, or 49.2 percent), which includes it is necessary to continue to strengthen the principles,
programs focusing on physical security and improving the systems, structures, and institutions that cut across the
militarys ability to prevent or mitigate the consequences homeland security enterprise and support our activities
of attacks against departmental personnel and facilities. to secure the Nation. Long-term success across sever-
DHS has overall responsibility for prioritizing and exe- al cross-cutting areas is essential to protect the United
cuting infrastructure protection activities at the national States. Engaging with and leveraging the resources of the
level and accounts for $5.6 billion (26.7 percent of total whole community, including Federal, State, local, tribal,
2017 funding). Another twenty-four agencies also report and territorial governments, the non-governmental and
funding to protect their own assets and work with States, private sectors, as well as families and individuals, are
localities, and the private sector to reduce vulnerabilities essential for effective preparedness and incident response
in their areas of expertise. capabilities. While these areas are not quantifiable in
terms of budget figures, they are important elements
Respond To and Recover From Incidents in the management and budgeting processes. As the
Administration sets priorities and determines funding for
The ability to respond to and recover from incidents new and existing homeland security programs, consider-
requires efforts to bolster capabilities nationwide to ation must be given to areas such as the assessment and
prevent and protect against terrorist attacks, and also management of risk, which underlie the full spectrum
minimize the damage from attacks through effective re- of homeland security activities. This includes decisions
sponse and recovery. This includes programs that help to about when, where, and how to invest resources in capa-
plan, equip, train, and practice the capabilities of many bilities or assets that eliminate, control, or mitigate risks.
different response units (including first responders, such Likewise, research and development initiatives promote
as police officers, firefighters, emergency medical provid- the application of science and technology to homeland se-
ers, public works personnel, and emergency management curity activities and can drive improvements in processes
officials) that are instrumental in their preparedness to and efficiencies to reduce the vulnerability of the Nation.
mobilize without warning for an emergency. Building
this capability encompasses a broad range of agency Non-Federal Expenditures1
incident management activities, as well as grants and
other assistance to States and localities for first respond- State and local governments and private-sector firms
er preparedness capabilities. For this analysis, spending also have devoted resources of their own to the task of
for response to specific natural disasters or other major defending against terrorist threats. Some of the spend-
incidents, including catastrophic natural events such ing has been of a one-time nature, such as investment in
as Hurricanes Sandy and Katrina, and chemical or oil new security equipment and infrastructure; some spend-
spills, like Deepwater Horizon, do not directly fall within ing has been ongoing, such as hiring more personnel, and
the definition of a homeland security activity, as defined increasing overtime for existing security personnel. In
by section 889 of the Homeland Security Act of 2002. many cases, own-source spending has supplemented the
Preparing for terrorism-related threats includes many resources provided by the Federal Government.
activities that also support preparedness for catastrophic Many governments and businesses, though not all,
natural and man-made disasters, however. Additionally, place a high priority on, and provide additional resourc-
lessons learned from the response to Hurricanes Sandy es, for security. A 2004 survey conducted by the National
and Katrina have been used to revise and strengthen cat- Association of Counties found, that as a result of inter-
astrophic response planning. The agencies with the most governmental homeland security planning and funding
significant participation in this effort are: DHS ($2.2 bil- processes, three out of four counties believed they were
lion, or 35.9 percent, of the 2017 total); HHS ($1.9 billion,
or 31.4 percent of the 2017 total); and DOD ($1.1 billion, or 1 OMB does not collect detailed homeland security expenditure data
from State, local, or private entities directly.

better prepared to respond to terrorist threats. Moreover, on the responses from 471 counties (15 percent) nation-
almost 40 percent of the surveyed counties had appropri- wide, out of 3,140 counties or equivalents.3
ated their own funds to assist with homeland security. A March 2009 study conducted by the Heritage
Own-source resources supplemented funds provided by Foundation, one of the few organizations to compile
States and the Federal Government. However, the same homeland security spending estimates from States and
survey revealed that 54 percent of counties had not used localities, provides data on State and local spending in
any of their own funds.2 The surveys findings were based
3 The National Association of Counties conducted a survey through

2
Source: National Association of Counties, Homeland Security its various state associations (48), responses were received from 471
Funding2003 State Homeland Security Grants Programs I and II. counties in 26 states.
Table 221. HOMELAND SECURITY FUNDING BY AGENCY

(Budget Authority in milions of dollars)
FY2015 FY2015 FY2016 FY2017

Actual Supplemental Enacted Request
Department of Agriculture 452.2 0.0 577.4 544.6
Department of Commerce* 5,389.4 9.8 1,373.9 579.8
Department of DefenseMilitary Programs** 12,363.0 181.8 13,708.3 13,541.9
Department of Health and Human Services 4,753.2 804.3 5,327.8 5,064.7
Department of the Interior 54.2 0.0 58.1 57.8
Department of Justice 4,080.8 0.0 4,148.5 4,340.4
Department of Labor 29.1 0.0 28.9 29.1
Department of State 3,641.8 0.0 4,344.7 4,503.4
Department of the Treasury 121.8 0.0 122.3 168.3
Social Security Administration 231.1 0.0 256.4 274.2
Department of Education 35.8 0.0 51.5 59.4
Department of Energy 1,930.9 0.0 2,047.5 2,157.0
Environmental Protection Agency 90.7 0.0 90.7 89.5
Department of Transportation 307.6 0.0 342.5 356.4
General Services Administration 370.5 0.0 320.8 371.5
Department of Homeland Security 36,634.5 92.2 37,601.0 36,837.5
Department of Housing and Urban Development 1.1 0.0 1.3 1.3
National Aeronautics and Space Administration 230.8 0.0 251.1 226.2
Department of Veterans Affairs 367.8 0.0 334.8 534.5
Executive Office of the President 9.1 0.0 9.5 13.2
Corps of EngineersCivil Works 11.3 0.0 11.0 12.0
District of Columbia 13.0 0.0 13.0 15.0
Federal Communications Commission 2.0 0.0 2.0 2.0
National Archives and Records Administration 26.3 0.0 25.2 25.1
National Science Foundation 431.3 0.0 438.9 457.1
Nuclear Regulatory Commission 60.5 0.0 64.3 65.1
Securities and Exchange Commission 7.0 0.0 9.0 9.0
Smithsonian Institution 101.9 0.0 107.1 120.5
United States Holocaust Memorial Museum 11.0 0.0 12.0 12.0
Total, Homeland Security Budget Authority 71,759.8 1,088.1 71,679.3 70,468.3
Less Department of Defense 12,363.0 181.8 13,708.3 13,541.9
Non-Defense Homeland Security BA 59,396.8 906.3 57,971.1 56,926.5
Less Discretionary Fee-Funded Homeland Security Programs 7,764.5 9.8 8,605.2 5,209.1
Less Mandatory Homeland Security Programs 8,087.4 0.0 4,152.8 1,325.2
Net Non-Defense Discretionary Homeland Security BA 43,544.9 896.5 45,213.1 50,392.1
* Funding decreases in the Department of Commerce from FY 2015 to FY 2017 reflect the non-recurrence of authority to build a nationwide interoperable
public safety broadband network for first responders and related programs.
** DOD homeland security funding for all years prior to 2017 reflects a revised calculation methodology (see Data Collection Methodology and Adjustments,
Including the Department of Defense).
support of homeland security activities.4 The report sur- while spending over $45 billion in State and local fund-
veyed 43 jurisdictions that are eligible for DHS Urban ing. Over the same time period, the top ten most populous
Areas Security Initiative (UASI) grant funds due to the States (including California) spent $148 billion on State
risk of a terrorist attack.5 These jurisdictions are home and local homeland security related activities.
to approximately 145 million people or 47 percent of the There is also a diversity of responses in the businesses
total United States population. According to the report, community. A 2003 survey of 199 corporate security direc-
the 2007 homeland security budgets for the jurisdic- tors conducted by the Conference Board showed that just
tions examined (which include 26 States and the District over half of the companies reported that they had perma-
of Columbia, 50 primary cities, and 35 primary coun- nently increased security spending post-September 11,
ties) totaled $37 billion, while the same entities received 2001.7 About 15 percent of the companies surveyed had
slightly more than $2 billion in Federal homeland secu- increased their security spending by 20 percent or more.8
rity grants.6 The report further states that from 2000 Large increases in spending were especially evident in
- 2007, these States and localities spent $220 billion on critical industries, such as transportation, energy, finan-
homeland security activities, which includes increases of cial services, media and telecommunications, information
three to six percent a year for law enforcement and fire technology, and healthcare. However, about one-third of
services budgets, and received over $10 billion in Federal the surveyed companies reported that they had not in-
grants. California, the most populous State, is also the creased their security spending after September 11th.9
largest recipient of Federal homeland security funds, hav- Given the difficulty of obtaining survey results that are
ing received almost $1.5 billion between 2000 and 2007, representative of the universe of States, localities, and
businesses, it is likely that there will be a wide range of
4 Source: Matt A. Mayer, An Analysis of Federal, State, and Lo- estimates of non-Federal security spending for critical in-
cal Homeland Security Budgets, A Report of the Heritage Center for frastructure protection.
Data Analysis, CDA0901, March 9, 2009, at http://www.heritage.org/
Research/HomelandSecurity/upload/ CDA_09_01.pdf. Figures cited in
this report have not been independently verified by the Office of Man- 7 Source: Thomas E. Cavanagh and Meredith Whiting, 2003 Cor-
agement and Budget. porate Security Management: Organization and Spending Since 9/11,
5 The Heritage Foundation reports methodology in selecting the The Conference Board. R133303-RR. July 2003. This report refer-
states, cities, and counties to include in the report is as follows: the state ences sample size of 199 corporate security directors, of which 96 were
had to possess a designated UASI jurisdiction and the city and county in critical industries, while the remaining 103 were in non-critical
had to belong to a designated UASI jurisdiction that had received at industries. In the report, the Conference Board states that it followed
least $15 million from 2003 to 2007 from the DHS. the DHS usage of critical industries, defined as the following: transpor-
6 The Heritage Foundation reports budget data for homeland se-
tation; energy and utilities; financial services; media and telecommuni-
cations; information technology; and healthcare.
curity included primary law enforcement agencies, fire departments, 8 The Conference Board survey cites the sample size for this statistic
homeland security offices, and emergency management agencies. In
some cases, state and local emergency management agency budget data was 192 corporate security directors.
was embedded in the fire department budget data and was not sepa- 9 The Conference Board survey cites the sample size for this statistic
rately noted in its own category. was 199 corporate security directors.
Table 222. PREVENT AND DISRUPT TERRORIST ATTACKS

FY2015 FY2015 FY2016 FY2017

Department of Commerce 4.1 1.8 4.6 4.7
Department of the Interior .5 0.0 .5 .5
Department of Justice 3,553.1 0.0 3,597.7 3,770.2
Department of State 3,520.1 0.0 4,219.0 4,385.2
Department of Energy 0.0 0.0 11.7 10.5
Total, Prevent and Disrupt Terrorist Attacks 35,387.6 6.1 36,639.7 36,590.0
Additional Tables Security Act of 2002. The final table of the chapter shows
homeland security funding for DOD as corrected for the
The tables in the Federal expenditures section of this 2002-2015 period.
chapter present data based on the Presidents policy for An appendix of account-level funding estimates is
the 2017 Budget. The tables below present additional available on the Analytical Perspectives CD-ROM.
policy and baseline data, as directed by the Homeland
Table 223. PROTECT THE AMERICAN PEOPLE, OUR CRITICAL INFRASTRUCTURE, AND KEY RESOURCES
FY2015 FY2015 FY2016 FY2017

Department of DefenseMilitary Programs* 11,429.3 181.8 12,741.5 12,463.7
Department of Justice 511.1 0.0 529.4 543.9
Department of State 109.5 0.0 101.5 101.5
Department of Energy 1,711.4 0.0 1,807.2 1,880.6
National Aeronautics and Space Administration 230.8 0.0 251.1 226.2
Corps of EngineersCivil Works 11.3 0.0 11.0 12.0
National Science Foundation 431.3 0.0 438.9 457.1
Nuclear Regulatory Commission 60.5 0.0 64.3 65.1
Smithsonian Institution 101.9 0.0 107.1 120.5
United States Holocaust Memorial Museum 11.0 0.0 12.0 12.0
Total, Protect the American People, Our Critical Infrastructure, and Key
Resources 25,377.4 672.7 27,821.4 27,715.4
* DOD homeland security funding for all years prior to 2017 reflects a revised calculation methodology (see Data Collection Methodology and Adjustments,
Table 224. RESPOND AND RECOVER FROM INCIDENTS

FY2015 FY2015 FY2016 FY2017

Department of Commerce 5,119.1 0.0 1,082.3 273.5
Department of DefenseMilitary Programs* 933.7 0.0 966.7 1,078.2
Department of Justice 16.6 0.0 21.4 26.3
Department of State 12.3 0.0 24.2 16.7
Department of Housing and Urban Development 1.1 0.0 1.3 1.3
District of Columbia 13.0 0.0 13.0 15.0
Total, Respond and Recover from Incidents 10,994.8 409.3 7,218.2 6,162.9
Table 225. DISCRETIONARY FEE-FUNDED HOMELAND SECURITY ACTIVITIES BY AGENCY

FY2015 FY2015 FY2016 FY2017

Department of DefenseMilitary Programs* 230.1 0.0 227.0 227.2
Department of Health and Human Services 12.5 0.0 12.5 12.6
Department of State** 3,426.8 0.0 4,125.8 1.6
Total, Discretionary Fee-Funded Homeland Security Activities 7,994.5 9.8 8,832.3 5,436.3
** Department of State, Border Security Program, fees previously recorded as offsetting collections in the Diplomatic and Consular Program (D&CP) are
reflected in a special fund for Consular and Border Security Programs (CBSP). Given the format of the new account structure, these fees are recorded as
budgetary authority rather than offsetting collections, but the program will continue to be fully funded by fee revenue in FY 2017.
Table 226. MANDATORY HOMELAND SECURITY ACTIVITIES BY AGENCY

FY2015 FY2016 FY2017

Actual Enacted Request
Department of Agriculture 166.5 211.4 230.9
Department of Commerce 5,003.0 967.0 168.0
Department of DefenseMilitary Programs* 273.0 275.5 277.9
Department of Health and Human Services .2 .2 .4
Department of Labor 2.2 2.3 2.4
Department of Energy 13.0 11.0 11.0
General Services Administration 2.8 2.8 2.8
Department of Homeland Security 2,899.7 2,958.1 909.7
Total, Mandatory Homeland Security Activities 8,360.4 4,428.3 1,603.1
* DOD homeland security funding for all years prior to 2017 reflects a revised calculation methodology (see Data Collection
Methodology and Adjustments, Including the Department of Defense).
Table 227. BASELINE ESTIMATESTOTAL HOMELAND SECURITY FUNDING BY AGENCY

(Budget Authority in millions of dollars)
FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
Department of Agriculture 577 599 654 666 679 694
Department of Commerce 1,374 445 423 431 440 450
Department of DefenseMilitary Programs 13,708 14,048 14,280 14,643 14,998 15,364
Department of Health and Human Services 5,328 5,437 5,545 5,671 5,798 5,919
Department of the Interior 58 60 61 63 65 66
Department of Justice 4,148 4,271 4,387 4,516 4,650 4,778
Department of Labor 29 30 30 31 32 33
Department of State 4,345 2,545 2,595 2,625 2,678 2,734
Department of the Treasury 122 127 129 134 137 142
Social Security Administration 256 275 280 286 291 297
Department of Education 52 53 54 56 58 60
Department of Energy 2,047 2,092 2,129 2,168 2,220 2,264
Environmental Protection Agency 91 93 95 98 100 103
Department of Transportation 343 228 233 241 248 255
General Services Administration 321 321 327 333 340 347
Department of Homeland Security 37,601 37,712 38,595 39,630 40,686 41,810
Department of Housing and Urban Development 1 1 1 1 2 2
National Aeronautics and Space Administration 251 258 265 272 280 287
Department of Veterans Affairs 335 341 347 354 367 374
Executive Office of the President 9 9 10 10 10 11
Corps of EngineersCivil Works 11 11 11 12 12 12
District of Columbia 13 13 13 14 14 14
Federal Communications Commission 2 2 2 2 2 2
National Archives and Records Administration 25 26 27 27 28 29
National Science Foundation 439 447 455 464 473 483
Nuclear Regulatory Commission 64 66 68 70 72 74
Securities and Exchange Commission 9 9 9 10 10 10
Smithsonian Institution 107 110 113 117 120 124
United States Holocaust Memorial Museum 12 12 13 13 13 14
Total, Homeland Security Budget Authority 71,679 69,642 71,153 72,957 74,822 76,751
Less Department of Defense 13,708 14,048 14,280 14,643 14,998 15,364
Non-Defense Homeland Security 57,971 55,593 56,873 58,314 59,824 61,388
Less Discretionary Fee-Funded Homeland Security Programs 8,605 6,767 6,910 6,999 7,115 7,253
Less Mandatory Homeland Security Programs 4,153 3,160 3,159 3,248 3,341 3,434
Net Non-Defense Discretionary Homeland Security BA 45,213 45,666 46,804 48,067 49,368 50,700
* DOD homeland security funding for all years prior to 2017 reflects a revised calculation methodology (see Data Collection Methodology and Adjustments, Including the Department of
Defense).
Table 228. TOTAL HOMELAND SECURITY FUNDING BY FUNCTION

FY2015 FY2016 FY2017

Actual Enacted Request
Administration of Justice 22,530 22,893 23,465
Agriculture 443 567 534
Commerce and Housing Credit 5,177 1,155 366
Community and Regional Development 2,867 2,883 3,280
Education, Training, Employment, and Social Services 174 195 217
Energy 150 167 169
General Government 1,947 2,007 2,017
General Science, Space, and Technology 755 793 786
Health 5,541 5,312 5,049
Income Security 4 4 4
International Affairs 3,641 4,345 4,503
Medicare 27 27 27
National Defense 17,475 18,878 17,956
Natural Resources and Environment 313 308 293
Social Security 231 256 274
Transportation 11,204 11,553 10,993
Veterans Benefits and Services 368 335 535
Total, Homeland Security Budget Authority 72,848 71,679 70,468
Less Department of Defense 12,545 13,708 13,542
Non-Defense Homeland Security BA 60,303 57,971 56,926
Less Discretionary Fee-Funded Homeland Security Programs 7,774 8,605 5,209
Less Mandatory Homeland Security Programs 8,087 4,153 1,325
Net Non-Defense Discretionary Homeland Security BA 44,441 45,213 50,392
Table 229. BASELINE ESTIMATESTOTAL HOMELAND SECURITY FUNDING BY FUNCTION

FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
Administration of Justice 22,893 23,008 23,562 24,229 24,929 25,651
Agriculture 567 588 643 655 667 682
Commerce and Housing Credit 1,155 223 197 202 207 213
Community and Regional Development 2,883 2,896 2,948 3,023 3,076 3,151
Education, Training, Employment, and Social Services 195 200 206 212 218 225
Energy 167 173 177 180 185 191
General Government 2,007 2,026 2,080 2,109 2,134 2,178
General Science, Space, and Technology 793 810 827 845 864 884
Health 5,312 5,421 5,529 5,654 5,781 5,902
Income Security 4 4 5 5 5 5
International Affairs 4,345 2,545 2,595 2,625 2,678 2,734
Medicare 27 28 28 29 30 30
National Defense 18,878 19,340 19,691 20,181 20,679 21,175
Natural Resources and Environment 308 316 323 331 340 348
Social Security 256 275 280 286 291 297
Transportation 11,553 11,447 11,713 12,036 12,369 12,709
Veterans Benefits and Services 335 341 347 354 367 374
Total, Homeland Security Budget Authority 71,679 69,642 71,153 72,957 74,822 76,751
Less Department of Defense 13,708 14,048 14,280 14,643 14,998 15,364
Non-Defense Homeland Security 57,971 55,593 56,873 58,314 59,824 61,388
Less Discretionary Fee-Funded Homeland Security Programs 8,605 6,767 6,910 6,999 7,115 7,253
Less Mandatory Homeland Security Programs 4,153 3,160 3,159 3,248 3,341 3,434
Net Non-Defense Discretionary Homeland Security BA 45,213 45,666 46,804 48,067 49,368 50,700
Table 2210. DEPARTMENT OF DEFENSE HOMELAND SECURITY REPORTING ADJUSTMENTS

PB 2004 PB 2005 PB 2006 PB 2007 PB 2008 PB 2009 PB 2010
Presidents Budget
2002 2003 2004 2003 2004 2005 2004 2005 2006 2005 2006 2007 2006 2007 2008 2007 2008 2009 2008 2009 2010
Actual Enacted Request Actual Enacted Request Actual Enacted Request Actual Enacted Request Actual Enacted Request Actual Enacted Request Actual Enacted Request
Previous Estimate 13,394 12,953 13,918 12,953 13,918 16,108 13,918 16,108 16,440 16,108 16,440 16,698 16,479 16,538 17,559 16,538 17,374 17,646 17,374 19,413 19,303
Special
Operations
Command . . . . . . . . . . . . . . . . . . . . .
Guard Reserve
Personnel
Composition . . . . . . . . . . . . . . . . . . . . .
USMC Counter
Improvised
Explosive
Devices . . . . . . . . . . . . . . . . . . . . .
Other
Adjustments 1,952 2,000 2,233 1,864 2,233 3,320 2,224 3,320 3,948 3,613 3,948 3,982 3,802 3,894 4,455 3,987 5,069 4,261 4,455 4,647 4,519
Adjusted Estimate 11,442 10,953 11,685 11,089 11,685 12,788 11,694 12,788 12,492 12,495 12,492 12,716 12,677 12,644 13,104 12,552 12,305 13,385 12,920 14,766 14,784
PB 2011 PB 2012 PB 2013 PB 2014 PB 2015
Presidents Budget
2009 2010 2011 2010 2011 2012 2011 2012 2013 2012 2013 2014 2013 2014 2015
Actual Enacted Request Actual Enacted Request Actual Enacted Request Actual Enacted Request Actual Enacted Request
Previous Estimate 19,414 19,041 19,103 19,054 17,626 18,102 16,994 17,358 17,955 17,780 17,481 17,360 16,527 16,365 15,762
Special Operations Command 672 614 606 1,455 1,502 1,485 2,039 1,917 2,290 1,531 1,447 1,518 1,237 1,234 1,304
Guard Reserve Personnel
Composition . . . 405 2,314 2,164 2,188 2,143 2,193 2,134 2,154 2,174 2,189 2,194 2,083
USMC Counter Improvised
Explosive Devices . . . 115 8 4 9 6 82 12 66 3 403 246 188
Other Adjustments 7,006 5,796 6,046 4,898 . 514 . . . . . . . . .
Adjusted Estimate 11,735 12,631 12,450 13,221 13,802 14,963 12,758 13,292 13,390 14,103 13,814 13,665 12,697 12,691 12,187
23. FEDERAL DRUG CONTROL FUNDING
In support of the 2016 National Drug Control Strategy health concern. Decades of research demonstrate that ad-
(Strategy), the President requests $31.071 billion in Fiscal diction is a disease of the brain - one that can be prevented,
Year 2017 to reduce drug use and its consequences in the treated, and from which people can recover. The Strategy
United States. The Strategy represents a 21st century ap- lays out an evidence-based plan for real drug policy reform,
proach to drug policy that outlines innovative policies and spanning the spectrum of prevention, early intervention,
programs and recognizes that substance use disorders are treatment, recovery support, criminal justice reform, effec-
not just a criminal justice issue, but also a major public tive law enforcement, and international cooperation.
Table 231. DRUG CONTROL FUNDING FY 2015FY 2017

(Budget authority, in millions of dollars)
FY 2017
Department/Agency FY 2015 FY 2016 Presidents
Actual Enacted Budget
Department of Agriculture:
U.S. Forest Service 12.400 12.300 17.900
Court Services and Offender Supervision Agency for D.C.: 52.602 58.146 58.710
Department of Defense:
Drug Interdiction and Counterdrug Activities (incl. OPTEMPO and OCO) 1,409.348 1,343.316 1,221.979
Defense Health Program 73.500 75.500 75.500
Total DOD 1,482.848 1,418.816 1,297.479
Department of Education:
Office of Elementary and Secondary Education 50.249 50.084 50.087
Federal Judiciary: 1,158.887 1,210.620 1,246.704
Department of Health and Human Services:
Administration for Children and Families 18.560 18.540 60.000
Centers for Disease Control and Prevention 20.000 75.580 85.580
Centers for Medicare and Medicaid Services 2 8,230.000 8,760.000 9,140.000
Health Resources and Services Administration 27.800 129.000 164.000
Indian Health Service 111.345 114.670 140.930
National Institute on Alcohol Abuse and Alcoholism 59.534 54.225 54.225
National Institute on Drug Abuse 1,015.695 1,050.550 1,050.550
Substance Abuse and Mental Health Services Administration 3 2,460.395 2,512.173 2,986.039
Total HHS 11,943.329 12,714.738 13,681.324
Department of Homeland Security4:
Customs and Border Protection 2,422.994 2,664.943 2,655.711
Federal Emergency Management Agency 8.250 8.250 6.187
Federal Law Enforcement Training Center 46.757 44.100 43.587
Immigration and Customs Enforcement 467.853 485.771 527.037
U.S. Coast Guard 1,265.675 1,616.059 1,269.033
Total DHS 4,211.529 4,819.123 4,501.555
Department of Housing and Urban Development:
Office of Community Planning and Development 463.490 486.936 589.112
Department of the Interior:
Bureau of Indian Affairs 9.716 9.716 9.716
Bureau of Land Management 5.100 5.100 5.100
National Park Service 3.300 3.300 3.300
Total DOI 18.116 18.116 18.116
359
Table 231. DRUG CONTROL FUNDING FY 2015FY 2017Continued

(Budget authority, in millions of dollars)
FY 2017
Department/Agency FY 2015 FY 2016 Presidents
Actual Enacted Budget
Department of Justice:
Assets Forfeiture Fund 284.139 238.710 243.103
Bureau of Prisons 3,491.004 3,672.401 3,491.841
Criminal Division 40.043 39.019 39.910
Drug Enforcement Administration 2,373.145 2,426.490 2,485.638
Organized Crime Drug Enforcement Task Force 507.194 512.000 522.135
Office of Justice Programs 260.870 280.220 275.570
U.S. Attorneys 76.838 72.644 75.862
U.S. Marshals Service 270.421 278.118 289.923
Federal Prisoner Detention 498.010 510.037 505.463
Total DOJ 7,801.664 8,029.639 7,929.445
Department of Labor:
Employment and Training Administration 6.000 6.000 6.000
Office of National Drug Control Policy:
Operations 22.647 20.047 19.274
High Intensity Drug Trafficking Area Program 245.000 250.000 196.410
Other Federal Drug Control Programs 107.150 109.810 98.480
Total ONDCP 374.797 379.857 314.164
Department of State4:
Bureau of International Narcotics and Law Enforcement Affairs 446.061 434.662 382.373
United States Agency for International Development 95.502 136.155 131.920
Total DOS 541.563 570.817 514.293
Department of the Transportation:
Federal Aviation Administration 30.670 31.470 31.610
National Highway Traffic Safety Administration 2.688 11.488 11.488
Total DOT 33.358 42.958 43.098
Department of the Treasury:
Internal Revenue Service 60.257 60.257 95.821
Department of Veterans Affairs:
Veterans Health Administration 5 671.810 682.430 707.602
Total Federal Drug Budget 28,882.899 30,560.837 31,071.410
1 Detail may not add due to rounding.
2 The estimates for the Centers for Medicare & Medicaid Services reflect Medicaid and Medicare benefit outlays for substance abuse treatment; they do not reflect budget authority. The
estimates were developed by the CMS Office of the Actuary.

3 Includes budget authority and funding through evaluation set-aside authorized by Section 241 of the Public Health Service (PHS) Act.
4 The FY 2015 funding level represents the FY 2016 Presidents Budget request.
5 VA Medical Care receives advance appropriations; FY 2017 funding was provided in the Consolidated Appropriations Act 2016.
24. FEDERAL BUDGET EXPOSURE TO CLIMATE RISK
few decades. Hurricane intensity and rainfall are

No challenge poses a greater threat to future genera-
projected to increase with further climate change.
tions than climate change. This past year was the planets
warmest on record. The 15 warmest years on record have Winter storms havethincreased in frequency and in-
all fallen in the first 16 years of this century. Across the tensity since mid-20 Century, and their tracks have
American landscape, the impact of climate change is shifted northward.
undeniable. Along our Eastern seaboard, a number of
cities now flood regularly at high tide. The vast major- Global sea level has risen by about 8 inches since
ity of the largest wildfires in modern U.S. history have reliable record keeping began and is projected to rise
occurred since 2000. In parts of the Midwest, higher tem- another 1 to 4 feet by 2100.
peratures will increase irrigation demand and exacerbate Oceans are becoming more acidic as they absorb
current stresses on agricultural productivity. And in the a quarter of the carbon dioxide emitted annually,
Mississippi and Missouri River Basins, numerous stud- forming carbonic acid and thereby putting marine
ies indicate increasing severity and frequency of flooding, ecosystems at risk.
leading to potential disruptions to the Nations inland wa-
ter system, as seen most recently in the devastating and The Federal Government has broad exposure to es-
widespread flooding in the interior of the United States. calating costs and lost revenue as a direct or indirect
The imprint of climate change on the Federal budget is result of a changing climate. For example, the Federal
increasingly apparentin the escalating costs of disas- Government plays a critical role in helping American
ter response and relief, flood and crop insurance, wildland families, businesses, and communities recover from the
fire management, Federal facility management, and a impacts of catastrophic events. As economic damages
host of other Federal programs that are vulnerable to the from such events grow, so does the liability for the Federal
impacts of climate change. For this reason, understand- budget. At the same time, the Federal Government is di-
ing the Federal Governments exposure to climate change rectly at risk from extreme weather impacts to Federal
risks is increasingly critical for policymakers charged facilities nationwide and the growing incidence of fire on
with making sound investment decisions and stewarding Federal lands.
the Federal budget over the long term. While existing climate change-related expenditures
The Third National Climate Assessment (NCA) con- can be identified for a number of Federal programs, it is
cludes that climate change is already affecting every inherently difficult to isolate climate change-related ex-
region of the country and key sectors of the U.S. econo- penditures for many other programs across the Federal
my. The report was developed over four years by a team Government. Even in these cases, however, the direction-
of more than 300 of the Nations top climate scientists al impact on the Budget of expected climatic changes is
and technical experts, guided by a 60-member Federal clear.
Advisory Committee, and extensively reviewed by the Identifiable Costs
public and experts including the National Academy of
Sciences. Key findings of the NCA include the following:1 Over the last decade, the Federal Government has in-
Heavy downpours are increasing nationally, and this curred over $357 billion in direct costs2 due to extreme
trend in extreme precipitation is projected to con- weather and fire alone, including for domestic disaster
tinue for all U.S. regions. response and relief ($205 billion), flood insurance ($23
billion), crop insurance ($67 billion), wildland fire man-
Floods and droughts are increasing in some regions. agement ($34 billion), and maintenance and repairs to
Drought in the Southwest is projected to increase. Federal facilities and Federally managed lands, infra-
Heat waves have become more frequent and intense, structure, and waterways ($28 billion). Additional costs
and this trend is projected to continue as average have been incurred for international disaster response
temperatures rise. and relief in the wake of extreme events like droughts,
floods, and storms. While it is not possible to identify
The intensity, frequency, and duration of North
the portion of these costs incurred as a result of human-
Atlantic hurricanes and the number of strongest
storms (Category 4 and 5) all increased in the last
2 This figure is revised from the estimate in the FY 2016 Presidents
Budget. The difference is largely attributable to improved estimation,

rather than increased costs in 2015. This estimate does not include some
categories of spending, such as international disaster response and re-
1 Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., lief, military spending, direct healthcare costs, as well as some Federal
2014. Climate Change Impacts in the United States: The Third National property and resource management costs. As a result, this estimate po-
Climate Assessment. U.S. Global Research Program, 841 pp. doi:10.7930/ tentially significantly understates actual direct Federal costs due to ex-
J0Z31WJ2. treme weather and fire.
361
Chart 24-1. National Flood Insurance Program

Paid Losses & Total Exposure
Paid losses, dollars in billions Total exposure, dollars in billions
20 1,400
18
Paid Losses Total Exposure 1,200
16
14 1,000
12
800
10
600
8
6 400
4
200
2
0 0
1981
1991
2001
2011
1982
1983
1985
1986
1988
1989
1992
1993
2002
2003
2012
2013
1978
1979
1980
1984
1987
1990
1994
1995
1996
1997
1998
1999
2000
2004
2005
2006
2007
2008
2009
2010
2014
induced climate change, costs for each of these Federal frastructure and the communities that depend on them.
programs have been increasing, are inherently sensitive In the coastal environment, a review by the Government
to the effects of climate change, and can therefore be ex- Accountability Office of 20 scientific studies found a pre-
pected to continue to rise as the impacts of climate change dicted increase of 14-47 percent in inflation-adjusted U.S.
intensify. hurricane losses by 2040, attributable to changes in the
severity of storms. By 2100, losses are projected to grow
Domestic Disaster Response and Relief by 54 to 110 percent. Accounting for the combination of
The Federal Emergency Management Agency (FEMA) projected sea-level rise and changes in hurricane activity,
has incurred roughly $90 billion in costs for domestic, ex- hurricane losses could more than quadruple by the year
treme weather-related disaster response and relief over the 2100.5
last decade. Over that time period, other Federal agencies Historically, the cost of Federal action following a ma-
received appropriations of roughly $99 billion for domes- jor disaster has averaged roughly a third of total economic
tic disaster relief efforts, largely related to the 2005 Gulf losses.6 If this share of total losses continues, Federal di-
Coast hurricanes and Superstorm Sandy. An additional saster response and relief costs can be expected to rise
$16 billion in tax expenditures were incurred between proportionately with projected increases in total economic
2006 and 2015 for tax relief associated with the 2005 Gulf losses. However, this type of linear extrapolation may un-
Coast hurricanes, according to the Congressional Budget derestimate the true exposure of the Federal budget given
Office (CBO) and the Joint Committee on Taxation.3 that a major event or series of major events could, for ex-
Climate models predict that climate-driven changes, ample, affect the solvency of an industry, municipality, or
such as higher sea levels and stronger hurricanes, as State.
well as increases in extreme precipitation, are likely to
Flood Insurance
magnify damages due to extreme weather and associated
needs for disaster response and relief.4 For example, the In addition to its disaster response activities, FEMA
National Climate Assessment found that the amount of manages the National Flood Insurance Program (NFIP),
rain falling in very heavy precipitation events since 1991 established in 1968. NFIP is designed to provide an in-
has increased in the Northeast, Midwest, and upper Great surance alternative to disaster assistance to meet the
Plains by more than 30 percent above the 1901-1906 aver- escalating costs of flood damage. While the program is
age. This has caused an increase in costly flooding events designed to offset paid losses with premium collections,
in the Northeast and Midwest in particular, such as the catastrophic events in any given year can have outsized
most recent flooding in the Mississippi River Basin. This impacts on NFIP. Due largely to Hurricane Katrina in
trend towards increased heavy precipitation events is
5 U.S. Government Accountability Office, 2014. Climate Change: Bet-
expected to continue, threatening levees and other in-
ter Management of Exposure to Potential Future Losses Is Needed for
Federal Flood and Crop Insurance. GAO 15-28: Published October 29,
3 Congressional Budget Office, 2007. The Federal Governments 2014.
Spending and Tax Actions in Response to the 2005 Gulf Coast Hurri- 6 Cummins, J. David, Michael Suher, and George Zanjani. 2010. Fed-
canes. Prepared for the House Budget Committee. eral Financial Exposure to Natural Catastrophe Risk in Lucas, D. (ed.)
4 Kopp, Robert, and Solomon Hsiang, 2014: American Climate Pro- Measuring and Managing Federal Financial Risk. National Bureau of
spectus. Economic Risks in the United States. Rhodium Group, LLC. Economic Research. University of Chicago Press.
24. FEDERAL BUDGET EXPOSURE TO CLIMATE RISK 363
2005 and Superstorm Sandy in 2012, the program incurred given year could have much larger impacts on NFIP and
substantial paid losses in excess of premiums collected, the Federal budget.9
incurring approximately $23 billion in debt to the U.S. The expected implications of climate change for hur-
Treasury as of June 2015. The figure above details the ricane-related damage is supported by preliminary CBO
programs historical paid losses and total exposurethe findings. CBO modeled increases in expected storm dam-
total value of property insured by the program. NFIPs to- age in 2075 due to coastal development and climate
tal exposure has quadrupled over the last two decades to change. Both factors were found to exacerbate storm
$1.3 trillion due to an increase in the number of insured damage. However, while the damage due solely to coastal
properties, as well as the value of those properties. development was found to grow more slowly than gross
Nationwide, the Special Flood Hazard Areathe land domestic product (GDP), the damage due to the combined
area subject to a one percent or greater chance of flood- effect of coastal development and climate change was
ing in any given yearis projected to increase by 40-45 found to grow more rapidly than GDP.10
percent by 2100 (with large regional variations), driven
Crop Insurance
predominantly by the effects of climate change, accord-
ing to a FEMA study.7 In the coastal environment, this The United States Department of Agricultures Risk
projected increase is a result of rising sea levels and in- Management Agency (RMA) provides crop insurance to
creasing storm intensity and frequency. In the riverine American farmers and ranchers through the Federal Crop
environment, less than one-third of the increase in typical Insurance Corporation (FCIC). Federal crop insurance
areas is attributable to population growth and associated policies cover loss of crop yields from natural causes in-
impacts on stormwater runoff, while more than two- cluding drought, excessive moisture, freeze, disease, and
thirds is attributable to the influence of climate change. hail. The Federal Government incurs costs for crop insur-
As a result of the projected increase in the flood hazard ance in the form of subsidized premiums, losses associated
area, the average loss cost per policy8 in todays dollars with any claims paid in excess of collected premiums, and
is estimated to increase approximately 50-90 percent by costs for program administration and operationa total
2100, with a 10-15 percent increase as soon as 2020. These of $67 billion between 2005 and 2014. Costs can increase
increases will be compounded by projected growth in the sharply in years affected by extreme weather. For exam-
total number of policyholders participating in NFIPap- ple, droughts caused the surge in costs in 2011 and 2012
proximately 80-100 percent through 2100 as a product shown above. The Federal Governments total exposure
of population growth and also the expansion of the flood for crop insurance is currently about $120 billion, up from
hazard area. These projected increases in loss cost per $67 billion in 2007.
policy are median estimates; catastrophic events in any
Chart 24-2. Crop Insurance

Total Cost to Government
Dollars in billions
16
14
12
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
7 AECOM, 2013. The Impact of Climate Change and Population 9 AECOM, 2013. The Impact of Climate Change and Population
Growth on the National Flood Insurance Program through 2100. Growth on the National Flood Insurance Program through 2100.
Prepared for Federal Emergency Management Agency. Prepared for Federal Emergency Management Agency.
8 Loss cost is a measure of expected loss payments per $100 of in- 10 Dinan, Terry, 2015. Hurricane Damage: Effects of Climate Change
sured building value. and Coastal Development. Congressional Budget Office.

Wildland Fire Management At Cape Lisburne Air Station on the Alaskan coast-
line, home to a vital early-warning radar site, ero-
The U.S. Forest Service (USFS) and Department of the sion of the stone seawall due to increased coastal
Interior (DOI) manage wildland fire to protect human life flooding is putting the installations airstrip at risk.
and property. Climate change is contributing to an increase The Air Force recently began a $41 million project to
in wildland fire frequency and intensity across the western protect the runway, the primary avenue for resup-
United States and Alaska.11 The majority of the largest fires plying the installation and its Airmen.
in modern U.S. history have occurred in just the last two
decades. On average, firefighting appropriations grew 25 per- Record-breaking rainfall and severe flash flooding
in 2010 overwhelmed man-made drainage systems
cent per year over that period, adjusted for inflation. At the
at the Department of Energys Pantex Plantthe
USFS, appropriations for wildland fire management grew
Nations only nuclear weapons assembly and disas-
from 16 percent of the agencys total budget in 1995 to 52
sembly facility. Since the incident, the facility has
percent in 2015. These budget increases are due to a number
invested in improved drainage, response plans,
of factors, including population growth in the wildland-urban
and procedures to better prepare for flash flooding
interface, a legacy of aggressive fire suppression, and climat-
events.
ic factors. For example, in the Southwest, increased warming,
drought, and insect outbreaks, all caused by or linked to cli- Under Executive Order 13653, Federal agencies must
mate change, are creating chronic forest stress and increased continue to update comprehensive adaptation plans that
tree mortality rates, increasing the risk for wildfire and its indicate how the agency will integrate climate resilience
impacts to people and ecosystems. Fire models project more into agency actions, such as supply chain management,
wildfire and increased risks to communities across exten- real property investments, and capital equipment pur-
sive areas.12 Increasing temperatures may contribute to chases. Such consideration could include updating agency
increased fire frequency, intensity, and size in parts of the policies for leasing, building upgrades, relocation of ex-
Southeastern United States, and notably Florida, as well.13 isting facilities and equipment, and construction of new
facilities. Under Executive Order 13690, which establish-
Federal Property and Resource Management
es a Federal Flood Risk Management Standard, Federal
Federal facilities are directly at risk from the extreme agencies are directed to integrate current and future
weather events that are being influenced by climate flooding considerations into their investments, where rel-
change. At this time, there is no government-wide total evant. In addition, Executive Order 13693 directs Federal
cost estimate for these impacts because Federal agencies agencies to convene regional interagency workshops to
do not separately track facility-related expenditures that address water resource management and drought re-
are incurred as a consequence of extreme weather events. sponse opportunities, and climate change preparedness
However, the last decade has provided a long list of exam- and resilience planning in coordination with State, local,
ples of costly damage to Federal facilities. Those facilities and tribal communities. Finally, under Executive Order
damaged by major events have often required significant 13677, agencies with international development pro-
supplemental appropriations to repair those damages grams are now systematically factoring climate-resilience
roughly $19 billion throughout the last decade to agencies considerations into new international development in-
as diverse as NASA, the Coast Guard, the National Park vestments, including planning and managing overseas
Service, the Federal Bureau of Prisons, and the National facilities.
Cemetery Administration. An additional $8 billion was
Other Direct and Indirect Costs
appropriated in the wake of major storms to agencies that
manage land, infrastructure, and waterways. The Federal Governments climate risk exposure ex-
While these costs were associated with large events like tends well beyond disaster response, flood and crop
the 2005 Gulf Coast hurricanes and Superstorm Sandy, insurance, wildland fire management, and Federal prop-
smaller events and ongoing impacts of climate change erty management. For example, the Federal Government
also have cost and mission implications. For example: will likely incur additional direct and indirect costs for
An Army installation in the Southwest incurred $64 health care, national security, and species recovery ef-
million in damages due to extreme torrential down- forts as a result of climate-driven changes across sectors
pours. Within an 80-minute period, the installation of the economy. However, it is inherently difficult in these
experienced as much rain as typically falls over the areas to identify current expenditures that are related
course of a year. The flooding caused by the storm to climatic factors such as extreme weather and rising
damaged 160 facilities, 8 roads, 1 bridge, and 11,000 temperatures.
linear feet of fencing. Health Care
Climate change threatens the health and well-being
11 Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, of Americans in a number of ways, including increasing
Eds., 2014. Climate Change Impacts in the United States: The Third impacts from extreme weather events, wildland fire, de-
National Climate Assessment. U.S. Global Research Program, 841 pp. creased air quality, and illnesses transmitted by food,
doi:10.7930/J0Z31WJ2. water, and disease carriers such as mosquitoes and ticks.
12 Ibid.
While the economic literature on the current and project-
13 Ibid.
24. FEDERAL BUDGET EXPOSURE TO CLIMATE RISK 365
ed health costs associated with climate change is limited, resilience. The plan, which is expected to be completed
a number of studies have found substantial health costs in 2016, will include partner roles and responsibilities,
due to climate-related events.14 The Federal Government establish milestones for actions, as well as specify other
is the Nations largest purchaser of health care servic- opportunities for developing climate risk partnerships.
esspending nearly $900 billion in 2015 on Medicare, In the Hampton Roads/Norfolk, VA area, White House
Medicaid, and the Childrens Health Insurance Program. offices and Federal partners, led by the Department of
These programs provide health care for those most vul- Defense, are participating with State, local, and aca-
nerable to the health-related impacts of climate change: demic officials to support an Intergovernmental pilot
children, the elderly, and low-income individuals. project addressing sea level rise in that area. The pi-
lot is a two-year project to develop a regional whole
National Security of government and whole of community approach to
National security, diplomacy, and development sea level rise preparedness and resilience planning in
agencies expect that climate change will intensify the Hampton Roads that also can be used as a template for
challenges of global instability, hunger, poverty, con- other regions.
flict, emerging disease, disputes over water, food, and
Species Recovery
energy resources, and destruction by natural disasters.
The Department of Defense (DOD) refers to climate Climate change is expected to fundamentally alter eco-
change as a threat multiplier because it can exacer- systems in ways that are costly to those systems and the
bate many challenges, including population migration people who depend upon and value them. For example, a
and global instability. Climate change will impact the changing climate is expected to cause rapid shifts in habi-
Departments military readiness, personnel training, tat and species ranges and to exacerbate the non-climatic
stationing, environmental compliance and steward- stressors (e.g., habitat loss, overutilization, invasive spe-
ship, and infrastructure protection and maintenance. cies) that affect plants and animals, leading to potential
DOD is conducting vulnerability assessments at major reductions in biodiversity through the local or global loss
military installations to consider current and project- of species.
ed climate impacts, and to assess and manage risks to For example, climate change appears to be a key driver
man-made and natural infrastructure. The Department causing a mismatch between the life cycle of the Ediths
will incorporate climate change considerations in its checkerspot butterfly and the timing of the flowering
natural resource management, historic preservation, plants it depends on, causing the butterflys population
design and construction standards, asset management, to crash along its southern range. Similarly, warming
encroachment management, utility systems, and emer- and reduced stream flows due to declining snowmelt are
gency management operations. Climate impacts may affecting salmon species. A small increase in water tem-
adversely influence the frequency, scale, and complexi- perature can cause coho salmon eggs to hatch weeks early,
ty of future operational missions, and may increase the leading to a mismatch between the time the salmon reach
need for defense support to civil authorities. Climate the ocean and the abundance of their prey.15 Researchers
impacts may affect supply chains and critical equip- estimate that up to 90 percent of species may be displaced
ment replenishment needs. These impacts could be a from their current range and forced into new areas or to
burden on the Federal budget as costs increase for mil- go extinct.16
itary and humanitarian operations. The Intergovernmental Panel on Climate Change
DOD has taken several concrete steps to improve (IPCC), in its recent Fifth Assessment Report, found that
its ability to mitigate the risks climate change pos- a large fraction of terrestrial, freshwater and marine spe-
es to its mission. DOD issued its Climate Change cies face increased extinction risk due to climate change
Adaptation and Resilience Directive in January 2016. during and beyond the 21st century, especially as climate
The Directive establishes policies and assigns respon- change interacts with other stressors.17 These and other
sibilities to various departmental offices to assess and ecosystem impacts are likely to pose significant costs,
manage risks associated with climate change. For ex- though it is difficult to monetize the precise value of lost
ample, the Directive requires DOD organizations to species and ecosystem services. In addition to costs to pri-
consider climate change and resiliency when develop- vate citizens and industry, the expected decline in species
ing installation plans, making basing decisions, and may increase the costs of Federal species recovery efforts.
determining acquisition strategies.
DOD also has three pilot projects with local com- 15 National Fish, Wildlife and Plants Climate Adaptation Partner-
munities to address common, region-specific climate ship. 2012. National Fish, Wildlife and Plants Climate Adaptation Strat-
change impacts. One of the DOD pilots is at Mountain egy, Association of Fish and Wildlife Agencies, Council on Environmen-
Home Air Force Base in Idaho. The Base is working tal Quality, Great Lakes Indian Fish and Wildlife Commission, National
Oceanic and Atmospheric Administration, and U.S. Fish and Wildlife
with nearly 50 stakeholders, including city, county, and Service. Washington, DC.
state governments, as well as tribal, academic, and 16 Lawler, J. et al., 2009: Projected Climate-Induced Faunal Change
nonprofit organizations and other Federal agencies to in the Western Hemisphere. Ecology, 90(3), 2009, pp. 588597.
develop a regional Action Plan for climate change and 17 IPCC, 2014: Climate Change 2014: Synthesis Report. Contribution
of Working Groups I, II and III to the Fifth Assessment Report of the

14 Kopp, Robert, and Solomon Hsiang, 2014: American Climate Pro- Intergovernmental Panel on Climate Change [Core Writing Team, R.K.
spectus. Economic Risks in the United States. Rhodium Group, LLC. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, 67.
Lost Revenue potential for lost Federal revenue in the United States.
For illustrative purposes only, assuming the underly-
Unabated climate change is projected to hamper eco- ing economic loss projection is accurate, that the United
nomic production in the United States and across the States incurs a share of global losses proportional to its
globe. Economic loss in the United States means lost current share of global GDP, and that Federal revenue as
revenue for the Federal Government. Projections by the a share of U.S. GDP remains constant, lost revenue could
IPCC include a warming range of about 3.5 to 5.5 degrees be as high as 0.7 percent of U.S. GDP in 2100. Today, a loss
Celsius (6.3 to 9.9 degrees Fahrenheit) over preindustri- of that magnitude would translate to $120 billion in lost
al levels by 2100 if recent global emissions are allowed tax revenue. It should be noted that this example does not
to continue along IPCCs high-end scenario.18 Available take into account the fact that a portion of the projected
economic assessments of warming of four degrees Celsius economic losses include non-market losses that may not
indicate economic damages of more than four percent of directly translate into lost revenue.
global GDP each year by 2100.19 The Need for Action
There are a number of factors that may affect the ac-
curacy of this estimate. For example, the estimate does The exposure of the Federal budget to climate risks pro-
not account for important factors that are inherently dif- vides yet another call to action for policymakers. How we
ficult to quantify or monetize, such as biodiversity loss, respond to one of the most significant long-term challeng-
increased ocean acidification, changes in weather related es that our country and our planet faces speaks volumes
to changes in ocean circulation, catastrophic events, ir- about our values. It speaks to who we are as policymak-
reversibility of climate change impacts, tipping points ersif we embrace the challenge of developing pragmatic
leading to non-linear changes to the climate, and height- solutions. It speaks to who we are as Americansif we
ened political instability as a result of climate impacts. seize this moment and lead. It speaks to who we are as
In addition, current models factor in economic damages parentsif we take responsibility and leave our children
over time but treat rate of growth exogenously. Yet, there a safer planet.
is some evidence that climate losses may also undermine The President has set the United States on an ambi-
the rate of GDP growth.20 As a result, this four percent tious course and provided leadership that helped secure
estimate could understate the potential economic impact a strong global agreement to tackle emissions and pre-
on global GDP. pare our communities for the effects of climate change
The uncertainty of economic loss projections is com- not only because he believes we have a moral obligation,
pounded when attempting to estimate the associated but also because climate action is an economic and fis-
18 IPCC, 2014: Climate Change 2014: Synthesis Report. Contribution cal imperative. For this reason, the Presidents Budget
of Working Groups I, II and III to the Fifth Assessment Report of the invests in building a climate-smart economy, creating a
Intergovernmental Panel on Climate Change [Core Writing Team, R.K. 21st Century Clean Transportation System, doubling our
Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, 67. clean energy research and development, implementing
19 Nordhaus, William, 2007. Dynamic Integrated Climate and Econ- common sense standards for carbon pollution, partnering
omy (DICE), as presented in the Technical Support Document: Social with communities to tackle climate risk, and continuing
Cost of Carbon for Regulatory Impact Analysis Under Executive Order leadership in international efforts to cut carbon pollution
12866. Interagency Working Group on Social Cost of Carbon, United
States Government. and enhance climate change resilience.
20 Burke, M., H. Solomon, and E. Miguel, 2015. Global Non-Linear
Effect of Temperature on Economic Production. Nature. 527: 235-9.

TECHNICAL BUDGET ANALYSES
367
368
25. CURRENT SERVICES ESTIMATES
Current services, or baseline, estimates are designed to construct the baseline must address whether and how to
to provide a benchmark against which budget proposals project forward the funding for these programs beyond their
can be measured. A baseline is not a prediction of the final scheduled expiration dates.
outcome of the annual budget process, nor is it a proposed Since the early 1970s, when the first requirements for
budget. It can be a useful tool in budgeting, however. It the calculation of a current services baseline were en-
can be used as a benchmark against which to measure the acted, the baseline has been constructed using a variety of
magnitude of the policy changes in the Presidents Budget concepts and measures. Throughout the 1990s, the base-
or other budget proposals, and it can also be used to warn line was calculated using a detailed set of rules enacted
of future problems if policy is not changed, either for the through amendments to the Balanced Budget Emergency
Governments overall fiscal health or for individual tax Deficit Control Act of 1985 (BBEDCA) made by the Budget
and spending programs. Enforcement Act of 1990 (BEA). The BBEDCA baseline
Ideally, a current services baseline would provide a projec- rules lapsed after the enforcement provisions of the BEA
tion of estimated receipts, outlays, deficits or surpluses, and expired in 2002, but even after the lapse they were largely
budget authority reflecting this years enacted policies and adhered to in practice until they were officially reinstated
programs for each year in the future. Defining this baseline through amendments to BBEDCA enacted in the Budget
is challenging because funding for many programs in opera- Control Act of 2011 (BCA).
tion today expires within the 10-year budget window. Most The Administration believes adjustments to the BBEDCA
significantly, funding for discretionary programs is provided baseline are needed to better represent the deficit outlook
one year at a time in annual appropriations acts. Mandatory under current policy and to serve as a more appropriate
programs are not generally subject to annual appropria- benchmark for measuring policy changes. The next section
tions, but many operate under multi-year authorizations provides detailed estimates of an adjusted baseline that cor-
that expire within the budget window. The framework used rects for some of the shortcomings in the BBEDCA baseline.
Table 251. CATEGORY TOTALS FOR THE ADJUSTED BASELINE
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Receipts 3,250 3,336 3,477 3,615 3,783 4,006 4,204 4,400 4,593 4,801 5,012 5,247
Outlays:
Discretionary:
Defense 583 595 601 606 620 633 644 682 711 733 752 771
Non-defense 581 627 614 604 607 614 626 660 685 703 720 738
Subtotal, discretionary 1,165 1,223 1,215 1,210 1,227 1,246 1,270 1,342 1,396 1,437 1,472 1,509
Mandatory:
Social Security 882 924 967 1,025 1,089 1,157 1,224 1,297 1,373 1,454 1,538 1,626
Medicare 540 589 602 611 674 725 781 879 912 936 1,046 1,114
Medicaid and CHIP 359 382 392 412 429 450 475 502 530 561 594 638
Other mandatory 520 593 605 615 667 686 715 757 761 763 787 865
Subtotal, mandatory 2,301 2,487 2,565 2,663 2,860 3,018 3,196 3,434 3,577 3,713 3,966 4,243
Disaster costs 1 ......... 2 6 8 8 9 9 10 10 10 10 10
Net interest 223 240 304 390 473 547 609 669 729 783 838 901
Total, outlays 3,688 3,952 4,089 4,270 4,568 4,820 5,085 5,455 5,713 5,943 6,286 6,662
Unified deficit(+)/surplus() 438 616 612 655 785 814 881 1,055 1,120 1,143 1,273 1,415
(On-budget) (466) (623) (608) (634) (741) (737) (788) (939) (972) (966) (1,064) (1,179)
(Off-budget) (27) (7) (4) (21) (45) (77) (93) (116) (148) (176) (210) (236)
Memorandum:
BBEDCA baseline deficit 438 615 636 719 875 917 994 1,121 1,167 1,185 1,325 1,440
Adjustments for provisions contained in the Budget
Control Act ......... ......... 27 67 89 97 102 52 32 26 33 5
Remove non-recurring emergency costs ......... ......... 2 3 6 8 8 8 8 9 9 9
Add placeholder for future emergency costs ......... 2 6 8 8 9 9 10 10 10 10 10
Related debt service ......... * * 1 4 8 12 15 17 18 20 21
Adjusted baseline deficit 438 616 612 655 785 814 881 1,055 1,120 1,143 1,273 1,415
1 These amounts represent the probability of major disasters requiring Federal assistance for relief and reconstruction. Such assistance might be provided in the form of discretionary
or mandatory outlays or tax relief. These amounts are included as outlays for convenience.
369
Table 251 shows estimates of receipts, outlays, and defi- the Balanced Budget Act of 1997 to be extended if
cits under the Administrations adjusted baseline for 2015 their current year outlays exceed $50 million. For
through 2026.1 The estimates are based on the economic example, even though the National Flood Insurance
assumptions described later in this chapter. The table also program, which was authorized before the Balanced
shows the Administrations estimates by major component of Budget Act of 1997, is scheduled to expire at the end
the budget. Estimates of the deficit based on the BBEDCA of 2017, the baseline estimates assume continuation
baseline rules are shown as a memorandum in the table. of this program through the projection period, be-
cause the programs current year outlays exceed the
Conceptual Basis for Estimates $50 million threshold.2
Receipts and outlays are divided into two categories Discretionary spending.Discretionary programs
that are important for calculating the baseline: those differ in one important aspect from direct spending pro-
controlled by authorizing legislation (receipts and direct grams: the Congress provides spending authority for
spending) and those controlled through the annual ap- almost all discretionary programs one year at a time. The
propriations process (discretionary spending). Different spending authority is normally provided in the form of
estimating rules apply to each category. annual appropriations. Absent appropriations of addi-
Direct spending and receipts.Direct spending includes tional funds in the future, discretionary programs would
the major entitlement programs, such as Social Security, cease to operate after existing balances were spent. If
Medicare, Medicaid, Federal employee retirement, unem- the baseline were intended strictly to reflect current
ployment compensation, and the Supplemental Nutrition law, then a baseline would reflect only the expenditure
Assistance Program (SNAP). It also includes such programs of remaining balances from appropriations laws al-
as deposit insurance and farm price and income supports, ready enacted. Instead, the BBEDCA baseline provides
where the Government is legally obligated to make pay- a mechanical definition to reflect the continuing costs of
ments under certain conditions. Taxes and other receipts are discretionary programs. Under BBEDCA, the baseline
like direct spending in that they involve ongoing activities estimates for discretionary programs in the current year
that generally operate under permanent or long-standing are based on that years enacted appropriations.3 For
authority, and the underlying statutes generally specify the the budget year and beyond, the spending authority en-
tax rates or benefit levels that must be collected or paid, and acted in the current year is adjusted for inflation, using
who must pay or who is eligible to receive benefits. specified inflation rates.4 The definition attempts to keep
The baseline generallybut not alwaysassumes that discretionary spending roughly level in real terms. The
receipts and direct spending programs continue in the fu- Administrations adjusted baseline makes the following
ture as specified by current law. The budgetary effects modifications to the BBEDCA baseline:
of anticipated regulatory and administrative actions that The adjusted baseline includes allowances to comply
are permissible under current law are also reflected in with the discretionary caps enacted in BBEDCA,
the estimates. The Administrations adjusted baseline which limit the amount of discretionary budget au-
incorporates further exceptions to produce a more real- thority that can be provided through the annual ap-
istic deficit outlook. Exceptions in BBEDCA and in the propriations process. The current caps were initially
Administrations adjusted baselines are described below: established by the BCA and later amended for 2013
Consistent with BBEDCA, expiring excise taxes by the American Taxpayer Relief Act of 2012 (ATRA).
dedicated to a trust fund are assumed to be extended
at the rates in effect at the time of expiration. Dur- 2 For programs enacted since the Balanced Budget Act of 1997, pro-
ing the projection period of 2016 through 2026, the grams that are explicitly temporary in nature expire in the baseline as
taxes affected by this exception are taxes deposited provided by current law even if their current year outlays exceed the
in the Airport and Airway Trust Fund, which expire $50 million threshold. In contrast, if commodity price support programs
typically funded in the Farm Bill expire at the time the baseline is pre-
on March 31, 2016; taxes deposited in the Highway pared, they are assumed to continue to operate in the same way they op-
Trust Fund, the Leaking Underground Storage erated immediately before the expiration, because these programs were
Tank Trust Fund, and the Sport Fish Restoration enacted prior to the Balanced Budget Act of 1997 and their current year
and Boating Resources Trust Fund, which expire outlays exceed the $50 million threshold.
3 When current year appropriations have not been enacted BBEDCA
on September 30, 2022; the Heavy Vehicle Use Tax,
which expires on September 30, 2023; taxes deposit- requires the baseline estimates for discretionary spending and collec-
tions for the current year to be based on the levels provided in a full-year
ed in the Oil Spill Liability Trust Fund, which expire continuing resolution or the annualized level of a part-year continuing
on December 31, 2017; and taxes deposited in the resolution.
Patient-Centered Outcomes Research Trust Fund, 4 The Administrations baseline uses the same inflation rates for dis-
which expire on September 30, 2019. cretionary spending as required by BBEDCA, despite the fact that this
allows for an overcompensation for Federal pay inherent in the BBEDCA
BBEDCA requires expiring authorizations for di- definition. At the time the BEA was enacted, it failed to account for the
rect spending programs that were enacted before nearly contemporaneous enactment of the Federal Employees Compen-
sation Act of 1991 that shifted the effective date of Federal employee
1 The estimates are shown on a unified budget basis; i.e., the off- pay raises from October to January. This oversight was not corrected
budget receipts and outlays of the Social Security trust funds and the when the baseline definition was reinstated by the BCA amendments
Postal Service Fund are added to the on-budget receipts and outlays to to BBEDCA. Correcting for this error would have only a small effect on
calculate the unified budget totals. the discretionary baseline.
25. CURRENT SERVICES ESTIMATES 371
The caps for 2014 and 2015 were amended by the Bi- in the current year. Rather, baselines should replace the
partisan Budget Act of 2013 while the caps for 2016 projection of enacted current-year fundingwhich might
and 2017 were amended by the Bipartisan Budget be unusually low or unusually highwith plausible esti-
Act of 2015. (Chapter 9 of this volume, Budget Con- mates of future costs.
cepts, provides more information on the effects of Joint Committee Enforcement. Because the Joint
BBEDCA, as amended by the BCA and subsequent Select Committee process under Title IV of the BCA
legislation.) did not result in enactment of legislation that reduced
the deficit by at least $1.2 trillion, the BCA stipulated
The BBEDCA caps allow for adjustments to the dis- that, absent intervening legislation, enforcement proce-
cretionary caps for disaster relief spending, emer-
dures would be invoked on an annual basis to reduce
gency requirements, Overseas Contingency Opera-
the levels of discretionary and mandatory spending to
tions (OCO), and program integrity.
accomplish deficit reduction. The BBEDCA baseline
FF Disaster relief and emergency requirements. includes the effects of the across-the-board reductions
The adjusted baseline does not reflect funding (sequestration) already invoked by Joint Committee
under the disaster relief or emergency cap ad- sequestration orders for 2013 through 2016, as well
justments beyond what has already been enacted as the mandatory sequestration order for 2017 issued
for 2016. While the BBEDCA baseline projects with the transmittal of the 2017 Budget.5 Further
forward the $7.1 billion of enacted disaster re- Joint Committee enforcementconsisting of manda-
lief funding for the Departments of Agriculture, tory sequestration and discretionary cap reductions for
Homeland Security, and Housing and Urban De- 2018 through 2021is reflected as adjustments to the
velopment in 2016, increased by the BBEDCA in- BBEDCA baseline in the form of an allowance in the
flation rates, the adjusted baseline removes this amount of the required reductions. Pursuant to subse-
extrapolation. This same treatment is given to quent legislation, the adjusted baseline also includes the
the $0.8 billion of enacted emergency funding pro- extension of mandatory sequestration through 2025 at
vided to the Departments of Agriculture (Forest the rate required for 2021 by the BCA.6
Service) for wildland fire suppression activities
and the International Monetary Fund (IMF) for Economic Assumptions
the IMF quota to protect global financial security
and prevent and manage financial crises. As discussed above, an important purpose of the
baseline is to serve as a benchmark against which pol-
FF OCO. The adjusted baseline for OCO is identi- icy proposals are measured. However, this purpose is
cal to the BBEDCA baseline, reflecting 2016 en- achieved only if the policies and the baseline are con-
acted funding for OCO inflated at the BBEDCA structed under the same set of economic and technical
inflation rates. assumptions. For this reason, the Administration uses
FF Program integrity. The adjusted baseline as- the same assumptionsfor example, the same inflation
sumes full funding for the enacted cap adjust- assumptionsin preparing its current service estimates
ment levels, and inflates those amounts after the and its Budget. These assumptions are based on enact-
cap adjustments expire in 2021. These amounts ment of the Presidents Budget proposals.
are not the equivalent of the BBEDCA baseline, The economy and the budget interact. Changes in
because the allowable cap adjustment amounts economic conditions significantly alter the estimates of
vary from year to year and Congress does not al- tax receipts, unemployment benefits, entitlement pay-
ways provide the full allowable adjustment under ments that receive automatic cost-of-living adjustments
current law. Additionally, the adjusted baseline (COLAs), income support programs for low-income in-
assumes savings from enacting the program in-
tegrity cap adjustments at their full levels. 5 The effects of past sequestration reductions are reflected in the de-
tailed schedules for the affected budget accounts, while the 2017 reduc-
Reclassification of transportation spending. To pro- tions are reflected in an allowance due to the timing of the preparation
of the detailed budget estimates and the issuance of the 2017 sequestra-
vide an appropriate baseline for assessing the budgetary tion order.
impact of the Administrations surface transportation 6 The Bipartisan Budget Act of 2013 (P.L. 113-67) extended mandato-
proposal, the adjusted baseline reclassifies certain surface ry sequestration through 2023, at the rate required for 2021 by the BCA.
transportation accounts from discretionary to mandatory. This Act also specified for 2023 that, notwithstanding the 2 percent limit
The reclassification is a zero-sum shift of both BA and on Medicare sequestration in the BCA, the Medicare reduction should
be 2.90 percent for the first half of the sequestration period and 1.11 per-
outlays from the discretionary category to the mandatory cent for the second half of the period. The Military Retired Pay Restora-
category. tion Act (P.L. 113-82) extended mandatory sequestration through 2024.
Disaster funding. An allowance for the possible costs The Protecting Access to Medicare Act of 2014 (P.L. 113-93) specified for
of major natural or man-made disasters during the re- 2024 that the Medicare reduction should be 4.0 percent for the first half
mainder of 2016 and in subsequent years is assumed in of the sequestration period and zero for the second half of the period.
The Bipartisan Budget Act of 2015 (P.L. 114-74) further extended man-
the adjusted baseline to make budget totals more realistic. datory sequestration through 2025. This Act also reset the Medicare re-
Baselines would be more meaningful if they did not proj- duction to a constant 2 percent through 2024 and specified for 2025 that
ect forward the amount of any disaster funding provided the Medicare program should be reduced by 4.0 percent for the first half
of the sequestration period and zero for the second half of the period.
dividuals, and interest on the Federal debt. In turn, projections for the major benefit programs are shown
Government tax and spending policies influence prices, in Table 253. These assumptions affect baseline esti-
economic growth, consumption, savings, and investment. mates of direct spending for each of these programs, and
Because of these interactions, it would be reasonable, from they also affect estimates of the discretionary baseline
an economic perspective, to assume different econom- for a limited number of programs. For the administra-
ic paths for the baseline projection and the Presidents tive expenses for Medicare, Railroad Retirement, and
Budget. However, this would diminish the value of the unemployment insurance, the discretionary baseline is
baseline estimates as a benchmark for measuring pro- increased (or decreased) for changes in the number of
posed policy changes, because it would then be difficult to beneficiaries in addition to the adjustments for inflation
separate the effects of proposed policy changes from the described earlier.7
effects of different economic assumptions. Using the same It is also necessary to make assumptions about the
economic assumptions for the baseline and the Presidents continuation of expiring programs and provisions. As
Budget eliminates this potential source of confusion. The explained above, in the baseline estimates provided
economic assumptions underlying the Budget and the here, expiring excise taxes dedicated to a trust fund
Administrations baseline are summarized in Table 25 are extended at current rates. In general, mandatory
2. The economic outlook underlying these assumptions programs with spending of at least $50 million in the
is discussed in greater detail in Chapter 2, Economic current year are also assumed to continue, unless the
Assumptions and Interactions with the Budget, of this programs are explicitly temporary in nature. Table 25
volume. 4, available on the Internet at www.budget.gov/budget/
Analytical_Perspectives and on the Budget CD-ROM,
Major Programmatic Assumptions provides a listing of mandatory programs and taxes as-
sumed to continue in the baseline after their expiration.8
In addition to the baseline adjustments described Many other important assumptions must be made in or-
earlier in this chapter, a number of programmatic as- der to calculate the baseline estimates. These include
sumptions must be made to calculate the baseline 7 Although these adjustments are applied at the account level, they
estimates. These include assumptions about annual have no effect in the aggregate because discretionary baseline levels are
cost-of-living adjustments in the indexed programs and constrained to the BBEDCA caps.
the number of beneficiaries who will receive payments 8 All discretionary programs with enacted non-emergency, non-disas-
from the major benefit programs. Assumptions about ter appropriations in the current year and the 2016 costs for overseas
various automatic cost-of-living-adjustments are shown contingency operations in Iraq and Afghanistan and other recurring in-
ternational activities are assumed to continue, and are therefore not
in Table 252, and assumptions about baseline caseload presented in Table 25-4.
Table 252. SUMMARY OF ECONOMIC ASSUMPTIONS

(Fiscal years; in billions of dollars)
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Gross Domestic Product (GDP):
Levels, in billions of dollars:
Current dollars 17,803.4 18,472.0 19,302.8 20,129.6 21,012.6 21,921.4 22,875.2 23,872.2 24,912.4 25,994.8 27,123.0 28,300.9
Real, chained (2009) dollars 16,264.1 16,665.8 17,103.3 17,524.4 17,938.4 18,351.0 18,773.0 19,204.8 19,646.6 20,098.4 20,560.7 21,033.6
Percent change, year over year:
Current dollars 3.6 3.8 4.5 4.3 4.4 4.3 4.4 4.4 4.4 4.3 4.3 4.3
Real, chained (2009) dollars 2.5 2.5 2.6 2.5 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Inflation measures (percent change, year over year):
GDP chained price index 1.1 1.2 1.8 1.8 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Consumer price index (all urban) 0.3 1.2 2.1 2.0 2.2 2.2 2.3 2.3 2.3 2.3 2.3 2.3
Unemployment rate, civilian (percent) 5.5 4.8 4.5 4.6 4.6 4.7 4.7 4.8 4.8 4.9 4.9 4.9
Interest rates (percent):

91-day Treasury bills * 0.4 1.6 2.4 3.0 3.3 3.4 3.4 3.3 3.3 3.3 3.3
10-year Treasury notes 2.2 2.7 3.4 3.8 4.1 4.2 4.2 4.2 4.2 4.2 4.2 4.2
MEMORANDUM:
Related program assumptions:
Automatic benefit increases (percent):
Social security and veterans pensions 1.7 ......... 0.8 2.2 2.1 2.3 2.2 2.3 2.3 2.3 2.3 2.3
Federal employee retirement 1.7 ......... 0.8 2.2 2.1 2.3 2.2 2.3 2.3 2.3 2.3 2.3
Supplemental Nutrition Assistance Program 2.8 ......... 1.0 2.2 2.0 2.3 2.2 2.3 2.3 2.3 2.3 2.3
Insured unemployment rate 1.7 1.7 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.7 1.7 1.7
* 0.05 percent or less.
assumptions about the timing and substance of regula- Current Services Receipts, Outlays,
tions that will be issued over the projection period, the and Budget Authority
use of administrative discretion provided under current
law, and other assumptions about the way programs op- Receipts.Table 255 shows the Administrations
erate. Table 254 lists many of these assumptions and baseline receipts by major source. Table 25-6 shows the
their effects on the baseline estimates. It is not intended scheduled increases in the Social Security taxable earn-
to be an exhaustive listing; the variety and complex- ings base, which affect both payroll tax receipts for the
ity of Government programs are too great to provide a program and the initial benefit levels for certain retirees.
complete list. Instead, some of the more important as- Outlays.Table 257 shows the growth from 2015
sumptions are shown. to 2016 and average annual growth over the five-year
Table 253. BASELINE BENEFICIARY PROJECTIONS FOR MAJOR BENEFIT PROGRAMS

(Annual average, in thousands)
Estimate
Actual
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Farmers receiving Federal payments 1,159 1,153 1,147 1,141 1,135 1,129 1,123 1,117 1,111 1,105 1,099 1,093
Federal direct student loans 9,746 9,666 9,891 10,135 10,434 10,735 11,067 11,420 11,798 12,198 12,618 13,055
Federal Pell Grants 7,670 7,679 7,750 7,894 8,102 8,248 8,410 8,552 8,724 8,908 9,095 9,217
Medicaid/Childrens Health Insurance Program1 73,090 74,451 76,367 76,994 76,288 77,541 78,279 78,939 79,580 80,222 80,770 81,291
Medicare-eligible military retiree health benefits 2,311 2,342 2,374 2,403 2,430 2,460 2,492 2,524 2,554 2,554 2,554 2,554
Medicare2
Hospital insurance 54,633 56,328 58,031 59,749 61,540 63,407 65,308 67,230 69,120 70,963 72,810 74,635
Supplementary medical insurance:
Part B 50,382 51,743 53,164 54,684 56,249 57,916 59,601 61,310 63,016 64,650 66,297 67,946
Part D 41,449 42,975 44,529 45,844 47,149 48,552 49,991 51,444 52,878 54,274 55,676 57,063
Prescription Drug Plans and Medicare:
Advantage Prescription Drug Plans 39,113 41,089 43,030 44,661 46,215 47,656 49,068 50,496 51,903 53,274 54,650 56,013
Retiree Drug Subsidy 2,336 1,886 1,499 1,183 934 896 922 949 975 1,000 1,026 1,051
Managed Care Enrollment3 17,206 18,300 19,295 20,228 21,147 21,864 22,615 23,467 24,319 25,131 25,917 26,684
Railroad retirement 534 523 520 517 512 508 502 496 488 481 473 465
Federal civil service retirement 2,638 2,650 2,663 2,678 2,696 2,714 2,733 2,753 2,773 2,787 2,802 2,819
Military retirement 2,271 2,286 2,299 2,311 2,322 2,333 2,345 2,358 2,370 2,401 2,407 2,412
Unemployment insurance 6,676 6,422 6,585 6,801 6,897 7,026 7,125 7,173 7,195 7,259 7,278 7,252
Supplemental Nutrition Assistance Program (formerly
Food Stamps) 45,767 45,537 44,482 42,828 41,507 38,793 36,968 35,690 34,751 33,598 32,289 31,527
Child nutrition 34,741 36,099 36,875 37,269 37,639 37,956 38,278 38,605 38,937 39,275 39,619 39,968
Foster care, adoption assistance and guardianship
assistance 633 647 671 695 717 739 761 784 808 833 859 885
Supplemental security income (SSI):
Aged 1,100 1,106 1,111 1,118 1,127 1,140 1,153 1,168 1,186 1,206 1,229 1,253
Blind/disabled 7,073 7,113 7,126 7,136 7,146 7,171 7,181 7,195 7,220 7,254 7,294 7,323
Total, SSI 8,173 8,219 8,237 8,254 8,273 8,311 8,334 8,363 8,406 8,460 8,523 8,576
Child care and development fund4 2,081 2,117 2,096 2,073 2,028 1,985 1,946 1,910 1,874 1,838 1,805 1,771
Social security (OASDI):
Old age and survivors insurance 48,338 50,060 51,766 53,486 55,253 57,035 58,637 60,277 61,924 63,561 65,116 66,637
Disability insurance 10,899 10,888 11,006 11,119 11,226 11,319 11,438 11,543 11,635 11,704 11,788 11,858
Total, OASDI 59,237 60,948 62,772 64,605 66,479 68,354 70,075 71,820 73,559 75,265 76,904 78,495
Veterans compensation:
Veterans 4,062 4,245 4,427 4,585 4,728 4,862 4,989 5,112 5,232 5,348 5,461 5,571
Survivors (non-veterans) 386 395 405 417 430 444 459 475 492 510 527 546
Total, Veterans compensation 4,448 4,640 4,832 5,002 5,157 5,306 5,448 5,587 5,724 5,858 5,989 6,117
Veterans pensions:
Veterans 298 296 297 298 299 301 302 303 304 306 307 308
Survivors (non-veterans) 208 207 210 212 214 216 218 221 223 225 227 230
Total, Veterans pensions 506 503 507 510 513 517 520 524 527 531 534 538
1 Medicaid enrollment excludes territories.
2 Medicare figures (Hospital Insurance, Part B, and Part D) do not sum to total Medicare enrollment due to enrollment in multiple programs.
3 Enrollment figures include only beneficiaries who receive both Part A and Part B services through managed care.
4 These levels include children served through CCDF (including Temporary Assistance for Needy Families (TANF) transfers) and through funds spent directly on child care in the Social
Services Block Grant and TANF programs.

and ten-year periods for certain discretionary and ma- Budget authority.Tables 2510 and 2511 show
jor mandatory programs. Tables 258 and 259 show estimates of budget authority in the Administrations
the Administrations baseline outlays by function and baseline by function and by agency, respectively. A more
by agency, respectively. A more detailed presentation of detailed presentation of this budget authority with
these outlays (by function, category, subfunction, and pro- program-level estimates is also available on the Internet
gram) is available on the Internet as part of Table 2512 as part of Table 2512 at www.budget.gov/ budget/
at www.budget.gov/budget/Analytical_Perspectives and Analytical_Perspectives and on the Budget CD-ROM.
on the Budget CD-ROM.
Table 255. RECEIPTS BY SOURCE IN THE PROJECTION OF ADJUSTED BASELINE

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Individual income taxes 1,540.8 1,627.8 1,724.1 1,793.0 1,878.1 1,987.6 2,095.0 2,205.2 2,318.8 2,436.6 2,559.4 2,688.3
Corporation income taxes 343.8 292.6 342.7 364.0 400.7 454.0 461.3 466.8 470.9 478.0 485.8 494.5
Social insurance and retirement receipts 1,065.3 1,100.8 1,139.1 1,184.8 1,232.5 1,279.2 1,344.9 1,409.0 1,469.4 1,537.5 1,604.6 1,684.6
(On-budget) (294.9) (303.1) (312.4) (320.9) (333.2) (345.5) (362.1) (378.2) (394.0) (410.9) (428.2) (448.7)
(Off-budget) (770.4) (797.7) (826.8) (863.9) (899.3) (933.8) (982.8) (1,030.8) (1,075.4) (1,126.6) (1,176.4) (1,235.8)
Excise taxes 98.3 96.8 86.5 105.3 105.8 108.5 113.6 116.7 120.1 123.9 128.3 133.5
Estate and gift taxes 19.2 21.1 22.4 23.7 25.1 26.4 28.1 29.7 31.5 33.5 35.6 37.9
Customs duties 35.0 36.7 39.5 42.2 44.1 45.8 47.6 49.4 51.1 52.7 54.3 56.1
Miscellaneous receipts 147.5 159.7 122.5 101.5 97.0 103.9 113.3 123.2 130.9 138.5 144.5 152.1
Total, receipts 3,249.9 3,335.5 3,476.8 3,614.5 3,783.2 4,005.5 4,203.9 4,400.0 4,592.8 4,800.7 5,012.4 5,247.0
(On-budget) (2,479.5) (2,537.9) (2,650.0) (2,750.7) (2,883.9) (3,071.7) (3,221.1) (3,369.2) (3,517.5) (3,674.1) (3,836.0) (4,011.2)
(Off-budget) (770.4) (797.7) (826.8) (863.9) (899.3) (933.8) (982.8) (1,030.8) (1,075.4) (1,126.6) (1,176.4) (1,235.8)
Table 256. EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Social security (OASDI) taxable earnings base increases:

$118,500 to $126,000 on Jan. 1, 2017 3.9 9.8 10.6 11.5 12.7 13.9 15.2 16.7 18.2 19.9
$126,000 to $129,300 on Jan. 1, 2018 ......... 1.7 4.3 4.6 5.1 5.6 6.1 6.7 7.3 8.0
$129,300 to $133,200 on Jan. 1, 2019 ......... ......... 2.0 5.1 5.7 6.2 6.8 7.4 8.1 8.9
$133,200 to $137,700 on Jan. 1, 2020 ......... ......... ......... 2.4 6.1 6.7 7.3 8.0 8.8 9.6
$137,700 to $143,100 on Jan. 1, 2021 ......... ......... ......... ......... 2.9 7.4 8.1 8.9 9.7 10.7
$143,100 to $148,800 on Jan. 1, 2022 ......... ......... ......... ......... ......... 3.1 7.9 8.7 9.4 10.4
$148,800 to $154,800 on Jan. 1, 2023 ......... ......... ......... ......... ......... ......... 3.3 8.4 9.2 10.0
$154,800 to $161,100 on Jan. 1, 2024 ......... ......... ......... ......... ......... ......... ......... 3.5 8.8 9.7
$161,100 to $167,700 on Jan. 1, 2025 ......... ......... ......... ......... ......... ......... ......... ......... 3.6 9.3
$167,700 to $174,600 on Jan. 1, 2026 ......... ......... ......... ......... ......... ......... ......... ......... ......... 3.8
Table 257. CHANGE IN OUTLAY ESTIMATES BY CATEGORY IN THE ADJUSTED BASELINE

Change Change Change
2016 to 2017 2016 to 2021 2016 to 2026
Average Average
annual annual
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Amount Percent Amount rate Amount rate
Outlays:
Discretionary:
Defense 595 601 606 620 633 644 682 711 733 752 771 6 1.0% 49 1.6% 176 2.6%
Non-defense 627 614 604 607 614 626 660 685 703 720 738 14 2.2% 1 0.0% 110 1.6%
Subtotal, discretionary 1,223 1,215 1,210 1,227 1,246 1,270 1,342 1,396 1,437 1,472 1,509 8 0.7% 47 0.8% 286 2.1%
Mandatory:
Farm programs 18 21 21 16 15 18 18 18 18 18 18 2 13.7% * 0.2% * 0.2%
GSE support 19 22 21 19 19 18 16 15 14 14 13 3 15.6% 1 1.3% 5 3.3%
Medicaid 367 377 398 424 444 469 496 525 555 589 632 9 2.5% 102 5.0% 265 5.6%
Other health care 98 119 136 150 159 168 177 185 194 202 211 21 21.5% 69 11.3% 112 7.9%
Medicare 589 602 611 674 725 781 879 912 936 1,046 1,114 13 2.2% 193 5.8% 526 6.6%
Federal employee retirement
and disability 145 144 143 152 157 162 172 172 172 183 189 1 1.0% 17 2.2% 44 2.7%
Unemployment compensation 32 32 33 35 36 38 39 41 43 44 46 * 1.1% 5 3.1% 13 3.5%
Other income security
programs 283 280 275 283 284 287 297 298 298 305 318 3 1.1% 4 0.3% 35 1.2%
Social Security 924 967 1,025 1,089 1,157 1,224 1,297 1,373 1,454 1,538 1,626 43 4.7% 301 5.8% 702 5.8%
Veterans programs 109 106 102 114 121 128 144 143 141 160 168 3 2.5% 18 3.2% 59 4.4%
Other mandatory programs 41 48 41 39 38 42 38 34 29 19 55 6 15.5% * 0.1% 13 2.8%
Undistributed offsetting
receipts 101 108 102 97 100 103 106 109 111 124 120 7 7.1% 2 0.4% 19 1.7%
Subtotal, mandatory 2,487 2,565 2,663 2,860 3,018 3,196 3,434 3,577 3,713 3,966 4,243 78 3.1% 709 5.1% 1,756 5.5%
Disaster costs 1 2 6 8 8 9 9 10 10 10 10 10 4 193.3% 8 38.0% 8 18.2%
Net interest 240 304 390 473 547 609 669 729 783 838 901 64 26.5% 369 20.5% 661 14.1%
Total, outlays 3,952 4,089 4,270 4,568 4,820 5,085 5,455 5,713 5,943 6,286 6,662 137 3.5% 1,133 5.2% 2,710 5.4%
*Less than $500 million.
1 These amounts represent the probability of a major disaster requiring federal assistance for relief and reconstruction. Such assistance might be provided in the form of discretionary
or mandatory outlays or tax relief. These amounts are included as outlays for convenience.
Table 258. OUTLAYS BY FUNCTION IN THE ADJUSTED BASELINE

Estimate
Function 2015
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
National Defense:
Department of DefenseMilitary 562.5 576.3 579.8 585.0 599.2 610.8 622.6 658.0 686.5 707.4 725.3 744.6
Other 27.1 28.1 29.7 29.5 29.6 30.2 30.0 32.3 33.6 34.4 35.1 35.9
Total, National Defense 589.6 604.5 609.5 614.5 628.8 641.1 652.6 690.3 720.1 741.8 760.4 780.5
International Affairs 48.6 46.4 56.9 61.0 61.2 61.3 61.3 61.1 61.9 62.9 64.0 65.5
General Science, Space, and Technology 29.4 30.8 31.8 32.5 33.1 33.8 34.7 35.5 36.5 37.3 37.9 38.7
Energy 6.8 7.5 6.8 5.5 4.3 4.9 4.8 4.5 3.5 2.8 2.6 4.9
Natural Resources and Environment 36.0 42.6 45.0 45.7 46.1 47.2 48.2 49.1 50.0 50.8 51.7 52.6
Agriculture 18.5 25.6 27.5 27.3 23.0 21.6 25.3 25.5 25.6 25.6 25.8 25.9
Commerce and Housing Credit 37.9 26.1 21.2 20.4 16.7 16.1 10.4 10.0 10.1 11.8 13.0 13.4
On-Budget (36.2) (27.6) (24.7) (20.7) (17.0) (16.4) (10.7) (10.3) (10.4) (12.1) (13.3) (13.8)
Off-Budget (1.7) (1.5) (3.5) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3)
Transportation 89.5 92.4 96.1 96.4 97.2 98.0 99.6 102.0 104.2 106.4 108.6 112.6
Community and Regional Development 20.7 27.9 19.1 16.9 15.6 13.0 13.0 13.0 12.9 13.1 13.4 13.7
Education, Training, Employment, and Social
Services 122.1 113.9 104.8 111.1 116.8 120.3 123.4 125.1 126.8 129.0 131.6 135.1
Health 482.2 525.9 558.1 597.1 636.4 667.0 701.9 739.3 777.1 818.0 861.3 915.5
Medicare 546.2 595.3 608.6 617.5 681.4 732.3 788.7 886.4 919.9 943.6 1,054.2 1,122.6
Income Security 508.8 528.2 526.5 522.6 541.3 550.4 560.7 584.3 588.7 592.0 613.2 635.0
Social Security 887.8 929.4 972.6 1,031.2 1,095.3 1,163.3 1,230.9 1,303.4 1,380.3 1,461.1 1,545.2 1,633.5
On-Budget (31.0) (32.8) (39.3) (42.9) (46.7) (50.7) (54.7) (59.2) (63.9) (68.9) (74.3) (80.1)
Off-Budget (856.8) (896.7) (933.3) (988.3) (1,048.7) (1,112.6) (1,176.2) (1,244.3) (1,316.4) (1,392.2) (1,470.9) (1,553.4)
Veterans Benefits and Services 159.7 178.2 182.7 181.0 195.2 204.4 213.7 232.4 234.0 234.3 256.0 267.2
Administration of Justice 51.9 64.4 68.9 66.0 63.4 63.7 65.2 66.9 68.5 70.2 72.1 78.5
General Government 21.0 24.5 24.0 24.9 25.8 26.5 26.9 27.4 28.2 29.2 30.1 30.4
Net Interest 223.2 240.0 303.7 390.0 472.9 546.8 609.3 668.8 729.5 783.3 837.9 900.6
On-Budget (319.1) (330.7) (392.0) (475.7) (559.2) (629.6) (689.9) (745.7) (800.7) (850.1) (899.5) (956.9)
Off-Budget (96.0) (90.7) (88.3) (85.7) (86.3) (82.8) (80.6) (76.9) (71.2) (66.8) (61.6) (56.3)
Allowances ......... 1.9 24.0 48.7 55.4 59.5 62.0 43.5 36.2 34.8 43.8 17.4
Undistributed Offsetting Receipts:
Employer share, employee retirement (on-
budget) 65.1 67.5 71.0 71.4 72.9 74.4 76.1 78.0 80.0 82.1 84.2 86.9
Employer share, employee retirement (off-
budget) 16.0 16.9 17.3 18.0 18.8 19.5 20.3 21.2 21.9 22.6 23.6 26.1
Rents and royalties on the Outer Continental
Shelf 4.6 3.8 4.5 5.1 5.8 6.1 6.2 6.9 6.5 6.7 6.9 7.1
Sale of major assets ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Other undistributed offsetting receipts 30.1 12.9 15.5 7.7 ......... 0.4 0.4 0.4 0.3 ......... 8.8 .........
Total, Undistributed Offsetting Receipts 115.8 101.2 108.3 102.2 97.5 100.4 103.1 106.5 108.7 111.5 123.5 120.1
On-Budget (99.8) (84.3) (91.0) (84.2) (78.6) (80.9) (82.7) (85.3) (86.8) (88.9) (99.9) (94.0)
Off-Budget (16.0) (16.9) (17.3) (18.0) (18.8) (19.5) (20.3) (21.2) (21.9) (22.6) (23.6) (26.1)
Total 3,688.3 3,951.9 4,088.9 4,269.9 4,568.4 4,819.5 5,084.8 5,455.0 5,712.7 5,943.3 6,285.7 6,661.9
(On-Budget) (2,945.2) (3,161.3) (3,257.7) (3,385.0) (3,624.5) (3,809.0) (4,009.3) (4,308.5) (4,489.1) (4,640.2) (4,899.7) (5,190.6)
(Off-Budget) (743.1) (790.6) (831.1) (884.9) (943.8) (1,010.6) (1,075.5) (1,146.5) (1,223.6) (1,303.1) (1,386.0) (1,471.3)
Table 259. OUTLAYS BY AGENCY IN THE ADJUSTED BASELINE

Estimate
Agency 2015
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Legislative Branch 4.3 4.7 4.7 4.8 5.0 5.1 5.2 5.4 5.5 5.7 5.8 6.0
Judicial Branch 7.1 7.7 7.7 7.9 8.2 8.4 8.7 8.9 9.2 9.5 9.7 10.0
Agriculture 139.1 153.8 153.8 155.2 151.8 149.6 153.9 155.5 157.6 159.2 160.2 161.8
Commerce 9.0 10.5 10.4 10.7 11.8 12.0 12.3 11.7 11.3 11.5 11.8 12.1
DefenseMilitary Programs 562.5 576.3 587.2 601.4 620.1 634.3 647.3 651.7 667.2 683.2 698.8 715.9
Education 90.0 79.1 69.9 76.3 81.6 84.6 87.1 88.2 89.3 90.8 92.9 95.7
Energy 25.4 27.4 30.2 30.4 30.1 30.9 30.1 30.3 29.8 29.9 30.3 33.2
Health and Human Services 1,027.5 1,110.4 1,133.9 1,159.4 1,240.9 1,314.6 1,398.3 1,525.4 1,589.5 1,646.2 1,792.5 1,906.8
Homeland Security 42.6 51.8 44.8 43.5 44.5 43.5 44.2 45.3 46.4 47.5 48.8 56.2
Housing and Urban Development 35.5 28.7 39.9 39.0 37.4 36.7 36.9 36.8 36.8 36.9 37.2 37.7
Interior 12.3 14.0 14.5 14.8 15.2 15.8 16.1 16.4 16.6 16.7 17.0 17.3
Justice 26.9 39.1 41.9 39.1 36.2 35.9 36.9 37.8 38.6 39.5 40.5 41.5
Labor 45.2 43.5 45.3 45.9 45.9 48.6 50.4 52.9 55.5 58.3 57.0 67.0
State 26.5 30.9 30.3 31.6 32.4 32.8 33.3 33.2 33.7 34.3 35.0 35.7
Transportation 75.4 77.8 81.0 81.0 81.4 81.8 83.2 85.1 86.8 88.4 90.1 92.0
Treasury 485.6 540.4 617.5 717.5 828.5 912.0 986.9 1,058.2 1,126.3 1,190.4 1,248.8 1,306.1
Veterans Affairs 159.2 177.6 182.1 180.4 194.7 203.9 213.2 232.0 233.5 233.8 255.5 266.7
Corps of EngineersCivil Works 6.7 6.7 7.4 7.8 7.8 7.7 7.7 7.7 7.8 7.9 7.9 8.0
Other Defense Civil Programs 63.0 63.7 59.6 57.1 63.7 65.2 66.9 75.3 72.1 68.4 78.5 84.7
Environmental Protection Agency 7.0 8.3 8.4 7.7 8.0 8.4 8.7 9.1 9.4 9.6 9.9 10.1
Executive Office of the President 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5
General Services Administration -0.9 -0.7 -0.5 -0.1 0.3 0.1 0.1 -0.0 -0.0 -0.0 -0.1 -0.1
International Assistance Programs 21.0 16.0 26.0 28.9 28.0 27.4 26.9 26.6 26.9 27.3 27.6 28.4
National Aeronautics and Space Administration 18.3 19.2 19.7 20.0 20.5 20.9 21.4 21.9 22.2 22.8 23.3 23.8
National Science Foundation 6.8 6.9 6.9 7.5 7.6 7.7 8.0 8.2 8.8 9.0 9.1 9.3
Office of Personnel Management 91.7 93.6 95.3 101.3 105.6 109.9 113.2 117.2 121.6 126.6 131.2 136.6
Small Business Administration -0.7 -0.4 1.0 0.9 0.9 1.0 1.0 1.0 1.0 1.1 1.1 1.1
Social Security Administration 944.1 991.6 1,031.6 1,087.1 1,157.3 1,226.9 1,296.1 1,375.4 1,449.4 1,526.8 1,618.2 1,708.7
On-Budget (87.4) (94.9) (98.3) (98.8) (108.6) (114.3) (119.9) (131.2) (132.9) (134.6) (147.4) (155.3)
Off-Budget (856.8) (896.7) (933.3) (988.3) (1,048.7) (1,112.6) (1,176.2) (1,244.3) (1,316.4) (1,392.2) (1,470.9) (1,553.4)
Other Independent Agencies 14.2 23.6 25.1 22.3 25.0 25.8 33.3 34.1 35.0 33.5 32.6 32.3
On-Budget (15.9) (22.1) (21.6) (22.0) (24.7) (25.5) (33.0) (33.8) (34.7) (33.1) (32.3) (32.0)
Off-Budget (-1.7) (1.5) (3.5) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3)
Allowances --- 1.9 -31.7 -66.0 -77.4 -84.0 -87.7 -36.6 -15.6 -9.3 -16.0 12.7
Undistributed Offsetting Receipts -257.6 -252.6 -255.7 -243.9 -245.0 -248.4 -255.2 -259.9 -259.8 -262.4 -270.1 -256.1
On-Budget (-145.6) (-145.1) (-150.0) (-140.2) (-139.9) (-146.0) (-154.3) (-161.8) (-166.7) (-173.0) (-185.0) (-173.7)
Off-Budget (-112.0) (-107.6) (-105.7) (-103.7) (-105.1) (-102.4) (-101.0) (-98.1) (-93.1) (-89.4) (-85.2) (-82.4)
Total 3,688.3 3,951.9 4,088.9 4,269.9 4,568.4 4,819.5 5,084.8 5,455.0 5,712.7 5,943.3 6,285.7 6,661.9
(On-Budget) (2,945.2) (3,161.3) (3,257.7) (3,385.0) (3,624.5) (3,809.0) (4,009.3) (4,308.5) (4,489.1) (4,640.2) (4,899.7) (5,190.6)
(Off-Budget) (743.1) (790.6) (831.1) (884.9) (943.8) (1,010.6) (1,075.5) (1,146.5) (1,223.6) (1,303.1) (1,386.0) (1,471.3)
Table 2510. BUDGET AUTHORITY BY FUNCTION IN THE ADJUSTED BASELINE

Estimate
Function 2015
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
National Defense:
Department of DefenseMilitary 570.9 587.1 591.2 590.3 604.0 618.5 633.3 700.9 717.8 735.0 752.7 771.7
Other 27.5 28.3 28.3 28.5 29.1 29.7 30.3 33.3 34.0 34.7 35.4 36.2
Total, National Defense 598.4 615.4 619.5 618.8 633.1 648.2 663.6 734.2 751.8 769.7 788.1 807.9
General Science, Space, and Technology 29.9 31.5 32.1 32.8 33.5 34.2 34.9 35.7 36.5 37.3 38.1 38.9
Energy 6.4 8.1 7.0 5.1 4.1 5.0 4.7 4.7 3.7 3.0 2.9 5.1
Natural Resources and Environment 35.7 41.1 43.1 43.9 44.8 46.0 47.0 48.1 49.2 50.2 51.2 52.4
Agriculture 16.9 33.4 26.6 23.0 22.1 24.2 25.9 26.1 26.2 26.4 26.5 26.8
Commerce and Housing Credit 2.2 2.8 3.5 2.3 4.2 5.8 6.7 9.1 10.3 11.8 12.9 14.0
On-Budget (2.2) (3.0) (3.8) (2.0) (4.0) (5.5) (6.4) (8.8) (10.0) (11.4) (12.6) (13.7)
Off-Budget ......... (0.1) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3)
Transportation 85.4 90.4 92.6 94.4 96.6 99.0 100.0 101.1 102.2 103.3 104.5 106.0
Community and Regional Development 17.5 18.3 13.2 13.2 13.8 14.3 14.7 15.0 15.3 15.7 16.1 16.4
Education, Training, Employment, and Social
Services 119.6 112.0 109.1 112.7 118.9 122.2 125.3 127.2 129.0 131.3 134.0 137.5
Health 496.1 524.8 564.5 588.0 634.8 677.0 702.5 740.9 778.3 819.1 862.5 916.8
Medicare 547.6 601.6 608.9 617.5 681.4 732.3 788.8 886.5 920.0 943.8 1,054.4 1,122.8
Income Security 515.6 525.9 527.4 534.3 550.2 559.5 571.4 589.2 598.7 607.9 626.2 640.0
Social Security 892.0 932.9 976.3 1,036.0 1,100.5 1,168.9 1,236.2 1,309.2 1,386.4 1,467.5 1,551.9 1,640.5
On-Budget (30.9) (32.7) (39.3) (42.9) (46.7) (50.7) (54.7) (59.2) (63.9) (68.9) (74.3) (80.1)
Off-Budget (861.1) (900.2) (937.0) (993.2) (1,053.8) (1,118.2) (1,181.4) (1,250.0) (1,322.5) (1,398.6) (1,477.6) (1,560.4)
Veterans Benefits and Services 161.0 164.4 182.5 185.7 198.4 207.7 217.1 227.3 237.8 248.6 261.1 272.5
Administration of Justice 60.4 56.9 71.3 61.0 62.5 64.0 65.7 67.3 69.0 70.8 72.6 78.9
General Government 21.8 25.4 25.3 26.0 26.7 27.3 27.9 28.6 29.3 29.9 30.7 31.5
Net Interest 223.2 240.0 303.7 389.9 472.9 546.8 609.3 668.8 729.5 783.3 837.9 900.6
On-Budget (319.2) (330.7) (392.0) (475.6) (559.2) (629.6) (689.9) (745.6) (800.7) (850.1) (899.5) (956.9)
Off-Budget (96.0) (90.7) (88.3) (85.7) (86.3) (82.8) (80.6) (76.9) (71.2) (66.8) (61.6) (56.3)
Allowances ......... 7.5 37.1 57.8 58.2 60.4 62.9 30.6 32.4 33.8 46.6 10.3
Undistributed Offsetting Receipts:
Employer share, employee retirement (on-
budget) 65.1 67.5 71.0 71.4 72.9 74.4 76.1 78.0 80.0 82.1 84.2 86.9
Employer share, employee retirement (off-
budget) 16.0 16.9 17.3 18.0 18.8 19.5 20.3 21.2 21.9 22.6 23.6 26.1
Rents and royalties on the Outer Continental
Shelf 4.6 3.8 4.5 5.1 5.8 6.1 6.2 6.9 6.5 6.7 6.9 7.1
Sale of major assets ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........
Other undistributed offsetting receipts 30.1 12.9 15.5 7.7 ......... 0.4 0.4 0.4 0.3 ......... 8.8 .........
Total, Undistributed Offsetting Receipts 115.8 101.2 108.3 102.2 97.5 100.4 103.1 106.5 108.7 111.5 123.5 120.1
On-Budget (99.8) (84.3) (91.0) (84.2) (78.6) (80.9) (82.7) (85.3) (86.8) (88.9) (99.9) (94.0)
Off-Budget (16.0) (16.9) (17.3) (18.0) (18.8) (19.5) (20.3) (21.2) (21.9) (22.6) (23.6) (26.1)
Total 3,772.7 3,990.6 4,113.9 4,269.9 4,591.2 4,873.8 5,131.1 5,540.3 5,793.6 6,037.7 6,366.9 6,745.5
On-Budget (3,023.6) (3,198.1) (3,282.3) (3,380.1) (3,642.2) (3,857.7) (4,050.4) (4,388.1) (4,563.9) (4,728.2) (4,974.2) (5,267.2)
Off-Budget (749.1) (792.5) (831.6) (889.8) (949.0) (1,016.1) (1,080.8) (1,152.2) (1,229.7) (1,309.5) (1,392.7) (1,478.4)
MEMORANDUM
Discretionary Budget Authority:
National Defense 585.9 606.9 610.9 609.9 624.2 639.5 654.8 725.8 743.2 761.2 779.5 798.3
Domestic 472.5 501.5 475.5 471.8 484.9 496.8 508.8 556.6 570.3 584.5 599.0 613.8
Total, Discretionary 1,112.5 1,163.0 1,142.1 1,138.4 1,166.9 1,195.3 1,223.9 1,343.9 1,376.4 1,409.9 1,444.0 1,479.1
Table 2511. BUDGET AUTHORITY BY AGENCY IN THE ADJUSTED BASELINE

Estimate
Agency 2015
Actual 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Legislative Branch 4.5 4.6 4.7 4.9 5.0 5.1 5.3 5.4 5.6 5.7 5.9 6.0
Judicial Branch 7.4 7.6 7.8 8.0 8.3 8.5 8.8 9.0 9.3 9.6 9.9 10.1
Agriculture 142.5 164.0 157.9 155.5 155.9 157.2 159.6 161.1 163.3 165.0 165.9 167.8
Commerce 13.8 10.1 9.9 10.1 10.3 10.6 10.8 11.1 11.4 11.7 12.0 12.3
DefenseMilitary Programs 570.9 587.1 602.7 613.7 628.7 643.5 659.0 674.4 690.8 707.3 724.5 742.1
Education 87.3 78.0 74.5 77.9 83.4 86.2 88.7 90.0 91.2 92.7 94.8 97.6
Energy 25.4 28.9 29.3 28.9 29.2 30.2 30.1 30.6 30.1 30.2 30.8 33.7
Health and Human Services 1,045.2 1,116.8 1,141.1 1,149.8 1,239.8 1,323.8 1,398.4 1,526.5 1,590.4 1,647.2 1,793.4 1,908.3
Homeland Security 45.3 46.9 42.2 42.9 44.2 45.6 46.8 48.0 49.2 50.5 51.9 59.2
Housing and Urban Development 44.1 47.9 47.0 48.0 49.2 50.9 52.0 53.1 54.2 55.4 56.5 57.7
Interior 12.5 14.0 14.1 14.7 14.9 15.4 15.7 16.0 16.4 16.5 16.8 17.3
Justice 29.4 35.0 44.2 34.3 35.2 36.1 37.0 37.9 38.7 39.7 40.7 41.7
Labor 46.0 46.8 46.8 48.5 49.8 51.8 53.5 55.4 57.1 59.3 61.2 62.9
State 29.1 29.5 30.1 30.7 31.3 32.0 32.7 33.4 34.1 34.9 35.6 36.4
Transportation 71.9 75.8 77.6 79.1 81.0 82.8 83.4 84.0 84.5 85.1 85.8 85.1
Treasury 486.0 530.5 614.5 715.1 827.3 911.6 987.3 1,058.8 1,127.0 1,191.0 1,249.2 1,306.9
Veterans Affairs 160.5 163.9 181.9 185.2 197.9 207.2 216.6 226.8 237.3 248.1 260.6 272.0
Corps of EngineersCivil Works 5.5 5.9 6.1 6.2 6.3 6.5 6.6 6.8 6.9 7.1 7.3 7.4
Other Defense Civil Programs 62.6 59.0 59.7 61.8 63.9 65.4 67.2 69.9 72.2 74.4 78.8 85.0
Environmental Protection Agency 7.8 8.1 8.4 8.5 8.7 8.9 9.1 9.3 9.5 9.8 10.0 10.3
Executive Office of the President 3.5 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5
General Services Administration 0.5 0.6 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3
International Assistance Programs 32.7 30.1 28.5 13.6 15.9 18.8 21.4 23.6 25.6 27.0 28.0 29.0
National Aeronautics and Space Administration 18.0 19.3 19.7 20.1 20.5 21.0 21.5 22.0 22.5 23.0 23.5 24.0
National Science Foundation 7.5 7.6 7.7 7.8 8.0 8.2 8.3 8.5 8.7 8.8 9.0 9.2
Office of Personnel Management 92.4 93.7 96.7 103.4 107.5 111.9 115.9 120.4 124.8 129.6 134.4 139.6
Small Business Administration 0.7 0.5 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.1 1.1 1.1
Social Security Administration 950.4 994.8 1,032.0 1,092.2 1,162.4 1,232.5 1,301.4 1,380.9 1,455.5 1,533.5 1,625.0 1,715.7
On-Budget (89.3) (94.6) (95.0) (99.0) (108.6) (114.3) (120.0) (130.9) (133.0) (134.9) (147.4) (155.3)
Off-Budget (861.1) (900.2) (937.0) (993.2) (1,053.8) (1,118.2) (1,181.4) (1,250.0) (1,322.5) (1,398.6) (1,477.6) (1,560.4)
Other Independent Agencies 29.5 29.4 32.2 33.6 33.7 35.3 37.4 38.4 39.2 39.9 40.5 41.2
On-Budget (29.5) (29.6) (31.9) (33.3) (33.5) (35.0) (37.1) (38.1) (38.8) (39.5) (40.2) (40.9)
Off-Budget ......... (0.1) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3)
Allowances ......... 7.5 49.1 82.2 83.9 86.4 89.6 2.8 4.0 4.7 16.9 20.8
Undistributed Offsetting Receipts 257.6 252.6 255.7 243.9 245.0 248.4 255.2 259.9 259.8 262.4 270.1 256.1
On-Budget (145.6) (145.1) (150.0) (140.2) (139.9) (146.0) (154.3) (161.8) (166.7) (173.0) (185.0) (173.7)
Off-Budget (112.0) (107.6) (105.7) (103.7) (105.1) (102.4) (101.0) (98.1) (93.1) (89.4) (85.2) (82.4)
Total 3,772.7 3,990.6 4,113.9 4,269.9 4,591.2 4,873.8 5,131.1 5,540.3 5,793.6 6,037.7 6,366.9 6,745.5
(On-Budget) (3,023.6) (3,198.1) (3,282.3) (3,380.1) (3,642.2) (3,857.7) (4,050.4) (4,388.1) (4,563.9) (4,728.2) (4,974.2) (5,267.2)
(Off-Budget) (749.1) (792.5) (831.6) (889.8) (949.0) (1,016.1) (1,080.8) (1,152.2) (1,229.7) (1,309.5) (1,392.7) (1,478.4)
26. TRUST FUNDS AND FEDERAL FUNDS
As is common for State and local government budgets, or services. Instead of being deposited in receipt accounts,
the budget for the Federal Government contains infor- the proceeds are recorded in revolving fund expenditure
mation about collections and expenditures for different accounts. The proceeds are generally available for obliga-
types of funds. This chapter presents summary information and expenditure without further legislative action.
tion about the transactions of the two major fund groups Outlays for programs with revolving funds are reported
used by the Federal Government, trust funds and Federal both gross and net of these proceeds; gross outlays include
funds. It also presents information about the income and the expenditures from the proceeds and net program out-
outgo of the major trust funds and a number of Federal lays are derived by subtracting the proceeds from gross
funds that are financed by dedicated collections in a man- outlays. Because the proceeds of these sales are recorded
ner similar to trust funds. as offsets to outlays within expenditure accounts rather
than receipt accounts, the proceeds are known as offset-
The Federal Funds Group ting collections.2 There are two classes of revolving funds
in the Federal funds group. Public enterprise funds, such
The Federal funds group includes all financial transac- as the Postal Service Fund, conduct business-like opera-
tions of the Government that are not required by law to tions mainly with the public. Intragovernmental funds,
be recorded in trust funds. It accounts for a larger share such as the Federal Buildings Fund, conduct business-
of the budget than the trust funds group. like operations mainly within and between Government
The Federal funds group includes the general fund, agencies.
which is used for the general purposes of Government
rather than being restricted by law to a specific program. The Trust Funds Group
The general fund is the largest fund in the Government
and it receives all collections not dedicated for some other The trust funds group consists of funds that are des-
fund, including virtually all income taxes and many ex- ignated by law as trust funds. Like special funds and
cise taxes. The general fund is used for all programs that revolving funds, trust funds receive collections that are
are not supported by trust, special, or revolving funds. dedicated by law for specific purposes. Many of the larg-
The Federal funds group also includes special funds er trust funds are used to budget for social insurance
and revolving funds, both of which receive collections programs, such as Social Security, Medicare, and unem-
that are dedicated by law for specific purposes. Where the ployment compensation. Other large trust funds are used
law requires that Federal fund collections be dedicated to budget for military and Federal civilian employees re-
to a particular program, the collections and associated tirement benefits, highway and transit construction and
disbursements are recorded in special fund receipt and maintenance, and airport and airway development and
expenditure accounts.1 An example is the portion of the maintenance. There are a few trust revolving funds that
Outer Continental Shelf mineral leasing receipts depos- are credited with collections earmarked by law to carry
ited into the Land and Water Conservation Fund. Money out a cycle of business-type operations. There are also a
in special fund receipt accounts must be appropriated be- few small trust funds that have been established to carry
fore it can be obligated and spent. The majority of special out the terms of a conditional gift or bequest.
fund collections are derived from the Governments power There is no substantive difference between special
to impose taxes or fines, or otherwise compel payment, funds in the Federal funds group and trust funds, or be-
as in the case of the Crime Victims Fund. In addition, a tween revolving funds in the Federal funds group and
significant amount of collections credited to special funds trust revolving funds. Whether a particular fund is desig-
is derived from certain types of business-like activity, nated in law as a trust fund is, in many cases, arbitrary.
such as the sale of Government land or other assets or For example, the National Service Life Insurance Fund is
the use of Government property. These collections include a trust fund, but the Servicemens Group Life Insurance
receipts from timber sales and royalties from oil and gas Fund is a Federal fund, even though both receive dedi-
extraction. cated collections from veterans and both provide life
Revolving funds are used to conduct continuing cycles insurance payments to veterans beneficiaries.
of business-like activity. Revolving funds receive proceeds The Federal Government uses the term trust fund
from the sale of products or services, and these proceeds fi- differently than the way in which it is commonly used. In
nance ongoing activities that continue to provide products common usage, the term is used to refer to a private fund
1 There are two types of budget accounts: expenditure (or appropria-
that has a beneficiary who owns the trusts income and
tion) accounts and receipt accounts. Expenditure accounts are used to may also own the trusts assets. A custodian or trustee
record outlays and receipt accounts are used to record governmental
receipts and offsetting receipts. For further detail on expenditure and 2 See Chapter 13 in this volume for more information on offsetting
receipt accounts, see Chapter 9, Budget Concepts, in this volume. collections and offsetting receipts.
381
Table 261. RECEIPTS, OUTLAYS AND SURPLUS OR DEFICIT BY FUND GROUP

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Receipts:
Federal funds cash income:
From the public 2,468.4 2,506.9 2,776.6 2,963.0 3,108.6 3,316.8 3,477.3
From trust funds 1.5 1.1 1.4 1.4 1.3 1.4 1.4
Total, Federal funds cash income 2,469.9 2,508.1 2,778.0 2,964.4 3,109.9 3,318.2 3,478.8
Trust funds cash income:
From the public 1,297.5 1,338.9 1,401.1 1,468.8 1,533.0 1,602.1 1,689.5
From Federal funds:
Interest 141.8 151.5 147.3 141.8 148.0 149.0 154.0
Other 513.2 639.2 584.4 637.8 697.6 727.8 763.9
Total, Trust funds cash income 1,952.5 2,129.5 2,132.9 2,248.3 2,378.6 2,478.9 2,607.3
Offsetting collections from the public and offsetting receipts:
Federal funds 348.8 337.7 350.3 341.6 346.3 359.3 367.5
Trust funds 823.8 964.4 916.9 972.6 1,047.2 1,092.0 1,146.6
Total, offsetting collections from the public and offsetting receipts 1,172.5 1,302.1 1,267.2 1,314.1 1,393.5 1,451.4 1,514.1
Total, unified budget receipts 3,249.9 3,335.5 3,643.7 3,898.6 4,095.1 4,345.7 4,572.0
Federal funds 2,121.1 2,170.3 2,427.8 2,622.9 2,763.6 2,958.8 3,111.3
Trust funds 1,128.7 1,165.2 1,216.0 1,275.8 1,331.4 1,386.9 1,460.7
Outlays:
Federal funds cash outgo 3,019.9 3,310.6 3,391.9 3,553.0 3,769.3 3,927.7 4,094.2
Trust funds cash outgo 1,840.9 1,942.8 2,022.5 2,113.3 2,268.5 2,403.5 2,544.1
Offsetting collections from the public and offsetting receipts:
Federal funds 348.8 337.7 350.3 341.6 346.3 359.3 367.5
Trust funds 823.8 964.4 916.9 972.6 1,047.2 1,092.0 1,146.6
Total, offsetting collections from the public and receipts 1,172.5 1,302.1 1,267.2 1,314.1 1,393.5 1,451.4 1,514.1
Total, unified budget outlays 3,688.3 3,951.3 4,147.2 4,352.2 4,644.3 4,879.8 5,124.2
Federal funds 2,671.1 2,972.9 3,041.6 3,211.5 3,423.0 3,568.3 3,726.7
Trust funds 1,017.2 978.4 1,105.6 1,140.8 1,221.3 1,311.5 1,397.5
Surplus or deficit():
Federal funds 550.0 802.6 613.9 588.6 659.4 609.5 615.4
Trust funds 111.6 186.8 110.4 135.0 110.1 75.4 63.2
Total, unified surplus/deficit() 438.4 615.8 503.5 453.6 549.3 534.1 552.3
Note: Receipts include governmental, interfund, and proprietary, and exclude intrafund receipts (which are offset against intrafund payments so that cash income and cash outgo are
not overstated).
manages the assets on behalf of the beneficiary accord- Government makes no decisions about the amount of
ing to the terms of the trust agreement, as established money placed in deposit funds or about how the proceeds
by a trustor. Neither the trustee nor the beneficiary can are spent. For this reason, these funds are not classified
change the terms of the trust agreement; only the trus- as Federal trust funds, but are instead considered to be
tor can change the terms of the agreement. In contrast, non-budgetary and excluded from the Federal budget.3
the Federal Government owns and manages the assets The income of a Federal Government trust fund must
and the earnings of most Federal trust funds and can be used for the purposes specified in law. The income of
unilaterally change the law to raise or lower future trust some trust funds, such as the Federal Employees Health
fund collections and payments or change the purpose for Benefits fund, is spent almost as quickly as it is collected.
which the collections are used. Only a few small Federal In other cases, such as the Social Security and Federal
trust funds are managed pursuant to a trust agreement civilian employees retirement trust funds, the trust fund
whereby the Government acts as the trustee; even then income is not spent as quickly as it is collected. Currently,
the Government generally owns the funds and has some these funds do not use all of their annual income (which
ability to alter the amount deposited into or paid out of includes intragovernmental interest income). This sur-
the funds. plus of income over outgo adds to the trust funds balance,
Deposit funds, which are funds held by the Government which is available for future expenditures. The balances
as a custodian on behalf of individuals or a non-Feder-
al entity, are similar to private-sector trust funds. The 3 Deposit funds are discussed briefly in Chapter 10 of this volume,
Coverage of the Budget.

26. TRUST FUNDS AND FEDERAL FUNDS 383
are generally required by law to be invested in Federal add interfund offsetting collections from Federal sources
securities issued by the Department of the Treasury.4 The to income for a particular fund, this cannot be done at
National Railroad Retirement Investment Trust is a rare the present time because the budget data do not provide
example of a Government trust fund authorized to invest this type of detail. As a result, both interfund and intra-
balances in equity markets. fund offsetting collections from Federal sources are offset
A trust fund normally consists of one or more receipt against outgo in Table 261 and are not shown separately.
accounts (to record income) and an expenditure account The vast majority of the interfund transactions in the
(to record outgo). However, a few trust funds, such as the table are payments by the Federal funds to the trust
Veterans Special Life Insurance fund, are established by law funds. These payments include interest payments from
as trust revolving funds. Such a fund is similar to a revolv- the general fund to the trust funds for interest earned
ing fund in the Federal funds group in that it may consist on trust fund balances invested in interest-bearing
of a single account to record both income and outgo. Trust Treasury securities. The payments also include payments
revolving funds are used to conduct a cycle of business-type by Federal agencies to Federal employee benefits trust
operations; offsetting collections are credited to the funds funds and Social Security trust funds on behalf of current
(which are also expenditure accounts) and the funds outlays employees and general fund transfers to employee retire-
are displayed net of the offsetting collections. ment trust funds to amortize the unfunded liabilities of
these funds. In addition, the payments include general
Income and Outgo by Fund Group fund transfers to the Supplementary Medical Insurance
trust fund for the cost of Medicare Parts B (outpatient
Table 261 shows income, outgo, and the surplus or deficit and physician benefits) and D (prescription drug benefits)
by fund group and in the aggregate (netted to avoid dou- that is not covered by premiums (or, for Part D, transfers
ble-counting) from which the total unified budget receipts, from States).
outlays, and surplus or deficit are derived. Income consists In addition to investing their balances with the
mostly of governmental receipts (derived from governmental Treasury, some funds in the Federal funds group and
activity, primarily income, payroll, and excise taxes). Income most trust funds are authorized to borrow from the gen-
also includes offsetting receipts, which include proprietary eral fund of the Treasury.7 Similar to the treatment of
receipts (derived from business-like transactions with the funds invested with the Treasury, borrowed funds are not
public), interfund collections (derived from payments from a recorded as receipts of the fund or included in the income
fund in one fund group to a fund in the other fund group), of the fund. Rather, the borrowed funds finance outlays by
and gifts. Outgo consists of payments made to the public or the fund in excess of available receipts. Subsequently, any
to a fund in the other fund group. excess fund receipts are transferred from the fund to the
Two types of transactions are treated specially in the general fund in repayment of the borrowing. The repay-
table. First, income and outgo for each fund group exclude ment is not recorded as an outlay of the fund or included
all transactions that occur between funds within the in fund outgo. This treatment is consistent with the broad
same fund group.5 These intrafund transactions consti- principle that borrowing and debt redemption are not
tute outgo and income for the individual funds that make budgetary transactions but rather a means of financing
and collect the payments, but they are offsetting within deficits or disposing of surpluses.8
the fund group as a whole. The totals for each fund group Some income in both Federal funds and trust funds
measure only the groups transactions with the public consists of offsetting receipts.9 Offsetting receipts are not
and the other fund group. Second, outgo is calculated net considered governmental receipts (such as taxes), but
of the collections from Federal sources that are credited to they are instead recorded on the outlay side of the bud-
expenditure accounts (which, as noted above, are referred get. Expenditures resulting from offsetting receipts are
to as offsetting collections); the spending that is financed recorded as gross outlays and the collections of offsetting
by those collections is included in outgo and the collec- receipts are then subtracted from gross outlays to de-
tions from Federal sources are subsequently subtracted rive net outlays. Net outlays reflect the governments net
from outgo.6 Although it would be conceptually correct to transactions with the public.
As shown in Table 26-1, 35 percent of all governmental
4 Securities held by trust funds (and by other Government accounts), receipts were deposited in trust funds in 2015 and the
debt held by the public, and gross Federal debt are discussed in Chapter remaining 65 percent of governmental receipts were de-
4 of this volume, Federal Borrowing and Debt.
7 For example, the Unemployment trust fund is authorized to bor-
5 For example, the railroad retirement trust funds pay the equiva-
lent of Social Security benefits to railroad retirees in addition to the row from the general fund for unemployment benefits; the Bonneville
regular railroad pension. These benefits are financed by a payment from Power Administration Fund, a revolving fund in the Department of En-
the Federal Old-Age and Survivors Insurance trust fund to the railroad ergy, is authorized to borrow from the general fund; and the Black Lung
retirement trust funds. The payment and collection are not included in Disability Trust Fund, a trust fund in the Department of Labor, is autho-
Table 261 so that the total trust fund income and outgo shown in the rized to receive appropriations of repayable advances from the general
table reflect disbursements to the public and to Federal funds. fund, which constitutes a form of borrowing.
8 Borrowing and debt repayment are discussed in Chapter 4 of this
6 Collections from non-Federal sources are shown as income and
spending that is financed by those collections is shown as outgo. For volume, Federal Borrowing and Debt, and Chapter 9 of this volume,
example, postage stamp fees are deposited as offsetting collections in Budget Concepts.
the Postal Service Fund. As a result, the Funds income reported in 9 Interest on borrowed funds is an example of an intragovernmental
Table 261 includes Postage stamp fees and the Funds outgo is gross offsetting receipt and Medicare Part Bs premiums are an example of
disbursements, including disbursements financed by those fees. offsetting receipts from the public.
Table 262. COMPARISON OF TOTAL FEDERAL outgo during the year, and the end-of-year balance.
FUND AND TRUST FUND RECEIPTS TO UNIFIED Income and outgo are divided between transactions with
BUDGET RECEIPTS, FISCAL YEAR 2015 the public and transactions with Federal funds. Receipts
(In billions of dollars) from Federal funds are divided between interest and oth-
er interfund receipts.
Gross Trust fund receipts 1,938.6
The definitions of income and outgo in this table differ
Gross Federal fund receipts 2,280.0
from those in Table 261 in one important way. Trust fund
Total, gross receipts 4,218.6
collections that are offset against outgo (offsetting collec-
Deduct intrafund receipts (from funds within same fund group): tions from Federal sources) within expenditure accounts
Trust fund intrafund receipts 6.0 instead of being deposited in separate receipt accounts
Federal fund intrafund receipts 24.0 are classified as income in this table, but not in Table
Subtotal, intrafund receipts 30.0 261. This classification is consistent with the definitions
Total Trust funds and Federal Funds cash income 4,188.5 of income and outgo for trust funds used elsewhere in the
Deduct other offsetting receipts: budget. It has the effect of increasing both income and
Trust fund receipts from Federal funds: outgo by the amount of the offsetting collections from
Interest in receipt accounts 141.8 Federal sources. The difference was approximately $47
General fund payments to Medicare Parts B and D 263.5 billion in 2015. Table 263, therefore, provides a more
Employing agencies payments for pensions, Social Security, and complete summary of trust fund income and outgo.
Medicare 73.9 The trust funds group ran a surplus of $112 billion in
General fund payments for unfunded liabilities of Federal employees
retirement funds 112.1 2015, and is expected to continue to run surpluses over
Transfer of taxation of Social Security and RRB benefits to OASDI, HI, the next several years. The resulting growth in trust fund
and RRB 51.6 balances continues a trend that has persisted over the
Other receipts from Federal funds 12.1 past several decades. The size of these balances is largely
Subtotal, Trust fund receipts from Federal funds 655.0 the consequence of changes in the way some trust funds
Federal fund receipts from Trust funds 1.5 (primarily Social Security and the Federal retirement
Proprietary receipts 252.7 funds) are financed.
Offsetting governmental receipts 29.5 Because of these changes and economic growth (both
Subtotal, offsetting receipts 938.6 real and inflationary), trust fund balances increased from
Unified budget receipts 3,249.9 $205 billion in 1982 to $4.7 trillion in 2015. The current
Note: Offsetting receipts are included in cash income for each fund group, but are balances are estimated to increase by approximately 14
deducted from outlays in the unified budget. percent by the year 2021, rising to $5.4 trillion. Almost all
posited in Federal funds, which, as noted above, include of these balances are invested in Treasury securities and
the general fund. As noted above, most outlays between earn interest. The balances represent the value, in cur-
the trust fund and Federal fund groups (interfund out- rent dollars, of the unspent portion of (1) taxes and fees
lays) flow from Federal funds to trust funds, rather than received by the Government and dedicated to trust funds
from trust funds to Federal funds. As a result, while trust and (2) intragovernmental payments (from the general
funds account for 28 percent of total 2015 outlays, they fund and from agency appropriations) to the trust funds.
account for 34 percent of 2015 outlays net of interfund Until the 1980s, most trust funds operated on a pay-
transactions. as-you-go basis as distinct from a pre-funded basis. Taxes
Because the income for Federal funds and trust funds and fees were set at levels sufficient to finance current
recorded in Table 261 includes offsetting receipts and off- program expenditures and administrative expenses, and
setting collections from the public, offsetting receipts and to maintain balances generally equal to one years worth
offsetting collections from the public must be deducted of expenditures (to provide for unexpected events). As a
from the two fund groups combined gross income in order result, trust fund balances tended to grow at about the
to reconcile to total governmental receipts in the unified same rate as the funds annual expenditures.
budget. Similarly, because the outgo for Federal funds and For some of the larger trust funds, pay-as-you-go financ-
trust funds in Table 261 consists of outlays gross of off- ing was replaced in the 1980s by full or partial advance
setting receipts and offsetting collections from the public, funding. The Social Security Amendments of 1983 raised
the amount of the offsetting receipts and offsetting collec- payroll taxes above the levels necessary to finance current
tions from the public must be deducted from the sum of expenditures. Similarly, in 1985, a new system took effect
the Federal funds and the trust funds gross outgo in or- that funded military retirement benefits on a full accrual
der to reconcile to total (net) unified budget outlays. Table basis and, in 1986, full accrual funding of retirement ben-
262 reconciles, for fiscal year 2015, the gross total of all efits was mandated for Federal civilian employees hired
trust fund and Federal fund receipts with the receipt total after December 31, 1983. The two retirement programs
of the unified budget. now require Federal agencies and employees together to
pay the trust funds that disburse Federal civilian and
Income, Outgo, and Balances of Trust Funds military retirement benefits an amount equal to those
accruing retirement benefits. Since many years will pass
Table 263 shows, for the trust funds group as a whole, between the time when benefits are earned (or accrued)
the funds balance at the start of each year, income and
and when they are paid, the trust funds will accumulate which increases future national income and, as a result,
substantial balances over time. strengthens the Nations ability to support future bene-
From the perspective of the trust fund, these balances fits. This can be accomplished by simultaneously running
represent the value, in todays dollars, of past taxes, fees, trust fund surpluses while maintaining an unchanged
and other income that the trust fund has received in ex- Federal fund surplus or deficit, so that the trust fund sur-
cess of past spending. Trust fund assets held in Treasury plus reduces the unified budget deficit or increases the
bonds are legal claims on the Treasury, similar to bonds unified budget surplus.
issued to the public. Like all other fund assets, these are This demonstrates the need to follow a fiscal policy
available to the fund for future benefit payments and oth- that is consistent with the Governments obligation to
er expenditures. repay the bonds when needed to pay benefits in the fu-
However, from the perspective of the Government as a ture. This means saving more now before the obligations
whole, the trust fund balances do not represent net addi- become due and pursuing policies that will increase long-
tions to the Governments balance sheet. The trust fund run growth and national income. Otherwise, the Nation
balances are assets of the agencies responsible for ad- will have fewer resources available in the future to meet
ministering the trust fund programs and liabilities of the its obligations and will face more difficult choices among
Department of the Treasury.10 These assets and liabilities cutting spending, raising taxes, or borrowing from private
cancel each other out in the Government-wide balance credit markets.
sheet. When trust fund holdings are redeemed to fund Table 264 shows estimates of income, outgo, surplus
the payment of benefits, the Department of the Treasury or deficit, and balances for 2015 through 2021 for the
finances the expenditure in the same way as any other major trust funds. With the exception of transactions be-
Federal expenditureby using current receipts if the uni- tween trust funds, the data for the individual trust funds
fied budget is in surplus or by borrowing from the public are conceptually the same as the data in Table 263 for
if it is in deficit. Therefore, the existence of large trust the trust funds group. As explained previously, transac-
fund balances, while representing a legal claim on the tions between trust funds are shown as outgo of the fund
Treasury, does not, by itself, determine the Governments that makes the payment and as income of the fund that
ability to pay benefits. From an economic standpoint, the collects it in the data for an individual trust fund, but
Government is able to pre-fund benefits only by increas- the collections are offset against outgo in the data for the
ing saving and investment in the economy as a whole, trust fund group as a whole.
As noted above, trust funds are funded by a combi-
10 The effects of Treasury debt held by trust funds and other Govern-
nation of payments from the public and payments from
ment accounts are discussed further in Chapter 4 of this volume, Fed- Federal funds, including payments directly from the
eral Borrowing and Debt.
Table 263. INCOME, OUTGO, AND BALANCES OF TRUST FUNDS GROUP

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Balance, start of year 4,603.2 4,702.4 4,881.4 4,991.8 5,126.8 5,236.9 5,312.3
Adjustments to balances 0.2 ......... ......... ......... ......... ......... .........
Total balance, start of year 4,603.4 4,702.4 4,881.4 4,991.8 5,126.8 5,236.9 5,312.3
Income:
Governmental receipts 1,128.7 1,165.2 1,216.0 1,275.8 1,331.4 1,386.9 1,460.7
Offsetting governmental 18.7 13.0 13.4 7.4 * * *
Proprietary 150.1 159.0 170.9 184.7 200.6 214.3 227.8
From Federal funds:
Interest 142.5 154.2 149.6 144.5 150.9 152.1 157.6
Other 559.9 688.2 637.0 692.2 754.5 787.4 826.3
Total income during the year 1,999.9 2,179.5 2,186.8 2,304.6 2,437.5 2,540.7 2,672.5
Outgo () 1,888.4 1,992.7 2,076.4 2,169.6 2,327.4 2,465.4 2,609.3
Change in fund balance:
Excluding interest 30.9 32.6 39.2 9.5 40.8 76.8 94.4
Interest 142.5 154.2 149.6 144.5 150.9 152.1 157.6
Subtotal, surplus or deficit () 111.6 186.8 110.4 135.0 110.1 75.4 63.2
Borrowing, transfers, lapses, & other adjustments 12.6 7.8 * ......... ......... ......... .........
Total change in fund balance 99.0 179.0 110.4 135.0 110.1 75.4 63.2
Balance, end of year 4,702.4 4,881.4 4,991.8 5,126.8 5,236.9 5,312.3 5,375.4
NOTE: In contrast to table 26-1, income also includes income that is offset within expenditure accounts as offsetting collections from Federal sources, instead of being deposited in
receipt accounts.
general fund and payments from agency appropriations. an additional dedicated financing source. The other
Similarly, the fund outgo amounts in Table 26-4 represent Medicare trust fund, Supplementary Medical Insur-
both outflows to the publicsuch as for the provision of ance (SMI), finances Part B (outpatient and physi-
benefit payments or the purchase of goods or services cian benefits) and Part D (prescription drug bene-
and outflows to other Government accountssuch as for fits). SMI receives premium payments from covered
reimbursement for services provided by other agencies or individuals, transfers from States toward Part D
payment of interest on borrowing from Treasury. benefits, and transfers from the general fund of the
Because trust funds and Federal special and revolving Treasury for the portion of Part B and Part D costs
funds conduct transactions both with the public and with not covered by premiums or transfers from States.
other Government accounts, the surplus or deficit of an In addition, like other trust funds, these two trust
individual fund may differ from the funds impact on the funds receive interest earnings on their trust fund
surplus or deficit of the Federal Government. Transactions balances.
with the public affect both the surplus or deficit of an in-
dividual fund and the Federal Government surplus or Transportation Trust Fund: The Budget proposes
to replace the existing Highway Trust Fund with a
deficit. Transactions with other government accounts af-
new Transportation Trust Fund. The existing High-
fect the surplus or deficit of the particular fund. However,
way Trust Fund is financed by the gasoline tax and,
because that same transaction is offset in another govern-
in recent years, by general fund transfers as those
ment account, there is no net impact on the total Federal
taxes have proven inadequate to support current
Government surplus or deficit.
levels of investment. Under the Budgets 21st Cen-
A brief description of the major trust funds is given
tury Clean Transportation Plan, the Transportation
below; additional information for these and other trust
Trust Fund would also receive a portion of a new
funds can be found in the Status of Funds tables in the
oil fee of $10.25 per barrel, along with a portion of
Budget Appendix.
transition revenues from business tax reform, to im-
Social Security Trust Funds: The Social Security prove infrastructure condition and performance, ex-
trust funds consist of the Old Age and Survivors In- pand clean, reliable, and safe transportation options
surance (OASI) trust fund and the Disability Insur- like transit and rail for American families, and pro-
ance (DI) trust fund. The trust funds are funded by vide sustainable levels of revenue for future surface
payroll taxes from employers and employees, inter- transportation spending. This proposal is discussed
est earnings on trust fund balances, Federal agency in more detail in Chapter 11, Budget Process, in
payments as employers, and a portion of the income this volume.
taxes paid on Social Security benefits. The 2014 and
2015 Social Security Trustees reports projected that Unemployment Trust Fund: The Unemployment
Trust Fund is funded by taxes on employers, pay-
on a stand-alone basis, the DI trust fund would be
ments from Federal agencies, taxes on certain em-
unable to pay full benefits under current law start-
ployees, and interest earnings on trust fund bal-
ing in 2016. The Bipartisan Budget Act of 2015 in-
ances.
cluded a provision to bolster the DI fund by reallo-
cating a portion of Social Security payroll taxes from Civilian and military retirement trust funds: The
the OASI trust fund to the DI trust fund in calendar Civil Service Retirement and Disability Fund is
years 2016 through 2018. Similar reallocation mea- funded by employee and agency payments, general
sures have been taken in the past to prevent deple- fund transfers for the unfunded portion of retirement
tion of the DI fund. The Social Security trustees proj- costs, and interest earnings on trust fund balances.
ect that this change will extend the ability of the DI The Military Retirement Fund likewise is funded by
trust fund to pay full benefits until the second half of payments from the Department of Defense, general
calendar year 2022. fund transfers for unfunded retirement costs, and
interest earnings on trust fund balances.
Medicare Trust Funds: Like the Social Security
trust funds, the Medicare Hospital Insurance (HI) Table 265 shows income, outgo, and balances of two
trust fund is funded by payroll taxes from employ- Federal funds that are designated as special funds. These
ers and employees, Federal agency payments as funds are similar to trust funds in that they are financed
employers, and a portion of the income taxes paid by dedicated receipts, the excess of income over outgo
on Social Security benefits. The HI trust fund also is invested in Treasury securities, the interest earnings
receives transfers from the general fund of the Trea- add to fund balances, and the balances remain available
sury for certain HI benefits. In addition, the Budget to cover future expenditures. The table is illustrative of
proposes that the HI trust fund receive income taxes the Federal funds group, which includes many revolving
attributable to taxes on net investment income as funds and special funds.
Table 264. INCOME, OUTGO, AND BALANCE OF MAJOR TRUST FUNDS

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Airport and Airway Trust Fund

Balance, start of year 14.2 14.1 14.3 15.4 17.2 19.4 22.2
Adjustments to balances ......... ......... ......... ......... ......... ......... .........
Total balance, start of year 14.2 14.1 14.3 15.4 17.2 19.4 22.2
Income:
Governmental receipts 14.3 14.4 15.1 15.6 16.1 16.8 17.3
Offsetting governmental ......... ......... ......... ......... ......... ......... .........
Proprietary * * * * * * *
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 0.3 0.3 0.3 0.4 0.5 0.6 0.8
Other intrabudgetary * * * * * * *
Total income during the year 14.6 14.7 15.4 16.1 16.7 17.4 18.1
Outgo () 14.7 14.5 14.3 14.3 14.4 14.7 14.7
Interest 0.3 0.3 0.3 0.4 0.5 0.6 0.8
Borrowing, transfers, lapses, & other adjustments * ......... ......... ......... ......... ......... .........
Balance, end of year 14.1 14.3 15.4 17.2 19.4 22.2 25.6
Civil Service Retirement and Disability Fund
Adjustments to balances * ......... ......... ......... ......... ......... .........
Income:
Proprietary ......... ......... ......... ......... ......... ......... .........
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 29.2 29.2 27.8 27.7 28.2 29.0 29.8
Other intrabudgetary 63.7 66.6 67.8 68.8 70.4 71.9 72.7
Outgo () 81.9 82.8 84.9 87.8 90.8 94.0 97.1
Interest 29.2 29.2 27.8 27.7 28.2 29.0 29.8
Borrowing, transfers, lapses, & other adjustments ......... ......... ......... ......... ......... ......... .........
Table 264. INCOME, OUTGO, AND BALANCE OF MAJOR TRUST FUNDSContinued

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Employees and Retired Employees Health Benefits Funds

Income:
Governmental receipts ......... ......... ......... ......... ......... ......... .........
Proprietary 13.9 15.1 16.1 16.9 17.9 18.9 20.0
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 0.2 0.5 0.6 0.7 0.8 1.0 1.0
Outgo () 48.4 50.2 53.8 56.7 60.3 63.9 67.3
Excluding interest 0.8 0.4 * * 0.4 0.5 0.2
Interest 0.2 0.5 0.6 0.7 0.8 1.0 1.0
Foreign Military Sales Trust Fund
Income:
Proprietary 32.4 36.0 37.4 36.0 34.1 31.7 29.7
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest ......... ......... ......... ......... ......... ......... .........
Other intrabudgetary ......... ......... ......... ......... ......... ......... .........
Outgo () 28.4 29.3 38.0 38.8 36.4 33.3 30.5
Interest ......... ......... ......... ......... ......... ......... .........

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Medicare: Hospital Insurance (HI) Trust Fund

Income:
Proprietary 8.5 9.8 10.0 10.3 10.5 10.8 11.0
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 8.6 8.1 8.1 7.8 7.7 7.6 7.3
Outgo () 283.5 297.7 302.8 310.5 332.6 349.8 370.8
Interest 8.6 8.1 8.1 7.8 7.7 7.6 7.3
Medicare: Supplementary Insurance (SMI) Trust Fund
Income:
Proprietary 85.8 91.9 100.9 114.8 131.3 146.1 160.2
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 2.5 1.9 2.1 1.3 1.3 1.5 2.8
Outgo () 357.0 399.3 413.1 422.5 472.6 510.0 551.6
Interest 2.5 1.9 2.1 1.3 1.3 1.5 2.8

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Military Retirement Fund

Income:
Proprietary ......... ......... ......... ......... ......... ......... .........
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 3.1 18.9 18.0 16.1 20.8 23.6 28.0
Outgo () 56.7 61.5 58.2 54.9 61.2 63.0 65.0
Interest 3.1 18.9 18.0 16.1 20.8 23.6 28.0
Railroad Retirement Trust Funds
Income:
Proprietary ......... ......... ......... ......... ......... ......... .........
Intrabudgetary:
Intrafund 4.7 4.6 4.3 4.7 4.7 4.9 4.8
Interest 0.3 1.7 0.8 0.9 0.9 0.9 0.9
Outgo () 12.6 13.7 13.0 13.4 13.7 14.0 14.2
Interest 0.3 1.7 0.8 0.9 0.9 0.9 0.9

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Social Security: Old Age, Survivors, and Disability Insurance (OASDI) Trust Funds
Balance, start of year 2,782.6 2,808.2 2,816.7 2,816.2 2,795.1 2,749.9 2,672.4
Adjustments to balances * ......... ......... ......... ......... ......... .........
Total balance, start of year 2,782.6 2,808.2 2,816.7 2,816.2 2,795.1 2,749.9 2,672.4
Income:
Proprietary 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 96.0 90.7 88.3 85.7 86.3 82.8 80.6
Total income during the year 925.5 950.4 985.5 1,023.4 1,063.7 1,098.9 1,150.2
Outgo () 899.9 941.8 986.0 1,044.5 1,108.9 1,176.4 1,243.6
Interest 96.0 90.7 88.3 85.7 86.3 82.8 80.6
Balance, end of year 2,808.2 2,816.7 2,816.2 2,795.1 2,749.9 2,672.4 2,579.0
Transportation Trust Fund
Income:
Offsetting governmental * * * * * * *
Proprietary 0.1 ......... ......... ......... ......... ......... .........
Intrabudgetary:
Intrafund ......... 0.1 0.1 0.1 ......... ......... .........
Interest * * * * * * .........
Outgo () 52.0 52.7 61.3 72.2 81.2 90.1 96.5
Interest * * * * * * .........

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Unemployment Trust Fund

Income:
Proprietary * * * * * * *
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 1.1 1.3 1.4 1.5 1.8 2.3 2.8
Outgo () 36.7 37.4 40.0 42.9 43.6 46.0 47.9
Interest 1.1 1.3 1.4 1.5 1.8 2.3 2.8
Veterans Life Insurance Funds
Income:
Proprietary 0.2 0.2 0.2 0.1 0.1 0.1 0.1
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest 0.3 0.3 0.2 0.2 0.2 0.1 0.1
Outgo () 1.3 1.2 1.2 1.1 1.0 0.9 0.8
Interest 0.3 0.3 0.2 0.2 0.2 0.1 0.1

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
All Other Trust Funds

Income:
Offsetting governmental 18.6 12.9 13.4 7.4 * * *
Proprietary 9.1 6.0 6.2 6.4 6.5 6.5 6.6
Intrabudgetary:
Intrafund 0.1 0.1 0.1 0.1 0.2 * *
Interest 1.3 1.4 1.9 2.3 2.5 2.7 3.3
Outgo () 20.0 15.4 14.2 14.9 15.5 14.2 14.3
Interest 1.3 1.4 1.9 2.3 2.5 2.7 3.3
Borrowing, transfers, lapses, & other adjustments 12.6 7.8 * ......... ......... ......... .........
Table 265. INCOME, OUTGO, AND BALANCE OF SELECTED SPECIAL FUNDS

Estimate
2015
Actual 2016 2017 2018 2019 2020 2021
Abandoned Mine Reclamation Fund

Income:
Proprietary ......... ......... ......... ......... ......... ......... .........
Intrabudgetary:
Intrafund ......... ......... ......... ......... ......... ......... .........
Interest * * * 0.1 0.1 0.1 0.1
Outgo () 0.2 0.3 0.3 0.4 0.5 0.5 0.6
Excluding interest * 0.1 0.1 0.2 0.2 0.3 0.3
Interest * * * 0.1 0.1 0.1 0.1
Subtotal, surplus or deficit () * 0.1 * 0.1 0.2 0.2 0.2
Total change in fund balance * 0.1 * 0.1 0.2 0.2 0.2
Department of Defense Medicare-Eligible Retiree Health Care Fund
Income:
Proprietary ......... ......... ......... ......... ......... ......... .........
Intrabudgetary:
Intrafund 11.2 10.2 8.4 8.8 9.2 9.7 10.2
Interest 4.2 8.6 9.6 9.3 9.5 10.4 11.2
Outgo () 10.0 10.2 10.3 10.8 11.3 11.7 12.3
Interest 4.2 8.6 9.6 9.3 9.5 10.4 11.2
27. COMPARISON OF ACTUAL TO ESTIMATED TOTALS
Receipts
In successive budgets, the Administration publishes es-
timates of the surplus or deficit for a particular fiscal year. Actual receipts for 2015 were $3,250 billion, only $1
Initially, the year appears as an outyear projection at the billion less than the $3,251 billion current services esti-
end of the budget horizon. In each subsequent budget, the mate in the 2015 Budget, which was published in March
year advances in the estimating horizon until it becomes 2014. As shown in Table 271, this decrease was the net
the budget year. One year later, the year becomes the effect of legislated tax changes and economic conditions
current year then in progress, and the following year, it that differed from what had been expected, which were
becomes the just-completed actual year. almost completely offset by technical factors that resulted
The Budget is legally required to compare budget year in different tax liabilities and collection patterns than
estimates of receipts and outlays with the subsequent had been assumed.
actual receipts and outlays for that year. This chapter Policy differences. Legislated tax changes enacted af-
meets that requirement by comparing the actual receipts, ter March 2014 reduced 2015 receipts by a net $83 billion
outlays, and deficit for 2015 with the current services es- relative to the 2015 Budget current services estimate.
timates shown in the 2015 Budget, published in March Legislation that extended certain expiring tax provisions
2014.1 It also presents a more detailed comparison for and made other modifications to the Internal Revenue
mandatory and related programs, and reconciles the actu- Code, which was signed into law by President Obama on
al receipts, outlays, and deficit totals shown here with the December 19, 2014, accounted for almost all of this net
figures for 2015 previously published by the Department reduction in receipts, reducing 2015 receipts by an esti-
of the Treasury. mated $82 billion.
Economic differences. Differences between the econom-
1 The current services concept is discussed in Chapter 25, Current
ic assumptions upon which the current services estimates
were based and actual economic performance reduced 2015
Services Estimates. For mandatory programs and receipts, the March
2014 current services estimate was based on laws then in place, with receipts by a net $40 billion below the March 2014 current
specified adjustments for current policy - for example relief from sched- services estimate. Corporations were less profitable than
uled reductions under the Medicare Sustainable Growth Rate mecha- initially projected, which reduced receipts $30 billion below
nism and extension of certain expiring tax provisions. For discretionary the March 2014 estimate and accounted for 75 percent of
programs the current services estimate was based on the discretion-
ary spending limits enacted in the Budget Control Act of 2011 (BCA).
the net reduction in receipts attributable to economic dif-
Spending for Overseas Contingency Operations, was estimated based ferences. Different economic factors than those assumed in
on annualizing the amounts provided in the 2014 appropriations and March 2014 had a much smaller effect on other sources of
increasing for inflation. The current services estimates also reflected the receipts, reducing collections by a net $10 billion.
effects of discretionary and mandatory sequestration as required by the Technical factors. Technical factors increased re-
BCA following failure of the Joint Select Committee on Deficit Reduc-
tion to meet its deficit reduction target. The current services estimates ceipts by a net $122 billion relative to the March 2014
published in the 2015 Budget re-classified a large number of surface current services estimate. These factors had the greatest
transportation programs as mandatory. The published estimates for effect on individual income taxes, increasing collections
nondefense discretionary outlays and mandatory outlays were $543 bil- by $73 billion. Increases in corporation income taxes of
lion and $2,405 billion, respectively. This proposal was not subsequently
enacted, so the applicable costs are shown as discretionary in this chap-
$12 billion, social insurance and retirement receipts of
ter for comparability. For a detailed explanation of the 2015 estimate, $16 billion, and miscellaneous receipts of $18 billion ac-
see Current Services Estimates, Chapter 25 in Analytical Perspectives, counted for most of the remaining net increase in 2015
Budget of the United States Government, Fiscal Year 2015.
Table 271. COMPARISON OF ACTUAL 2015 RECEIPTS WITH THE INITIAL CURRENT SERVICES ESTIMATES
Changes
Estimate
(March 2014) Policy Economic Technical Total Changes Actual
Individual income taxes 1,498 30 1 73 42 1,541
Corporation income taxes 412 50 30 12 68 344
Social insurance and retirement receipts 1,055 ......... 6 16 10 1,065
Excise taxes 99 3 1 3 1 98
Estate and gift taxes 18 ......... -* 2 2 19
Customs duties 38 1 * 2 3 35
Miscellaneous receipts 131 * 2 18 16 147
Total receipts 3,251 83 40 122 1 3,250
* $500 million or less
395
receipts attributable to technical factors. The models Outlays

used to prepare the March 2014 estimates of individual
and corporation income taxes were based on historical Outlays for 2015 were $3,688 billion, $124 billion less
economic data and then-current tax and collections data than the $3,812 billion current services estimate in the
that were all subsequently revised and account for the 2015 Budget. Table 272 distributes the $124 billion net
net increase in these two sources of receipts attributable decrease in outlays among discretionary and mandatory
to technical factors. These revisions in the individual and programs and net interest.2 The table also shows rough
corporation income tax models indicated that: (1) sources estimates according to three reasons for the changes:
of income that are not part of the economic forecast, but policy; economic conditions; and technical estimating dif-
subject to tax, such as capital gains and pensions, differences, a residual.
fered from what was expected at the time the March 2014 Policy differences. Policy changes are the result of
estimates were prepared; (2) for most sources of income legislative actions that change spending levels, primar-
subject to individual and corporation income taxes, both ily through higher or lower appropriations or changes in
the percentage that was subject to tax and the effective authorizing legislation, which may themselves be in re-
tax rate on the portion subject to tax differed from what sponse to changed economic conditions. For 2015, policy
was anticipated; and (3) the timing of the payment of tax changes increased outlays by $14 billion relative to the
liability was different from what had been assumed. The initial current services estimates, which included the im-
$16 billion increase in social insurance and retirement pacts of sequestration and discretionary cap reductions as
receipts attributable to technical factors reflected a $24 part of the Joint Committee enforcement provisions of the
billion increase in Social Security and Medicare payroll Budget Control Act of 2011. Final 2014 discretionary ap-
taxes that was partially offset by an $8 billion reduction propriations were enacted as the 2015 Budget was being
in unemployment insurance receipts. The $24 billion in- prepared, so the March 2014 estimate of discretionary out-
crease in Social Security and Medicare payroll taxes was lays assumed rates that were lower than the final enacted
attributable in large part to models based on historical appropriations allowed.The combined policy changes from
economic data and then-current data from employer re- final 2014 and 2015 appropriations, including Overseas
turns that underestimated the percentage of wages and Contingency Operations, increased discretionary outlays
salaries and self-employment earnings subject to payroll by $3 billion. Policy changes increased mandatory outlays
taxes. The $8 billion reduction in unemployment insur- by a net $11 billion above current law. Much of this in-
ance receipts reflected lower-than-anticipated deposits crease was the result of changes in the Medicare program
by States to the unemployment insurance trust fund. enacted primarily in 2015 that increased 2015 outlays by
Changes in the size and composition of the investments $6 billion. Debt service costs associated with all policy
of the Federal Reserve System accounted for $11 billion of changes increased outlays by less than $1 billion.
the $18 billion increase in miscellaneous receipts attribut-
able to technical factors. Penalties and forfeitures related 2 Discretionary programs are controlled by annual appropriations,
to large settlement agreements that were not reflected in while mandatory programs are generally controlled by authorizing leg-
the March 2014 estimates of 2015 receipts accounted for islation. Mandatory programs are primarily formula benefit or entitle-
ment programs with permanent spending authority that depends on
most of the remaining increase in miscellaneous receipts. eligibility criteria, benefit levels, and other factors.
Table 272. COMPARISON OF ACTUAL 2015 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
Changes
Estimate
Discretionary:
Defense 606 10 ......... 13 23 583
Nondefense 602 13 ......... 30 17 585
Subtotal, discretionary 1,208 3 ......... 42 40 1,169
Mandatory:
Social Security 896 ......... 2 17 15 882
Other programs 1,450 11 38 9 36 1,414
Subtotal, mandatory 2,346 11 36 26 51 2,296
Allowance for disaster costs 1 6 ......... ......... 6 6 .........
Net interest 251 * 34 6 28 223
Total outlays 3,812 14 70 68 124 3,688

* $500 million or less
1 These amounts were included in the 2015 Budget to represent the statistical probability of a major disaster requiring federal assistance for relief and reconstruction. Such assistance
might be provided in the form of discretionary, or mandatory outlays or tax relief. These amounts were included as outlays for convenience.
27. COMPARISON OF ACTUAL TO ESTIMATED TOTALS 397
Economic and technical factors. Economic and techni- and Medicare benefits, Medicaid and unemployment com-
cal estimating factors resulted in a net decrease in outlays pensation payments, and deposit insurance for banks and
of $139 billion. Technical changes result from changes in thrift institutions. This category also includes net interest
such factors as the number of beneficiaries for entitlement outlays and undistributed offsetting receipts.
programs, crop conditions, or other factors not associated A number of factors may cause differences between the
with policy changes or economic conditions. Increases amounts estimated in the Budget and the actual manda-
in discretionary outlays due to legislation, as discussed tory outlays. For example, legislation may change benefit
above, were partially offset by a $42 billion decrease in rates or coverage, the actual number of beneficiaries may
net outlays resulting from technical changes. Outlays for differ from the number estimated, or economic conditions
mandatory programs decreased $62 billion due to eco- (such as inflation or interest rates) may differ from what
nomic and technical factors. There was a net decrease in was assumed in making the original estimates.
outlays of $36 billion as a result of differences between Table 274 shows the differences between the actual
actual economic conditions versus those forecast in March outlays for these programs in 2015 and the current servic-
2014. Outlays for Social Security were $15 billion lower es estimates included in the 2015 Budget.3 Actual outlays
than anticipated in the 2015 Budget largely due to lower- for mandatory spending and net interest in 2015 were
than-estimated number of beneficiaries. Unemployment $2,296 billion, which was $51 billion less than the current
compensation and food and nutrition assistance programs services estimate of $2,346 billion in March 2014.
outlays were a combined $15 billion lower. Remaining As Table 274 shows, actual outlays for mandatory hu-
changes were in other health and assistance programs. man resources programs were $2,416 billion, $17 billion
Outlays for net interest were $28 billion lower due to less than originally estimated. This decrease was the net
economic and technical factors, primarily lower interest effect of legislative action, differences between actual and
rates than originally assumed. assumed economic conditions, differences between the an-
ticipated and actual number of beneficiaries, and other
Deficit technical differences. Most significantly, outlays for Social
Security, income security, and other health programs de-
The preceding two sections discussed the differences creased by $69 billion due to economic, legislative and
between the initial current services estimates and the ac- technical factors. Mandatory outlays for programs in
tual amounts of Federal government receipts and outlays functions outside human resources were $12 billion less
for 2014. This section combines these effects to show the than originally estimated.
net deficit impact of these differences. Outlays for net interest were $223 billion, or $28 billion
As shown in Table 273, the 2015 current services defi- less than the original estimate. As shown on Table 274,
cit was initially estimated to be $561 billion. The actual interest payments on Treasury debt securities decreased
deficit was $438 billion, which was a $123 billion decrease by $25 billion. Interest earnings of trust funds increased
from the initial estimate. Receipts were $1 billion lower by $5 billion, further reducing net outlays, while net out-
and outlays were $124 billion less than the initial esti- lays for other interest rose by $2 billion.
mate. The table shows the distribution of the changes
according to the categories in the preceding two sections. Reconciliation of Differences with Amounts
The net effect of policy changes for receipts and outlays Published by the Treasury for 2015
increased the deficit by $97 billion. Economic conditions
that differed from the initial assumptions in March 2014 Table 27-5 provides a reconciliation of the receipts,
decreased the deficit by $30 billion. Technical factors de- outlays, and deficit totals for 2015 published by the
creased the deficit by an estimated $190 billion. Department of the Treasury in the September 2015
Monthly Treasury Statement (MTS) and those published
Comparison of the Actual and Estimated Outlays in this Budget. The Department of the Treasury made ad-
for Mandatory and Related Programs for 2015 justments to the estimates for the Combined Statement
of Receipts, Outlays, and Balances, which decreased
This section compares the original 2015 outlay esti- receipts by $22 million and decreased outlays by $26
mates for mandatory and related programs in the current million. Additional adjustments for the 2017 Budget in-
services estimates of the Budget with the actual outlays. creased receipts by $1,184 million and increased outlays
Major examples of these programs include Social Security
3 See footnote 1 for an explanation of the current services concept.
Table 273. COMPARISON OF THE ACTUAL 2015 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
Changes
Estimate
Receipts 3,251 83 40 122 1 3,250
Outlays 3,812 14 70 68 124 3,688
Deficit 561 97 30 190 123 438
Note: Deficit changes are outlays minus receipts. For these changes, a positive number indicates an increase in the deficit.
by $690 million. Most of these adjustments are for finan- Railroad Retirement Investment Trust (NRRIT) which
cial transactions that are not reported to the Department relates to a conceptual difference in reporting. NRRIT
of the Treasury but are included in the Budget, includ- reports to the Department of the Treasury with a one-
ing those for the Public Company Accounting Oversight month lag so that the fiscal year total provided in the
Board, the Affordable Housing Program, the Securities Treasury Combined Statement covers September 2014
Investor Protection Corporation, the Electric Reliability through August 2015. The Budget has been adjusted to
Organization, the United Mine Workers of America ben- reflect transactions that occurred during the actual fis-
efit funds, the payment to the Standard Setting Body, and cal year, which begins October 1. The Budget also reflects
the Federal Retirement Thrift Investment Board program agency adjustments to 2015 outlays reported to Treasury
expenses. There is also an adjustment for the National after preparation of the Treasury Combined Statement.
Table 274. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY

AND RELATED PROGRAMS UNDER CURRENT LAW
2015
Estimate Actual Change
Mandatory outlays:
Human resources programs:
Higher Education 1 26 25
Other 8 7 1
Total, education, training, employment, and social services 9 33 24
Health:
Medicaid 331 350 18
Other 116 77 39
Total, health 447 426 21
Medicare 529 540 11
Income security:
Retirement and disability 147 146 1
Unemployment compensation 41 32 9
Food and nutrition assistance 100 98 2
Other 171 168 3
Total, income security 458 443 15
Social security 896 882 15
Income security for veterans 79 76 3
Other 14 16 1
Total, veterans benefits and services 94 92 1
Total, mandatory human resources programs 2,433 2,416 17
Other functions:
Agriculture 12 12 1
International 3 3 *
Mortgage credit 23 21 2
Deposit insurance 9 13 4
Other advancement of commerce (includes the Troubled Asset Relief Program) 14 8 6
Other functions 17 12 5
Total, other functions 7 5 12
Undistributed offsetting receipts:
Employer share, employee retirement 84 79 4
Rents and royalties on the outer continental shelf 8 5 4
Other undistributed offsetting receipts 2 32 30
Total, undistributed offsetting receipts 94 116 22
Total, mandatory 2,346 2,296 51
Net interest:
Interest on Treasury debt securities (gross) 455 430 25
Interest received by trust funds 153 158 5
Other interest 51 48 2
Total, net interest 251 223 28
Total, outlays for mandatory and net interest 2,598 2,519 79
27. COMPARISON OF ACTUAL TO ESTIMATED TOTALS 399
Table 275. RECONCILIATION OF FINAL AMOUNTS FOR 2015

Receipts Outlays Deficit
Totals published by Treasury (September MTS) 3,248,723 3,687,622 438,899
Miscellaneous Treasury adjustments 22 26 4
Totals published by Treasury in Combined Statement 3,248,701 3,687,596 438,895
National Railroad Retirement Investment Trust ......... 126 126

Public Company Accounting Oversight Board 228 245 17
Affordable Housing Program 319 319 .........
Securities Investor Protection Corporation 425 163 262
Electric Reliability Organization 100 100 .........
United Mine Workers of America benefit funds 25 25 .........
Federal Retirement Thrift Investment Board Program Expenses ......... 30 30
Standard Setting Body 26 26 .........
Risk Adjustment program 61 61 .........
Intelligence Community Management Account ......... 95 95
Other 1 8 7
Total adjustments, net 1,185 696 489
Totals in the Budget 3,249,886 3,688,292 438,406
MEMORANDUM:
Total change since year-end statement 1,163 670 493
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ANALYTICAL

FISCAL YEAR 2017

FISCAL YEAR 2017

U.S. GOVERNMENT PRINTING OFFICE, WASHINGTON 2016

Economic Assumptions and Interactions with the Budget

3. Long-Term Budget Outlook21

4. Federal Borrowing and Debt33

Performance and Management

6. Delivering A High-Performance Government 61

7. Building the Capacity to Produce and Use Evidence69

8. Strengthening the Federal Workforce79

Budget Concepts and Budget Process

10. Coverage of the Budget121

11. Budget Process127

13. Offsetting Collections and Offsetting Receipts211

14. Tax Expenditures225

16. Strengthening Federal Statistics281

17. Information Technology287

18. Federal Investment293

19. Research and Development299

20. Credit and Insurance307

21. Budgetary Effects of the Troubled Asset Relief Program335

22. Homeland Security Funding Analysis347

24. Federal Budget Exposure to Climate Risk 361

Technical Budget Analyses

26. Trust Funds and Federal Funds381

27. Comparison of Actual to Estimated Totals395

Detailed Functional Tables *

Federal Budget by Agency and Account *

*Available on the Internet at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives/ and on the Budget CD-ROM

21. Range of Uncertainty for the Budget Deficit19

31. Publicly Held Debt Under Continuation of Current Policies22

32. Changes to Projected 2020 Deficit Under Continuation of Current Policies23

33. Comparison of Publicly Held Debt24

34. 2017 Budget Policies25

35. Alternative Productivity and Interest Assumptions26

36. Alternative Health Care Costs27

37. Alternative Discretionary Projections27

38. Alternative Revenue Projections28

39. Long-Term Uncertainties28

81. Changes Since 1975 in Employment/Population by Sector80

84. Average Age by Year for Federal and Private Sectors86

85. Pay Raises for Federal vs. Private Workforce, 1978201787

91. Relationship of Budget Authority to Outlays for 2017110

171. Trends in Federal IT Spending288

201. Face Value of Federal Credit Outstanding329

241. National Flood Insurance Program Paid Losses & Exposure362

242. Crop Insurance Total Cost to Government363

*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM

*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM

*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM

OVERVIEW OF THE CHAPTERS

Economic and Budget Analyses

Table 21. ECONOMIC ASSUMPTIONS1

Gross Domestic Product (GDP)

* 0.05 percent or less

* 0.05 percent or less

recession, both short-term and long-term interest rates www.whitehouse.gov/sites/default/files/docs/interest_rate_report_final_

Table 23. COMPARISON OF ECONOMIC ASSUMPTIONS

3. Long-Term Budget Outlook21

4. Federal Borrowing and Debt33

6. Delivering A High-Performance Government 61

7. Building the Capacity to Produce and Use Evidence69

8. Strengthening the Federal Workforce79

10. Coverage of the Budget121

11. Budget Process127

13. Offsetting Collections and Offsetting Receipts211

14. Tax Expenditures225

16. Strengthening Federal Statistics281

17. Information Technology287

18. Federal Investment293

19. Research and Development299

20. Credit and Insurance307

21. Budgetary Effects of the Troubled Asset Relief Program335

22. Homeland Security Funding Analysis347

24. Federal Budget Exposure to Climate Risk 361

26. Trust Funds and Federal Funds381

27. Comparison of Actual to Estimated Totals395

Detailed Functional Tables *

Federal Budget by Agency and Account *

21. Range of Uncertainty for the Budget Deficit19

31. Publicly Held Debt Under Continuation of Current Policies22

32. Changes to Projected 2020 Deficit Under Continuation of Current Policies23

33. Comparison of Publicly Held Debt24

34. 2017 Budget Policies25

35. Alternative Productivity and Interest Assumptions26

36. Alternative Health Care Costs27

37. Alternative Discretionary Projections27

38. Alternative Revenue Projections28

39. Long-Term Uncertainties28

81. Changes Since 1975 in Employment/Population by Sector80

84. Average Age by Year for Federal and Private Sectors86

85. Pay Raises for Federal vs. Private Workforce, 1978201787

91. Relationship of Budget Authority to Outlays for 2017110

171. Trends in Federal IT Spending288

201. Face Value of Federal Credit Outstanding329

241. National Flood Insurance Program Paid Losses & Exposure362

242. Crop Insurance Total Cost to Government363

1950 219.0 1,770.6 78.5 53.3 4.8 39.1 11.4 1.7

1960 236.8 1,490.9 44.3 33.1 7.8 49.2 8.5 1.5

1970 283.2 1,391.2 27.0 20.3 15.4 75.5 7.9 1.5

1980 711.9 1,793.8 25.5 18.5 62.8 158.1 10.6 2.2

1990 2,411.6 3,987.5 40.8 22.5 202.4 334.6 16.2 3.4

2000 3,409.8 4,586.5 33.6 18.8 232.8 313.2 13.0 2.3

2005 4,592.2 5,510.9 35.6 17.1 191.4 229.6 7.7 1.5

2010 9,018.9 9,796.9 60.9 25.3 228.2 247.8 6.6 1.5

2015 13,116.7 13,116.7 73.7 30.6 260.6 260.6 7.1 1.5

1970 283.2 14.0 4.9 5.1 3.7

1980 711.9 126.4 17.8 71.6 1.3

1990 2,411.6 463.8 19.2 220.8 72.0

2000 3,409.8 1,038.8 30.5 -222.6 -242.6

2005 4,592.2 1,929.6 42.0 296.7 135.1

2010 9,018.9 4,324.2 47.9 1,474.2 753.6

2015 13,116.7 6,103.1 46.5 336.8 33.9