The Federal Budget: Issues for FY2014 and Beyond

The Federal Budget:
Issues for FY2014 and Beyond
Mindy R. Levit
Analyst in Public Finance

May 9, 2013
Congressional Research Service
7-5700
www.crs.gov
R43068
CRS Report for Congress
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epared for Members and Committees of Congress

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The Federal Budget: Issues for FY2014 and Beyond

Summary
The federal budget is central to Congress’s ability to exercise its “power of the purse.” Recent
economic turmoil put strain on the federal budget due to declining revenues and increasing
spending levels. Subsequently, policies enacted to restrain spending, along with an improving
economy, have put the federal budget on a more sustainable path in the near term. In FY2012, the
U.S. government spent $3,538 billion (22.8% of GDP) and collected $2,449 billion in revenue
(15.8% of GDP), resulting in a budget deficit of $1,089 billion (7.0% of GDP). CBO currently
estimates the FY2013 deficit at $845 billion (5.3% of GDP).
The Obama Administration released its FY2014 budget on April 10, 2013. Under the proposals in
the President’s budget, the deficit is estimated at $744 billion (4.4% of GDP) in FY2014. The
FY2014 budget contains a policy agenda that largely focuses on providing additional stimulus to
create jobs, increasing infrastructure investment, and providing additional funding for early
childhood education programs. The President’s budget also proposes new deficit reduction aimed
at replacing the Budget Control Act’s (BCA’s) automatic spending reduction process. These
proposals include additional tax revenues generated by limiting deductions on higher-income
households and ensuring that higher-income households pay a minimum percentage of their
income in taxes. On the spending side, the proposals include reductions in health spending,
certain mandatory programs, and lowering of the BCA’s discretionary spending caps. The budget
also contains a proposal to use the chained consumer price index (CPI) for the purposes of
calculating annual increases in certain federal benefits and for the indexation of tax brackets. The
stimulus measures are primarily targeted to increase spending in FY2014 and FY2015, whereas
the deficit reduction takes place mainly after FY2015.
On March 21, 2013, the House agreed to a budget resolution (H.Con.Res. 25, 113th Congress) by
a vote of 221-207. The resolution provided for a deficit of $528 billion, or 3.2% of GDP in
FY2014. By FY2023, the budget is projected to reach a surplus of $7 billion. The budget proposal
contained several policy changes affecting spending, including removing the BCA’s additional
spending reductions set to affect defense discretionary spending and reallocating them to non-
defense discretionary spending. The budget resolution also contains reconciliation instructions to
eight committees to find further deficit reduction totaling $8 billion over 10 years.
On March 23, 2013, the Senate agreed to a budget resolution by a vote of 50-49. The resolution
provided a deficit of $693 billion, or approximately 4.2% of GDP in FY2014. By FY2023, the
deficit is projected to fall to $566 billion or 2.7% of GDP. The budget proposal contains changes
to both spending and revenue. Specifically, the budget resolution proposes revising the Budget
Control Act’s statutory caps on discretionary spending and replaces the BCA’s automatic
spending reductions with a combination of other spending cuts and revenue increases, including
some reductions to the current BCA caps. The budget resolution contains reconciliation
instructions to the Senate Finance Committee to increase the level of revenues by $975 billion
between FY2013 and FY2023.
CBO, GAO, and the Administration agree that the current mix of federal fiscal policies is
unsustainable in the long term. Under their projections, putting the federal budget on a sustainable
long-term path requires an agreement on additional deficit reduction, which may include
increases in revenues or changes to large spending programs or both. This report will be updated
as events warrant.
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The Federal Budget: Issues for FY2014 and Beyond


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The Federal Budget: Issues for FY2014 and Beyond

Contents
Overview .......................................................................................................................................... 1
Budget Cycle ............................................................................................................................. 1
Budget Baseline Projections ...................................................................................................... 2
Spending and Revenue Trends .................................................................................................. 3
Federal Spending ................................................................................................................. 4
Federal Revenue .................................................................................................................. 6
Deficits, Debt, and Interest ........................................................................................................ 7
Budget Deficits .................................................................................................................... 8
Federal Debt and Debt Limit ............................................................................................... 8
Net Interest .......................................................................................................................... 9
Recent Budget Policy Changes ........................................................................................................ 9
American Taxpayer Relief Act of 2012 ................................................................................... 10
Budget Control Act of 2011 ..................................................................................................... 10
Budget for FY2014 ........................................................................................................................ 11
Obama Administration’s FY2014 Budget ............................................................................... 11
Deficit Projections in the FY2014 Budget ........................................................................ 12
Congressional Consideration of the FY2014 Budget Resolution ............................................ 14
House Budget Resolution .................................................................................................. 14
Senate Budget Resolution ................................................................................................. 15
Next Steps ......................................................................................................................... 15
Considerations for Congress .......................................................................................................... 16
Addressing Short-Term Budget Issues .................................................................................... 16
Economic Considerations .................................................................................................. 17
Long-Term Considerations ...................................................................................................... 17
Budget Transparency ............................................................................................................... 19

Figures
Figure 1. Total Outlays and Revenues, FY1970-FY2012 ................................................................ 4
Figure 2. Outlays by Type, FY2000-FY2023 .................................................................................. 5
Figure 3. Revenue by Type, FY2000-FY2023 ................................................................................. 7

Appendixes
Appendix. Budget Documents ....................................................................................................... 20

Contacts
Author Contact Information........................................................................................................... 21

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he federal budget is central to Congress’s ability to exercise its “power of the purse.”
Federal budget decisions also express Congress’s priorities and reinforce Congress’s
Tinfluence on federal policies. Making budgetary decisions for the federal government is a
complex process and requires balancing competing goals.1 Recent economic turmoil put strain on
the federal budget due to declining revenues and increasing spending levels. Subsequently,
policies enacted to restrain spending, along with an improving economy, have put the federal
budget on a more sustainable path in the near term.
In August 2011, budget negotiations resulted in the enactment of the Budget Control Act of 2011
(BCA; P.L. 112-25), which contained provisions to reduce the budget deficit by about $2 trillion
over the next decade.2 However, the rising costs of federal health care programs and the effects of
the baby boom generation’s retirement, which present serious challenges to future fiscal stability,
have yet to be addressed. Operating these programs in their current form may pass on substantial
economic burdens to future generations. Congress and the President may consider proposals for
additional deficit reduction over the next few months as fiscal issues remain a key component of
the legislative agenda as the future outlook remains uncertain.
This report will provide an overview of federal budget issues, focusing on recent fiscal policy
changes. It will also discuss the major policy proposals contained in the President’s FY2014
budget and the House and Senate budget resolutions. This report will be updated as events
warrant.
Overview
Budget Cycle
A single year’s budget cycle takes roughly three calendar years from initial formation by the
Office of Management and Budget (OMB) until final audit.3 The executive agencies begin the
budget process by compiling detailed budget requests in the calendar year before the President’s
budget submission. Many agencies start working on their budgets during the spring and
summer—about a year and a half before the fiscal year begins. OMB oversees the development of
these agency requests. The President submits a budget to Congress, which is based on work by
OMB and federal agencies, by the first Monday in February or about eight months before the
fiscal year begins.4
Congress typically begins formal consideration of the budget resolution once the President
submits his budget request. The budget resolution sets out a plan, agreed to by the House and

1 For more information, see CRS Report 98-721, Introduction to the Federal Budget Process, coordinated by Bill
Heniff Jr.
2 For more information on the BCA, see CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff Jr.,
Elizabeth Rybicki, and Shannon M. Mahan and CRS Report R42013, The Budget Control Act of 2011: How Do the
Discretionary Caps and Automatic Spending Cuts Affect the Budget and the Economy?, by Marc Labonte and Mindy
R. Levit.
3 CRS Report 98-325, The Federal Fiscal Year, by Bill Heniff Jr.
4 The contents of the Presidential budget submission are governed by 31 U.S.C. §1105. For reasons why the budget
may be delayed, see CRS Report RS20179, The Role of the President in Budget Development, by Clinton T. Brass.
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Senate, that establishes the framework for subsequent budgetary legislation. Because the budget
resolution is a concurrent resolution, it is not sent to the President for approval.5
House and Senate Appropriations Committees and their subcommittees typically begin reporting
discretionary spending bills after the budget resolution is agreed upon. Appropriations
Committees review agency funding requests and propose levels of budget authority (BA).
Appropriations acts passed by Congress set the amount of BA available for specific programs and
activities. Authorizing committees, which control mandatory spending, and committees with
jurisdiction over revenues also play important roles in budget decision making.6
During the fiscal year, which begins on October 1, Congress and OMB oversee the execution of
the budget. Once the fiscal year ends on the following September 30, the Treasury Department
and the Government Accountability Office (GAO) begin year-end audits.
Congress does not always complete action on a budget resolution. In years when Congress is late
in adopting, or does not adopt, a budget resolution, the House and Senate independently may
adopt “deeming resolution” provisions for the purpose of enforcing certain budget levels. The last
time the House and Senate agreed to a budget resolution was for FY2010. The FY2010 budget
resolution was agreed to on April 29, 2009.
Budget Baseline Projections
Budget baseline projections are used to measure how future legislation would affect the budget
picture. They are not meant to be predictions of the future budget outlook. Due to the nature of
projections, slight changes in assumptions can lead to large effects in outyear totals. Therefore, it
is important to understand what projections include and the assumptions on which they are based.
Baseline projections are included in both the President’s budget and the Congressional budget
resolution.
The Congressional Budget Office (CBO) computes current law baseline projections using
assumptions set out in budget enforcement legislation.7 Historically, forecasts based on these
assumptions have typically yielded higher revenue estimates and understated discretionary
spending levels. Since Congress and the President have resolved certain questions related to
expiring tax policy and have enacted specific policies set to control discretionary spending over
the next decade, there are fewer policy uncertainties affecting the baseline levels under current
law. More specifically, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240; see
additional discussion below) permanently set into law many individual tax rates and tax policy
provisions. On the spending side, baseline discretionary spending levels are constrained by the
caps and automatic spending reductions currently in law, with adjustments for war funding, and
disaster, emergency, and program integrity spending. In addition to these current law

5 For more information, see CRS Report RL30297, Congressional Budget Resolutions: Historical Information, by Bill
Heniff Jr. and Justin Murray and CRS Report RL31443, The “Deeming Resolution”: A Budget Enforcement Tool, by
Megan S. Lynch.
6 For more information on the appropriations and authorization process, see CRS Report R42388, The Congressional
Appropriations Process: An Introduction, by Jessica Tollestrup.
7 Many of the rules governing the baseline, contained in §257 of the Balanced Budget and Emergency Deficit Control
Act, as amended, were extended or modified as part of the Budget Control Act of 2011 (P.L. 112-25).
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assumptions, macroeconomic assumptions, specifically of gross domestic product (GDP) growth,
inflation, and interest rates, will also affect the baseline estimates and projections.
However, the CBO baseline also incorporates certain assumptions currently in law, but that have
historically been revised prior to the policy change taking effect. Specifically, the CBO baseline
assumes that sharp reductions in Medicare’s payment rates for physician services will take effect
as scheduled in January 2014 and that certain tax provisions will not be continued after their
current extensions expire, mainly in December 2013. The projections in the baseline also contain
additional uncertainty as a result of the continued economic recovery, particularly as it relates to
federal borrowing costs, and as several new policies are set to take effect, including some major
provisions of the Affordable Care Act. Minor changes in the economic or technical assumptions
that are used to project the baseline could result in significant changes in the outyear deficit
levels.8
Current baseline projections show significant reductions in the budget deficit over the next
several years, from 7.0% of GDP in FY2012 to 2.4% of GDP in FY2015, and roughly similar
deficits through FY2018. (The budget deficit is projected to be 2.9% in FY2018.)9 These
declining deficit figures are primarily due to continued improvements in the economy, increased
tax rates on some taxpayers, and restraints on discretionary spending. This results in budget
deficits that slightly reduce the level of debt held by the public as a percentage of GDP,
particularly after FY2015. In other words, these budget deficits would be fiscally sustainable.
However, after FY2018, deficit and debt figures are projected to rise again, reaching a deficit
level of 3.8% of GDP and a level of debt held by the public of 77.0% of GDP. Under the baseline
assumptions, budget deficits are projected to average 3.3% of GDP over the FY2014 to FY2023
period.
CBO also provided projections based on alternative policy assumptions, which illustrate the
levels of spending and revenue if current laws continue, rather than expire as scheduled. If
Medicare payment rates for physician services remain the same, expiring tax provisions are
extended, and the provisions of the Budget Control Act’s automatic spending reduction process
do not remain in effect for FY2014 and beyond, CBO projects a cumulative increase in the
budget deficit by more than $2.5 trillion, including increased debt service costs, over the FY2014
to FY2023 period. Beyond the 10-year forecast window, federal deficits are expected to grow
unless major policy changes are made. This is a result of increased outlays largely attributable to
health care costs and baby boomer retirements.
Spending and Revenue Trends
Over the last four decades, on average, federal spending accounted for approximately 21% of the
economy (as measured by gross domestic product), while federal revenues averaged roughly 18%
of GDP. After several years of budget surpluses, spending began to exceed revenues in FY2002,
resulting in budget deficits. Over the last several fiscal years the imbalance between spending and
revenues has been larger primarily as a result of the economic downturn and policies enacted in
response to financial turmoil. Though the economy is recovering, deficits remain at levels that

8 CBO, The Budget and Economic Outlook: Fiscal Years 2013 to 2023, February 2013, pp. 29-30.
9 Unless otherwise noted, budget data in this report are taken from the tables in CBO, The Budget and Economic
Outlook: Fiscal Years 2013 to 2023, February 2013.
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exceed historical averages. In FY2012, the most recently completed fiscal year, the U.S.
government spent $3.5 trillion and collected $2.4 trillion in revenue. The trends in revenues and
outlays between FY1970 and FY2012 are shown in Figure 1.
Figure 1. Total Outlays and Revenues, FY1970-FY2012
(as a percentage of GDP)
25%
Outlays
20%
Revenues
15%
FY1970-FY2012:
Average Revenue Levels = 17.9%
Average Outlay Levels = 20.9%
10%
5%
0% 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Source: CRS figure using data from CBO, Historical Tables, February 2013.
Federal Spending
Federal outlays are often divided into the broad categories of discretionary and mandatory
spending, and net interest.10 Discretionary spending is controlled by annual congressional
appropriations acts. Mandatory spending encompasses spending on entitlement programs and
spending controlled by laws other than annual appropriation acts.11 Entitlement programs such as
Social Security, Medicare, and Medicaid make up the bulk of mandatory spending. Congress sets
eligibility requirements and benefits for entitlement programs, rather than appropriating a fixed
sum each year. Therefore, if the eligibility requirements are met for a specific mandatory
program, outlays are made automatically. Net interest comprises the government’s interest

10 The division between discretionary and mandatory spending was first put into place in FY1962.
11 For more information on trends in discretionary and mandatory spending, see CRS Report RL34424, Trends in
Discretionary Spending, by D. Andrew Austin and CRS Report RL33074, Mandatory Spending Since 1962, by D.
Andrew Austin and Mindy R. Levit.
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payments on the debt held by the public, offset by small amounts of interest income the
government receives from certain loans and investments.12
In FY2000, total outlays equaled 18.2% of GDP. By FY2012, total outlays were 22.8% of GDP.
This is lower than the peak outlay level of 25.2% of GDP, reached in FY2009. Under the CBO
baseline, total outlays are projected to be 22.9% of GDP in FY2023. Figure 2 shows the level of
federal spending as a percentage of GDP, broken into the discretionary, mandatory, and net
interest categories, between FY2000 through FY2023, as projected in the CBO baseline.
Figure 2. Outlays by Type, FY2000-FY2023
(as a percentage of GDP)
30%
Net Interest
Discretionary Spending
25%
Mandatory Spending
20%
15%
10%
5%
0% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Source: CRS figure using data from CBO, Historical Tables, February 2013.
Notes: Data for FY2013 are estimates and data for FY2014-FY2023 are projections under the current law
baseline.
In FY2012, discretionary spending totaled 8.3% of GDP.13 Since FY2000, discretionary spending
as a share of GDP has increased 6.3% a year, on average, in nominal terms. Increases in
discretionary spending over this period have largely been a result of increases in security
spending and, more recently, the funding provided in the American Recovery and Reinvestment
Act of 2009 (ARRA; P.L. 111-5). On average, from FY2000 to FY2012, defense discretionary
outlays grew 7.1% per year in nominal terms, while non-defense discretionary outlays grew 5.6%
per year in nominal terms. By FY2023, according to CBO’s baseline projections, discretionary

12 Net interest is discussed in further detail below in the section “Deficits, Debt, and Interest.”
13 Discretionary spending peaked in FY2010 at 9.4% of GDP.
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spending will fall to 5.5% of GDP, its lowest level ever. The projected decline in discretionary
spending in the baseline over the next decade is largely due to the reductions implemented as part
of the Budget Control Act and waning spending from ARRA funding.
Mandatory spending totaled 13.1% of GDP in FY2012, up from 9.7% of GDP in FY2000, as
shown in Figure 2. Mandatory spending levels have been elevated mainly as a result of increases
in outlays for income security programs.14 Though the economic recovery is expected to lower
mandatory spending on certain programs over the next few fiscal years, the growth in mandatory
spending is projected to resume by the end of the decade due to increases in certain entitlement
programs. As a result, under current law, CBO projects that mandatory spending will total 14.1%
of GDP in FY2023, higher than the FY2012 level.
In addition to their size relative to the economy, the components of federal spending can also be
examined relative to each other. In FY2012, mandatory spending totaled 57.4% of total outlays,
discretionary spending totaled 36.3% of total outlays, and net interest comprised the remaining
6.3% of total outlays. The largest mandatory programs, Social Security, Medicare, and the federal
share of Medicaid, constituted 44.4% of all federal spending in FY2012. Because discretionary
spending represents roughly one-third of total federal outlays, some budget experts contend that
to achieve significant reductions in federal spending, reductions in mandatory spending are
needed. Other budget and social policy experts contend that cuts in mandatory spending would
cause substantial disruption to many households, because mandatory spending comprises
important parts of the social safety net.15 Nevertheless, there is widespread agreement that action
is needed to bring down anticipated high debt and deficit levels to restore long-term fiscal
health.16
Federal Revenue
In FY2000, revenues equaled 20.6% of GDP. In FY2012, federal revenue collection totaled
15.8% of GDP, one of the lowest levels since FY1950.17 Revenue collection has remained
depressed over the last few fiscal years as the result of the economic downturn and several tax
relief provisions. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) permanently
extended existing tax rates for most income groups, while raising tax rates for upper income
households beginning in calendar year 2013.18 The longer-term revenue outlook depends largely
on the speed of economic recovery and associated factors. It is also possible that tax reform could
result in changes to the level of federal revenues. Under the CBO baseline, revenues are projected
to total 19.1% of GDP in FY2023.

14 Mandatory spending peaked in FY2009 at 15.0% of GDP.
15 For more information, see CRS Report R41970, Addressing the Long-Run Budget Deficit: A Comparison of
Approaches, by Jane G. Gravelle and CRS Report R41778, Reducing the Budget Deficit: Policy Issues, by Marc
Labonte.
16 In various reports, the Congressional Budget Office, the Government Accountability Office, and the Administration
agree that the federal government’s budget is on an unsustainable path. For more information, see the section of this
report titled, “Long-Term Considerations.”
17 In FY2009 and FY2010, revenue collection totaled 15.1% of GDP.
18 For more information on ATRA’s tax provisions, see CRS Report R42894, An Overview of the Tax Provisions in the
American Taxpayer Relief Act of 2012 , by Margot L. Crandall-Hollick.
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Individual income taxes have long been the largest source of federal revenues, followed by social
insurance (payroll) and corporate income taxes.19 In FY2012, individual income tax revenues
totaled 7.3% of GDP. Social insurance tax revenue accounted for 5.4% of GDP20 and corporate
income tax revenues equaled 1.6% of GDP in FY2012. Figure 3 shows revenue collections
between FY2000 and FY2023, as projected in the CBO baseline.
Figure 3. Revenue by Type, FY2000-FY2023
(as a percentage of GDP)
25%
Al Other
Social Insurance Tax
Corp Income Tax
20%
Indiv Income Tax
15%
10%
5%
0% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Source: CRS figure using data from CBO, Historical Tables, February 2013.
Notes: Data for FY2013 are estimates and data for FY2014-FY2023 are projections under the current law
baseline.
Deficits, Debt, and Interest
The annual differences between revenue (i.e., taxes and fees) that the government collects and
outlays (i.e., spending) result in the budget deficit (or surplus).21 Annual budget deficits or

19 For more information, see CRS Report RL32808, Overview of the Federal Tax System, by Molly F. Sherlock and
Donald J. Marples.
20 Payroll tax revenue has declined over the last two fiscal years largely due to a reduction in the employee payroll tax
rate from 6.2% to 4.2%, which began on January 1, 2011. This reduction expired on December 31, 2012.
21 Most economists use data on federal outlays to track larger budget trends, while most program analysts use budget
authority to track changes in specific program areas.
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surpluses determine, over time, the level of publicly held federal debt and affect the growth of
interest payments to finance the debt.
Budget Deficits
Beginning with FY2009, annual budget deficits as a percentage of GDP have been sharply higher
than deficits in any period since FY1945. The unified budget deficit in FY2012 was $1,089
billion, or 7.0% of GDP. The unified deficit, according to some budget experts, gives an
incomplete view of the government’s fiscal condition because it includes off-budget surpluses.22
Excluding off-budget items (Social Security benefits paid net of Social Security payroll taxes
collected and the U.S. Postal Service’s net balance), the on-budget FY2012 federal deficit was
$1,151 billion. The FY2012 unified deficit was lower as a percentage of GDP than deficits of
recent years. The budget deficit peaked in FY2009 at $1,413 billion and 10.1% of GDP.
Budget Deficit Estimates for FY2013
The February 2013 CBO baseline estimated the FY2013 budget deficit at $845 billion or 5.3% of
GDP, the lowest budget deficit since FY2008. Spending, though lower than its FY2009 peak,
remains several percentage points above the historical average, while receipts remain well below
their historical average (see Figure 1). The decline in the estimated budget deficit for FY2013 is
mainly the result of increased revenues due to the expiration of the payroll tax rate reduction and
higher individual tax rates on upper-income workers. (Outlays for FY2013 are estimated to
remain at roughly the same level as in FY2012.)
Federal Debt and Debt Limit
Gross federal debt is composed of debt held by the public and intragovernmental debt.23
Intragovernmental debt is the amount owed by the federal government to other federal agencies,
to be paid by the Department of the Treasury. This amount largely consists of money contained in
trust funds, such as Social Security’s, that has been invested in federal securities as required by
law. Debt held by the public is the total amount the federal government has borrowed from the
public and remains outstanding. This measure is generally considered to be the most relevant in
macroeconomic terms because it is the debt sold in credit markets.
Changes in debt held by the public generally track the movements of the annual unified deficits
and surpluses.24 Whether or not the movements of gross federal debt will follow those of debt
held by the public depends on how intragovernmental debt changes.

22 From an overall budget perspective, these surpluses are used to offset other federal spending, thereby decreasing the
current budget deficit while increasing the amount of Treasury securities held in the Social Security Trust Funds. Off-
budget surpluses have historically been large. However, declining surpluses in the Social Security Trust Funds will lead
to off-budget deficits beginning in FY2017 according to the CBO baseline.
23 Gross federal debt is also referred to as total debt or total public debt outstanding. Intragovernmental debt is also
referred to as intragovernmental holdings or debt held by federal government accounts.
24 An exception to this is with regard to the treatment of federal credit programs where the increase in the budget deficit
can differ from the increase in the debt held by the public. This is a result of the accounting rules for federal credit
programs under the Federal Credit Reform Act of 1990 whereby the budgetary cost of a new direct loan or loan
guarantee is based on the subsidy cost over the life of the loan or loan guarantee rather than its net cash flow for that
fiscal year. For example, in FY2009 and FY2010 the increase in the deficit was larger than that of debt held by the
(continued...)
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Typically Congress sets a ceiling on federal debt through a legislatively established limit. The
debt limit also imposes a form of fiscal accountability that compels Congress, in the form of a
vote authorizing a debt limit increase, and the President, by signing the legislation, to take visible
action to allow further federal borrowing when nearing the statutory limit. It should be noted that
the debt limit by itself has no effect on the borrowing needs of the government. The debt limit,
however, can hinder the Treasury’s ability to manage the federal government’s finances when the
amount of federal debt approaches this ceiling. In those instances, the Treasury has had to take
unusual and extraordinary measures to meet federal obligations, leading to inconvenience and
uncertainty in Treasury operations at times.25
At the end of FY2012 (September 30, 2012), federal debt subject to limit was approximately
$16,027 billion, of which $11,280 billion was held by the public. A provision contained in the No
Budget, No Pay Act of 2013 (P.L. 113-3) temporarily suspended the debt limit. The suspension
ends on May 19, 2013.26
Net Interest
In FY2012, the United States spent $223 billion or 1.4% of GDP on net interest payments on the
debt. What the government pays in interest depends on market interest rates as well as on the size
and composition of the federal debt. Currently, low interest rates have held net interest payments
as a percentage of GDP below the historical average despite increases in borrowing to finance the
debt.27 Some economists, however, have expressed concern that federal interest costs could rise
sharply once the economy recovers, resulting in future strain on the budget. Interest rates are
projected to gradually rise in the CBO baseline resulting in a rise in net interest payments to $857
billion or 3.3% of GDP in FY2023.
Recent Budget Policy Changes
The 112th Congress enacted a number of policies affecting the fiscal outlook. Numerous expiring
provisions, across-the-board spending cuts, and other short-term considerations having a major
budgetary impact, were scheduled to take effect at the very end of 2012 or in early 2013. This
combination of policies was referred to by some as the “fiscal cliff.” The American Taxpayer
Relief Act of 2012 (ATRA) was enacted to deal with many of these issues. Prior to the enactment
of ATRA, the Budget Control Act of 2011 (BCA) contained two major deficit reduction
provisions.

(...continued)
public due to the nature of the obligations incurred as a result of the government conservatorship of Fannie Mae and
Freddie Mac and the TARP program. For more information, see CRS Report R42632, Budgetary Treatment of Federal
Credit (Direct Loans and Loan Guarantees): Concepts, History, and Issues for the 112th Congress, by James M.
Bickley.
25 General Accountability Office, Delays Create Debt Management Challenges and Increase Uncertainty in the
Treasury Market, GAO-11-203, February 2011.
26 For further details, see CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew Austin
and Mindy R. Levit.
27 Since FY1970, the U.S. spent an average of 2.2% of GDP on interest payments.
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American Taxpayer Relief Act of 201228
On January 2, 2013, the American Taxpayer Relief Act of 2012 (P.L. 112-240) was signed into
law by President Obama. ATRA made a variety of changes to tax policy, including the permanent
extension of the 2001 and 2003 “Bush” tax cuts on both ordinary income and capital gains and
dividends for taxpayers with taxable income below $400,000 ($450,000 for married taxpayers
filing jointly). For taxpayers with taxable income above these thresholds, the marginal tax rate on
ordinary income rose from 35% to 39.6% on the portion of their income above these thresholds,
and the top tax rate on long term capital gains and dividends rose from 15% to 20%. ATRA also
reinstated PEP and Pease for taxpayers with adjusted gross income (AGI) above $250,000
($300,000 for married couples filing jointly), allowing these limitations on personal exemptions
and overall itemized deductions to expire for those with AGI below these thresholds. ATRA also
permanently extended the tax changes to a variety of tax credits, the marriage penalty and
education-related tax incentives. ATRA also included a permanent “patch” for the alternative
minimum tax, permanently extended existing estate and gift tax rules, and addressed various
other expiring provisions.
ATRA also included a number of spending provisions, including postponing or extending several
major programs that had been set to face significant changes. These included postponing a
portion of the automatic spending reductions set to take effect as part of the Budget Control Act
of 2011 (see below), extending certain unemployment benefits, preventing reductions in Medicare
physician payment rates, and providing for a one-year extension of the 2008 farm bill.
Budget Control Act of 2011
On August 2, 2011, the President signed into law the Budget Control Act of 2011 (P.L. 112-25).29
The BCA contained a variety of measures intended to reduce the deficit by at least $2.1 trillion
over the FY2012-FY2021 period, along with a mechanism to increase the debt limit. The deficit
reduction provisions included $917 billion in savings from statutory caps on discretionary
spending and the establishment of a Joint Select Committee on Deficit Reduction (Joint
Committee) to identify further budgetary savings of at least $1.2 trillion over 10 years. Because
the Joint Committee was unable to reach an agreement, an automatic spending reduction process
was triggered. Though initially scheduled to begin on January 2, 2013, this process began on
March 1, 2013 as a result of the changes made by ATRA.30 The reductions for FY2013 were
implemented via a sequester. In the absence of future action between Congress and the President
to eliminate or change the process, the automatic spending reductions will continue through
FY2021.

28 For more information, see CRS Report R42884, The “Fiscal Cliff” and the American Taxpayer Relief Act of 2012,
coordinated by Mindy R. Levit and CRS Report R42894, An Overview of the Tax Provisions in the American Taxpayer
Relief Act of 2012 , by Margot L. Crandall-Hollick.
29 For more information on the Budget Control Act of 2011, see CRS Report R41965, The Budget Control Act of 2011,
by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan and CRS Report R42506, The Budget Control Act of
2011: The Effects on Spending and the Budget Deficit , by Mindy R. Levit and Marc Labonte.
30 ATRA reduced the amount of the FY2013 automatic reductions from $109 billion to $85 billion.
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Budget for FY2014
The Obama Administration released its FY2014 budget on April 10, 2013. Congress has also
begun its consideration of the FY2014 budget.
Obama Administration’s FY2014 Budget
In his budget for FY2014, President Obama presented his policy agenda, largely focused on
providing additional stimulus to create jobs ($62 billion), increasing infrastructure investment
($154 billion), and providing additional funding for early childhood education programs ($77
billion). These stimulus measures would primarily increase spending in FY2014 and FY2015,
whereas additional proposals call for deficit reduction beginning in FY2015.The budget also
emphasizes the need for immigration reform, continued investment in research and development
targeted towards manufacturing and clean energy, and various changes to the corporate and
individual tax code. Overall, the proposed budget would cut the deficit in half, in dollar terms
(and as a percentage of GDP) by the middle part of the decade. As a percentage of GDP, the
budget deficit falls from 4.4% in FY2014 to 2.4% in FY2017 and remains at roughly 2% through
the remainder of the budget window.
The President’s budget proposes a variety of tax and spending measures that would replace the
Budget Control Act’s automatic spending reduction process (often referred to as the Joint
Committee sequestration) and would provide for additional deficit reduction. In August 2011, the
Budget Control Act placed limits on spending via discretionary spending caps and included
provisions for additional spending cuts to be implemented via an automatic process (for more
information see the section titled “Budget Control Act of 2011”). In his FY2014 budget, President
Obama proposes replacing the automatic cuts (including the ones that have already occurred)
with prescribed spending cuts and tax increases. The largest of these proposals include additional
tax revenue generated by capping tax expenditures, modifying certain estate and gift tax
provisions, imposing a financial crisis responsibility fee, and insuring that upper income
households pay at least a certain percentage of their income in taxes (Buffett Rule). Savings are
also generated from changes to Medicare, Medicaid, agriculture, and other mandatory programs,
and placing caps on spending on Overseas Contingency Operations (OCO). The budget also
contains a proposal to use the chained consumer price index (CPI) for the purposes of calculating
annual increases in certain federal benefits and for the indexation of tax brackets. 31 Together,
these deficit reduction proposals total $1,407 billion relative to the Administration’s Adjusted
Baseline.32

31 OCO spending is currently exempt from the BCA discretionary spending caps. Part of the savings would be used to
invest in surface transportation and job creation. Whether or not savings can be generated by reducing OCO spending
from current levels has been controversial. For CBO’s take on the issue, see Congressional Budget Office, Director’s
Blog, Can Proposed Reductions in Future War-Related Spending Be Used To Offset Proposed Deficit Increases in
Other Areas?, February 1, 2012.
32 The deficit reduction proposed in the President’s budget to replace the automatic spending reduction process total
$2,503 billion. However, the budget also proposes to cancel the $1,096 billion automatic process cuts. Therefore, the
cumulative effect of these reductions is $1,407 billion relative to the Adjusted Baseline. CRS calculations based on
Office of Management and Budget, Budget for Fiscal Year 2014, The Budget, Table S-2.
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Finally, the President’s Budget also includes a Cuts, Consolidations, and Savings section that
contains proposed changes to 215 discretionary and mandatory programs, which would save
approximately $25 billion in FY2014 if enacted.33
Deficit Projections in the FY2014 Budget
Consistent with the presentation of previous budgets, the Obama Administration provided three
separate deficit projections.34 First, OMB projected a Balanced Budget and Emergency Deficit
Control Act (BBEDCA) baseline, using methods that mirror those CBO uses to project its
current-law baseline. The BBEDCA baseline assumes that discretionary spending remains
constant in real (i.e., inflation-adjusted) terms and revenue and mandatory (or direct) spending
continue as under current law.35 Under this scenario, the FY2014 deficit is projected to total $687
billion.
The Obama Administration also projected an Adjusted Baseline, which in its view, provides a
more transparent and realistic reflection of the federal government’s current fiscal situation. They
use this methodology as a basis for understanding how new policy choices would affect the fiscal
outlook, essentially replacing the current BBEDCA baseline. The Administration’s Adjusted
Baseline assumes that discretionary spending will be limited by the discretionary caps put in
place as part of the Budget Control Act, Medicare payments to physicians will not be reduced
under the Sustainable Growth Rate (SGR) formula,36 various American Recovery and
Reinvestment Act (ARRA) tax provisions are extended beyond the current 2017 expiration date,37
and includes an adjustment for disaster costs.38 The deficit under this scenario is projected to
reach $627 billion in FY2014.
The final deficit projection, the Proposed Budget, illustrates the impact on the budget outlook if
all of the policies of the budget are implemented. In FY2014, the Administration projects that the
deficit will reach $744 billion. Both the Adjusted Baseline and the Proposed Budget project
deficits throughout the 10-year budget window. Under the Proposed Budget, the deficit would fall
from 4.4% of GDP in FY2014 to 1.7% of GDP by FY2023.39 The deficit levels in the Proposed
Budget scenario in the outyears are lower than both the BBEDCA baseline and the Adjusted
Baseline figures.

33 Office of Management and Budget, Budget for Fiscal Year 2013, The Budget, p. 171.
34 For details of these projections, see U.S. Office of Management and Budget, Budget for Fiscal Year 2014, The
Budget, Tables S-1 (Proposed Budget) and S-8 (BEA Baseline and Adjusted Baseline).
35 For a description of the policies included in the BBEDCA baseline, see Office of Management and Budget, Budget
for Fiscal Year 2013, Analytical Perspectives, pp.429-431.
36 Currently physician payment rates are scheduled to be reduced in 2014.
37 These include increased refundability of the child tax credit, expansions of the earned income tax credit for certain
families, and the American Opportunity Tax Credit.
38 For a description of the policies included in the BBEDCA baseline, see Office of Management and Budget, Budget
for Fiscal Year 2013, Analytical Perspectives, pp.429-432.
39 U.S. Office of Management and Budget, Budget for Fiscal Year 2014, The Budget, Tables S-4 and S-6.
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What Do These Baselines Reflect?
As stated above, the Adjusted Baseline assumes that certain policies due to expire will be
continued. The President’s budget views the Adjusted Baseline as the most realistic projection of
the budget deficit and it is used as their benchmark to measure the impact of their budget
proposals. The Proposed Budget, however, is the one that illustrates the resulting budget outlook
if all of the policies proposed by the President were implemented. Whether or not a certain policy
proposal increases or decreases the deficit depends on which baseline is being used as the starting
point. Ultimately, the question of whether or not the amount of deficit reduction is sufficient can
only be measured by actual budget outcomes (i.e., whether the budget deficit is higher or lower in
the future relative to today) and whether or not the budget is on a sustainable path.
There are no real limits on what assumptions can be used to construct the Adjusted Baseline as
opposed to the BBEDCA baseline whose parameters were set by legislation. The Adjusted
Baseline in the FY2014 budget assumes, for example, increases in spending as a result of
eliminating the reduction in Medicare physician payments under the SGR formula. Because this
policy serves to increase the deficit, this policy has no cost in the Administration’s Proposed
Budget when it is measured against the constructed Adjusted Baseline. If it were measured under
the BBEDCA baseline, the SGR fix would increase the deficit. In other words, because the
Administration assumes that Medicare physician payments would be maintained at current year
levels in its Adjusted Baseline, at a cost of $249 billion between FY2014 and FY2023, this
proposal does not increase the deficit in the Proposed Budget.40
A similar methodology can be used in understanding how the funding for Overseas Contingency
Operations is being accounted for in each baseline. Both the Adjusted Baseline and BBEDCA
baseline assume that OCO funding will continue at current year levels, adjusted for inflation. In
the Proposed Budget, the Administration assumes a reduction in OCO funding. As a result, the
Proposed Budget allocates a reduction in the deficit of $508 billion over the FY2014-FY2023
period for reduced OCO costs relative to the Adjusted Baseline and the BBEDCA baseline.
Finally, the deficit reduction generated from one of the Administration’s largest proposals, to
replace the Budget Control Act’s automatic spending reductions, is also affected by the use of the
Adjusted Baseline. The deficit reduction enacted as part of the BCA is not included as part of the
BBEDCA baseline. However, it is included in the Adjusted Baseline. As described earlier, the
Administration is proposing to replace the BCA with other deficit reduction in an amount that
would more than offset the BCA reductions. Therefore, the proposal by the Administration to
replace the BCA reductions results in a smaller amount of deficit reduction in the Proposed
Budget than it otherwise would have had it been measured against a different baseline. This is
because relative to the Adjusted Baseline, the amount of deficit reduction generated by the
proposal is being offset by the BCA deficit reduction that it is replacing. If this proposal had been
measured relative to the BBEDCA baseline, the deficit reduction would have been larger as it
would not have been offset by the current BCA provisions. As a result, the amount of deficit
reduction in the Administration’s Proposed Budget, as it relates to the BCA replacement, is lower
as a result of measuring the changes relative to the Adjusted Baseline rather than to the BBEDCA
baseline.

40 This figure does not include related debt service costs.
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Congressional Consideration of the FY2014 Budget Resolution
The House and Senate Budget Committees are responsible for formulating and reporting an
annual budget resolution. Each budget committee typically develops a budget resolution as they
receive information and testimony from various sources, such as the Administration, CBO, and
congressional committees with jurisdiction over spending and revenues. The timetable
established in the Congressional Budget Act directs the Senate Budget Committee to report a
budget resolution by April 1, and for the House and Senate to reach final agreement on a budget
resolution by April 15.41
House Budget Resolution
On March 13, 2013, the House Budget Committee reported a budget resolution (H.Con.Res. 25,
113th Congress) by a vote of 22-17. The resolution provided for revenue levels of $3,003 billion
and outlays of $3,489 billion in FY2014 for a deficit of $528 billion, or approximately 3.2% of
GDP. By FY2023, the budget is projected reach a surplus of $7 billion. Debt held by the public is
projected to rise in nominal terms from $12,850 billion in FY2014 to $14,211 billion by
FY2023.42 The budget resolution was agreed to by the House on March 21, 2013, by a vote of
221-207.
The budget proposal contains several policy changes affecting spending. Under the House budget
resolution, the additional BCA spending reductions set to affect defense discretionary spending
would be reallocated to non-defense discretionary spending so that non-defense discretionary
spending will absorb the entire amount of the BCA automatic reductions. In addition to these
changes to spending, the budget resolution also contains reconciliation instructions to eight
committees to find further deficit reduction totaling at least $8 billion over 10 years. Though the
committee report accompanying the budget resolution does contain preferred policy options by
which to achieve these savings, the instructed committee has the authority to report whatever
changes it wants within its jurisdiction in response to the reconciliation directive. Policy options
from the budget committee include changes to federal health programs,43 the Supplemental
Nutrition Assistance Program, job training and education programs, the federal workforce, and
farm programs. Overall, the budget resolution proposes to reduce spending by $5.8 trillion
between FY2014 and FY2023 relative to the current CBO baseline. Spending levels would
average roughly 19.5% of GDP between FY2014 and FY2023 under the policies of the
resolution.44
On the revenue side, the House Budget Committee recommends no changes to the overall
revenue levels under current law. However, in the report accompanying the budget resolution, the
Committee recommends implementation of comprehensive tax reform with the ultimate goal of
replacing the current system with two tax brackets of 10% and 25% and repealing the Alternative
Minimum Tax. The corporate tax rate would also be reduced from 35% to 25%. To offset the

41 For more information on the congressional budget process, see CRS Report RS20368, Overview of the
Congressional Budget Process, by Bill Heniff Jr.
42 U.S. House of Representatives, Committee on the Budget, H.Rept. 113-17, Tables 1 and 4.
43 For more information, see CRS Report R43017, Overview of Health Care Changes in the FY2014 Budget Proposal
Offered by House Budget Committee Chairman Ryan, by Patricia A. Davis, Alison Mitchell, and Bernadette Fernandez.
44 U.S. House of Representatives, Committee on the Budget, H.Rept. 113-17, Tables 1 and 4.
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reduction in tax rates, the House Budget Committee proposes eliminating certain tax expenditures
in order to broaden the base of taxable income.45 Revenue collection would average roughly
18.8% of GDP between FY2014 and FY2023 under the policies of the resolution.
Senate Budget Resolution
On March 14, 2013, the Senate Budget Committee reported a budget resolution (S.Con.Res. 8,
113th Congress) by a vote of 12-10. The resolution provides for revenue levels of $3,023 billion
and outlays of $3,715 billion in FY2014 for a deficit of $693 billion, or approximately 4.2% of
GDP. By FY2023, the deficit is projected to fall to $566 billion or 2.7% of GDP. Debt held by the
public is projected to rise in nominal terms from $13,060 billion in FY2014 to $18,229 billion by
FY2023.46 The budget resolution was agreed to by the Senate on March 23, 2013, by a vote of 50-
49.
The budget proposal contains changes to both spending and revenue. Specifically, the budget
resolution revises the Budget Control Act’s (BCA) statutory caps on discretionary spending and
replaces the BCA’s automatic spending reductions with a combination of other spending cuts and
revenue increases, including some reductions to the current BCA caps.47 In addition, the budget
resolution includes $100 billion in funding intended to create new jobs and repair infrastructure,
which is intended to be fully offset. Overall, the budget resolution proposes to reduce spending by
$837 billion between FY2014 and FY2023 relative to the current CBO baseline.48 Spending
levels would average roughly 22% of GDP between FY2014 and FY2023 under the policies of
the resolution.
On the revenue side, the budget resolution contains reconciliation instructions to the Senate
Finance Committee to increase the level of revenues by $975 billion between FY2013 and
FY2023. Though the committee report accompanying the budget resolution does contain
preferred policy options by which to achieve these increased revenue levels, the Finance
Committee has the authority to report whatever revenue changes it wants within its jurisdiction in
response to the reconciliation directive. Policy options from the Budget Committee include
proposals to change the tax code by increasing the tax burden on upper income Americans and
large corporations through a limit on itemized deductions and tax expenditures claimed. The
Senate Budget Committee, in the report accompanying the budget resolution, also suggests that
comprehensive tax reform should be pursued. Revenue collection would average roughly 19% of
GDP between FY2014 and FY2023 under the policies of the resolution.
Next Steps
Because the budget resolution does not become law, separate legislation would have to be enacted
in order to make the policy changes relied upon in these proposals. The budget proposals do not
contain specifics on how some of the revenue and spending proposals would be achieved.
Therefore, if some of the policy proposals do not become law, the spending, revenue, and deficit
projections could change significantly. Further affecting deficit levels are the economic

45 U.S. House of Representatives, Committee on the Budget, H.Rept. 113-17, p. 6.
46 U.S. Senate, Committee on the Budget, Committee Print to Accompany S.Con.Res. 8, p. 152.
47 Ibid., p. 160.
48 Ibid., p. 152.
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assumptions used in making any budget projections. Both the House and Senate budget resolution
use CBO’s February 2013 estimates.49 If economic growth is higher or lower, the deficit levels
and related components in the budget resolution would be affected.
The House and Senate would typically need to reach an agreement on the budget resolution in
order to complete action on the FY2014 appropriations bills. In prior years when an agreement on
the budget resolution has not been reached, both the House and the Senate took action to “deem”
enforceable levels of discretionary spending.50 In the past, deeming resolutions have also been
used when the House and Senate are late in reaching final agreement on a budget resolution.
Considerations for Congress
Though several major budgetary items were addressed in the 112th Congress, ongoing budgetary
challenges remain for FY2013 and FY2014 that may conflict in critical ways. In the short term,
issues related to the slow economic recovery may continue to dominate the policy debates. Over
the long term, increasing federal health care costs are expected to keep mandatory spending
rising, placing ever-increasing focus on how to achieve fiscal sustainability.
Addressing Short-Term Budget Issues
Negotiations on further deficit reduction may occur as part of two separate debates. The first will
likely occur simultaneously with debate over whether to increase the debt limit. The second will
occur through the FY2014 appropriations process, which will determine the discretionary
spending levels for FY2014. The Budget Control Act’s automatic spending reductions are set to
reduce the discretionary spending cap levels in FY2014 and beyond, likely resulting in debate
over whether or at what level those spending reductions should remain in place.
As discussed earlier, the debt limit is currently suspended through May 18, 2013. On May 19,
2013, the debt limit will be raised to a level necessary to cover the borrowing incurred since the
suspension began in early February 2013. Some Members of Congress have said that they intend
to use the debt limit to come to an agreement on further deficit reduction similar to what was
enacted as part of the Budget Control Act in August 2011.51
With the sequester that went into effect on March 1, 2013, the automatic spending reduction
process set to occur through FY2021 began. In FY2014, the reductions to discretionary spending
will be made via reduced discretionary spending caps (rather than via sequestration). However,
both the House and Senate budget resolutions propose modifying or removing the automatic
reductions but contain significantly different levels of discretionary spending for non-defense
programs in FY2014. (Both resolutions have the same level of base defense discretionary
spending.) Consensus on FY2014 discretionary spending levels will be required in order to reach
agreement on appropriations bills.

49 U.S. House of Representatives, Committee on the Budget, H.Rept. 113-17, Table 7; U.S. Senate, Committee on the
Budget, Committee Print to Accompany S.Con.Res. 8, p. 143.
50 For more information, see CRS Report RL31443, The “Deeming Resolution”: A Budget Enforcement Tool, by
Megan S. Lynch.
51 Alan K. Ota, “Republicans Point Toward Debt Limit Showdown with Payments Hearing,” CQ, April 8, 2013.
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Economic Considerations
The economy is still recovering from the most recent recession, which lasted from December
2007 to June 2009. Growth remains moderate, in part, due to budget challenges facing state and
local governments, high levels of consumer debt, and continuing weakness in many real estate
markets. Most economists expect unemployment rates to remain elevated for the medium term.
During this period, the budget deficit grew largely as a result of government actions taken to
combat the economic downturn as well as significantly lower revenue and higher spending levels
directly attributable to the economic conditions.
As the economy continues to recover, revenue should increase as unemployment falls and
spending should decrease due to less reliance on federal programs meant to provide assistance
during economic downturns. This should lead to decreases in the budget deficit relative to current
levels in the short term. Though many argue that fiscal stimulus and other actions were needed to
help the economy recover, the resulting large budget deficits and high debt levels will have an
effect for many years.
Many budget analysts are concerned about future levels of federal debt and acknowledge that the
current spending and revenue collection cannot continue at current or projected future levels.
However, significant deficit reduction at this time may be harmful to the ongoing economic
recovery. On the other hand, the longer that the country continues without a plan to stabilize its
fiscal future, the more costly reform may ultimately be. In addition, the likelihood of a severe
fiscal crisis caused by an unwillingness of private investors to continue financing unsustainable
deficits may increase, and if that occurs, reforms may be forced by events, rather than being well
planned.52
Long-Term Considerations
Occasional deficits, in and of themselves, are not necessarily problematic. Deficit spending can
allow governments to smooth outlays and taxes to shield taxpayers and program beneficiaries
from abrupt economic shocks in the short term, while also temporarily boosting GDP when the
economy is underperforming. Persistent deficits, however, lead to growing levels of federal debt
that may lead to higher interest payments and may also have adverse macroeconomic
consequences in the long term, including slowing investment and lowering economic growth.
Since the debt cannot grow faster than GDP forever, large deficits will eventually need to be
reduced through increases in taxes, reductions in spending, or both.
The federal government, however, does face serious long-term budget challenges. Some measures
of fiscal solvency in the long term indicate that, under current policy, the U.S. faces major future
imbalance, specifically as it relates to rising health care costs and the likely impact on
government-financed health care spending. Even with the deficit reduction contained in the BCA,
many budget analysts believe that additional savings are required to put the budget on a
sustainable path over the long term. Even under the current law baseline, which includes the
BCA’s spending reductions achieved via caps on discretionary spending and the automatic
spending reduction process, deficits continue to be projected over the budget window.

52 Congressional Budget Office, Federal Debt and the Risk of a Fiscal Crisis, July 27, 2010, p. 1.
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CBO, GAO, and the Administration agree that the current mix of federal fiscal policies is
unsustainable in the long term. The nation’s aging population, combined with rising health care
costs per beneficiary, may keep federal health costs rising faster than per capita GDP. CBO
projected in June 2012 that under current policy, federal spending on federal health programs
(including Medicare, Medicaid, CHIP, and exchange subsidies) would grow from 5.4% of GDP
today to 10.0% of GDP in 2035, and 18.0% by 2085.53 The 2013 Economic Report of the
President also projected that future federal spending on Medicare and Medicaid would rise
significantly under current law projections.54 GAO’s recent long-term fiscal simulations, under an
alternative policy scenario, projected debt held by the public as a share of GDP to exceed the post
World War II historical high in about 15 years.55
Keeping future federal outlays at 20% of GDP, or approximately at its historical average, and
leaving fiscal policies unchanged, according to CBO projections, would require drastic reductions
in all spending other than that for Medicare, Social Security, and Medicaid, or reining in the costs
of these programs. Under an alternative fiscal scenario, which incorporates policy changes that
are widely expected to occur and that policymakers have regularly made in the past, the fiscal gap
reaches 8.7% of GDP.56 This indicates that an immediate and permanent reduction in spending,
increase in revenues, or a combination of spending cuts and revenue increases amounting to 8.7%
of GDP would be needed to make the government’s debt the same size (relative to the size of the
economy) at the end of that period as it was at the beginning. 57 A fiscal gap of this size is 2-3
percentage points larger than the annual projected levels of discretionary spending through
FY2023. Therefore, eliminating all discretionary spending would not be large enough to close the
current fiscal gap.
As the economic recovery continues, Congress may focus more effort on reducing the deficit and
reining in the debt. This would require less spending, increases in revenue collections, faster-
than-average economic growth, or a combination of these things. Debt requires interest payments
that can strain budgets if debt levels and interest rates are high. High debt levels could limit the
government’s flexibility in meeting its obligations or in responding to emerging needs of its
citizens. Ultimately, failing to take action to reduce the projected growth in the debt potentially
might lead to future insolvency or government default.58

53 Congressional Budget Office, The Long-Term Budget Outlook, June 2012, “Supplemental Material.”
54 If healthcare costs continue to grow at the same rate as GDP, as they have over the past several years, healthcare
spending 75 years from now will be roughly equal to what it is today as a percentage of GDP. Historically, however,
growth rates in healthcare costs per capita have outpaced the growth in the economy by a significant margin. Council of
Economic Advisors, Economic Report of the President, March 2013, Figure 5-8 and p. 30.
55 Government Accountability Office, The Federal Government’s Long-Term Fiscal Outlook: Fall 2012 Update (GAO-
13-148SP), December 3, 2012, p. 1.
56 U.S. Congressional Budget Office, The Long-Term Budget Outlook, June 2012, Table 1-3.
57 The alternative fiscal scenario includes things like the extension of certain expiring tax provisions and the continued
indexation of AMT to inflation through 2022 and Medicare physician payment rates are maintained at 2012 levels
through 2022 and not restrained thereafter by policies in current law. Some of these policies have been subsequently
modified by legislation, including ATRA. For a complete description of the assumptions included in the extended
baseline and alternative fiscal scenarios, see Congressional Budget Office, The Long-Term Budget Outlook, June 2012,
Table 1-1.
58 See Alan Auerbach and William Gale, “The Economic Crisis and the Fiscal Crisis: 2009 and Beyond: An Update,”
Tax Policy Center working paper, September 2009, available at http://www.brookings.edu/~/media/Files/rc/papers/
2009/06_fiscal_crisis_gale/06_fiscal_crisis_gale_update.pdf.
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Budget Transparency
The budget, reflecting the size and complexity of the federal government, is complicated and
detailed. The budget books that OMB compiles provide an enormous amount of information, and
other budget data reported by federal agencies provide even more detail on federal spending
plans. The Federal Funding Accountability and Transparency Act of 2006 (P.L. 109-282) included
several measures to increase the accessibility of budget information. For example, as a result of
that act, OMB now runs the USAspending.gov website, which provides detailed information on
federal spending. Concerns have been raised about the quality of those data.59 Moreover, it is not
clear that those data are thoroughly coordinated with other federal budgeting data systems.
Congress and the President have undertaken additional efforts in an attempt to improve
transparency in light of the large amounts of spending currently occurring as a result of economic
stabilization efforts and federal financial interventions. For example, Recovery.gov was launched
to track stimulus spending. The Congressional Oversight Panel was established in the Emergency
Economic Stabilization Act to oversee TARP spending and detailed reporting requirements were
given to Treasury by Congress. Despite this, criticisms remain and requests for greater
transparency continue. However, in certain cases, despite the large amount of data provided by
OMB and other government agencies, it can be difficult to answer relatively simple budget
questions. Critics maintain that the federal government in general and OMB in particular should
take steps to make data on federal spending even more transparent to taxpayers and more useful
to policymakers.

59 For more information, see CRS Report RL34718, The Federal Funding Accountability and Transparency Act:
Implementation and Proposed Amendments, by Garrett Hatch.
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Appendix. Budget Documents
CBO Documents
The Congressional Budget Office (CBO) provides data and analysis to Congress throughout the
budget and appropriations process. Each January, CBO issues a Budget and Economic Outlook
that contains current-law baseline estimates of outlays and revenues. In March, CBO typically
issues an analysis of the President’s budget submission with revised baseline estimates and
projections. These documents can be delayed as a result of the legislative agenda or if the
President’s Budget is off schedule. In late summer, CBO issues an updated Budget and Economic
Outlook with new baseline projections.
In these documents, CBO sets a current-law baseline as a benchmark to evaluate whether
legislative proposals would increase or decrease outlays and revenue collection. Baseline
estimates are not intended to predict likely future outcomes, but to show what spending and
revenues would be if current law remained in effect. CBO typically evaluates the budgetary
consequences of legislative proposals and the Joint Committee on Taxation (JCT) evaluates the
consequences of revenue proposals.
CBO also releases other periodic publications focusing on the future fiscal health of the United
States. In their publication, The Long-Term Budget Outlook, CBO makes projections on the state
of the federal budget over the next 75-years. They discuss spending and revenue levels and the
related issues that they expect will arise under different policy assumptions. In their Budget
Options volumes, they provide specific policy options and the impact they will have on spending
and revenues over a 10-year budget window. They also provide arguments for and against
enacting each policy.
OMB Documents
The President’s Budget contains five major volumes: (1) The Budget; (2) Historical Tables; (3)
Analytical Perspectives; (4) Appendix; and (5) Supplemental Materials.60 These documents lay
out the Administration’s projections of the fiscal outlook for the country, along with spending
levels proposed for each of the federal government’s departments and programs. The Historical
Tables volume also provides significant amounts of budget data, much of which extends back to
1962 or earlier. Along with the Administration’s budget documents, the Department of the
Treasury also releases its Green Book, which provides further detail on the revenue proposals that
are contained in the budget.61


60 The President’s budget proposals can be found on the OMB website at http://www.whitehouse.gov/omb/. The
Supplemental Materials include the Federal Credit Supplement, the Object Class Analysis, the Balances of Budget
Authority, and the Public Budget Database.
61 The Green Book is available at http://www.treasury.gov/resource-center/tax-policy/Pages/general_explanation.aspx.
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Author Contact Information

Mindy R. Levit

Analyst in Public Finance
mlevit@crs.loc.gov, 7-7792

Congressional Research Service
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