Federal budget developments.

Wakefield, Joseph C.

REVISED estimates of Federal unified budget receipts and outlays for fiscal years 1985 and 1986 were submitted to Congress by the Office of Management and Budget in mid-April. These estimates reflect revised economic assumptions, reestimates of agency spending and tax collections based on more recent experience, administration policy changes, and most of the legislation passed by Congress so far this year. The major policy change is to the proposed farm bill; it now proposes no change to the tobacco program, contrary to what had been anticipated in February. The revised estimates do not reflect legislation for emergency famine relief and recovery in Africa or the extension of the Federal supplemental unemployment compensation program, both of which were signed into law too late to be incorporated. The revised estimates do not include the compromise on spending cuts agreed to in early April by the administration and Senate leaders. This compromise replaced a fiscal year 1986 budge resolution approved by the Senate Budget Committee in mid-March.

On the basis of the revised economic assumptions, real GNP is expected to increase about 4 percent through the fourth quarter of 1986, the same as expected earlier this year (table 1). Corporate profits are revised up $12 billion in 1985 and $7 billion in 1986. Consumer prices rise at a slower rate in 1985--3.7 percent compared with 4.5 percent--but at the same rate in 1986, 4.3 percent, as assumed in February. The unemployment rate and the interest rate assumptions are unchanged.

For fiscal year 1985, a $213.3 billion deficit is estimated, compared with $222.2 billion in February (table 2). Receipts are $3.7 billion higher, due to revised economic assumptions ($2.6 billion) and reestimates ($1.2 billion). Outlays are $5.2 billion lower; a $5.6 billion downward revision due to reestimates is partly offset by a $0.4 billion upward revision due to the revised economic assumptions.

On a program-by-program basis, the revision in outlays is the net of $6.9 billion in downward revisions and $1.6 billion in upward revisions. the largest downward revisions are for rural electrification loasn ($1.7 billion), medicare ($0.7 billion), Social Security benefits ($0.7 billion), and highway grants ($0.5 billion). The largest upward revision is for unemployment compensation ($0.7 billion).

For fiscal year 1986, a deficit of $177.4 billion is estimated, compared with $180.0 billion in February. Receipts are $0.6 billion higher, including $0.5 billion for the revised economic assumptions. Outlays are $2.0 billion lower, due to reestimates ($1.0 billion) and revised economic assumptions ($1.0 billion).

On a program-by-program basis, the revision in outlays is the net of $4.7 billion in downward revisions and $2.6 billion in upward revisions. The largest downward revisions are for rural electrification loans ($1.3 billion), net interest ($1.0 billion), and Social Security benefits ($0.9 billion). The largest upward revisions are for the agricultural credit insurance fund and for rents and royalties from the Outer Continental Shelf ($0.6 billion employment compensation ($0.4 billion).

Revised NIPA estimates. -- BEA has prepared estimates of the Federal sector on the national income and product accounting (NIPA) basis consistent with the revised unified budget estimates (table 2, and table 3 for the quarterly pattern). On this basis, fiscal year 1985 receipts are $3.5 billion higher, expenditures are $3.5 billion lower, and the deficit is $7.0 billion lower than estimated in February. (Details of the February estimates are discussed in the February 1985 SURVEY OF CURRENT BUSINESS.)

The upward revision in receipts is concentrated in corporate profits tax accruals ($2.6 billion), reflecting higher corporate profits in the revised economic assumptions. Personal tax and nontax receipts are revised up $0.9 billion, reflecting a reestimate. All other receipts, on balance, are unchanged.

All categories of expenditures are revised down. The largest revision is in the net interest paid ($1.6 billion), reflecting changes in financing patterns and in the composition of debt. Grants-in-aid to State and local governments are revised down $0.9 billion; grants for highways and education account for the revision. Transfer payments to persons are revised down $0.8 billion; a downward revision in Social Security benefits ($1.6 billion) is partly offset by an upward revision in unemployment benefits ($0.6 billion) and by small revisions in other programs. All other expenditures together are revised down $0.3 billion.

for fiscal year 1986, receipts are $1.2 billion lower, expenditures are $2.5 billion lower, and the deficit is $1.3 billion lower. All categories of recepits are revised down, except contributions for social insurance, which are essentially unchanged. The largest revision is in personal tax and nontax payments ($0.6 billion), reflecting a reestimate. Indirect business tax and nontax accruals are revised down $0.4 billion, reflecting lower windfall profit taxes and customs duties, and corporate profits tax accruals are revised down $0.3 billion.

The downward revision in expenditures is more than accounted for by net interest paid (2.0 billion) and transfer payments to persons ($0.7 billion). The revision in net interest paid reflects the same factors mentioned for 1985. The revision in transfer payments to persons is the net result of a $1.1 billion downward revision in Social Security benefits and a $0.4 billion upward revision in unemployment benefits. All other expenditures categories together are essentially unchanged.