NATIONAL NEED: PROMOTION OF COMMERCE AND HOUSING CREDIT

(Functional code 370; in millions of dollars)

dies will be provided to encourage the construction of moderate- and middle-income rental housing in distressed areas of central cities. The budget proposes an additional $2.0 billion of commitments in 1979. The 2-year total of $4.0 billion of commitments will facilitate the development of an estimated 135,000 units of new multifamily housing bearing interest rates below prevailing market rates. Mortgages purchased under these programs will be resold as market conditions permit, with GNMA absorbing the loss. Net outlays for GNMA's credit activities, including losses on mortgage purchases, are estimated to be $39 million in 1978 and $333 million in 1979. The Federal Housing Administration's (FHA's) mortgage and loan insurance programs provide assistance for families who are able to fulfill the obligations of a mortgage loan but who are not adequately served by the private market. Recently enacted legislation decreased the downpayment requirements and increased the mortgage limitations to bring homeownership within the reach of a larger number of families. Insurance for mortgages with graduated payment schedules, which require lower initial monthly payments, will be made on an accelerated basis to assist young, first-time homebuyers. Heavy default rates experienced under some mortgage insurance programs contributed to large increases in the FHA inventory of assigned mortgages and acquired properties in the early 1970's. Improved economic conditions, better underwriting, and the use of rental assistance and rent supplement funds resulted in a decrease in the growth of the inventory in 1977 and will also help to stem new additions to the inventory in 1978. Further decreases are expected in future years as economic conditions improve. The administration has proposed a major new operating subsidy program for 1979. This new program, coupled with improved management controls and the monitoring of troubled projects, is intended to reduce the inventory of defaulted projects and aid in the stabilization and revitalization of distressed urban areas. Outlays for this program, which is classified in the income security function, are estimated to total $52 million in 1979. Outlays for FHA mortgage credit activities are estimated to decline from $407 million in 1978 to $221 million in 1979. In addition to supporting private market mortgage financing with FHA insurance, HUD provides direct loans to finance housing projects for elderly or handicapped persons (under the section 202 program). The 1979 budget provides for $800 million, an increase of $50 million over 1978, in new loan commitments and an increased emphasis on housing for the handicapped. Outlays for this program are estimated to be $335 million in 1978 and $71.3 million in 1979. The Farmers Home Administration (FmHA) of the Department of Agriculture provides direct and guaranteed loan housing assistance to low- and moderate-income families in rural communities of less than

20,000 population, and grants for farm labor housing and self-help housing. In addition, a rural rental assistance program to assist the tenants of FmHA-financed housing was established last year. A related program of grants to repair and rehabilitate inadequate singlefamily housing is classified in the income security function. As a result of a major rural housing study, the 1979 budget proposes to increase substantially housing assistance to families with the lowest incomes, while holding assistance to other income classes close to current levels. Legislation will be proposed to authorize a special homeownership assistance program to assist very low-income families in those cases where ownership is more cost effective than other FmHA very low-income housing assistance programs. The proposed legislation will also provide for a Federal subsidy recovery program, where partial or total recovery of Federal subsidies will occur at the time a family sells its house, and the proceeds of the sale are at least large enough to repay the principal and interest on the mortgage, sales commission, and borrower relocation costs, and to provide an incentive payment to the borrower. The budget proposes $3.6 billion in new direct loans and $79 million in budget authority for grants during 1979. These totals represent increases of more than $200 million in insured loans and $57 million in grants over 1978 levels. They will provide assistance for about 165,000 rural housing units, one-half of which are occupied by families with annual incomes of less than $8,000. About 83% of the total number of assisted units will receive either interest subsidies or grant assistance, and approximately 20,000 of the subsidized units will also receive rural rental assistance payments. Special attention will be given to assisting low-income families who occupy inadequate housing. Outlays for FmHA housing programs in this function are estimated to be $455 million in 1978. Asset sales, which are an offset to outlays are expected to exceed the total amount of loans made in 1979. As a result, outlays are expected to be –$99 million in 1979. The Federal Deposit Insurance Corporation (FDIC) protects bank depositors and fosters sound banking practices. Receipts are expected to exceed outlays by $0.9 billion in 1979. Two important tax expenditures that aid homeowners are the deductions of interest on home mortgages and of local real estate taxes. These provisions are estimated to reduce tax receipts by $7.7 billion in 1979.

Postal Service.—The 1970 Postal Reorganization Act established the U.S. Postal Service as an independent Government-owned corporation. Outlays for the general operations of the Postal Service are excluded from Federal budget totals, with the exception of Federal subsidy payments. These payments, estimated to be $1.8 billion in 1979, cover liabilities of the former Post Office Department for earned and unused annual leave and for compensation to disabled employees, public service costs, and revenue foregone for carrying certain classes of mail at free and reduced rates. The recommended revenue foregone subsidy for 1979 follows the schedule that was established in the 1970 act and also the extension of that schedule as authorized by Public Law 93–328 for transition to full-cost rates for certain second-, third-, and fourth-class mail.

The budget also includes a supplemental appropriation request for 1978 of $92 million. This includes $91 million for covering the cost of revenue foregone increases due to rate changes proposed to become effective June 1, 1978, and $1 million for reimbursement to the Postal Service for prior expenses incurred by the Commission on Postal Service. Total outlays are estimated to increase by $42 million to $1.8 billion in 1979. This increase reflects the impact of the proposed postal rate increase on the subsidy for revenue foregone for carrying mail at reduced rates. The total request for 1979 continues the existing policy that postal costs should be borne largely by mail users and not the general taxpayer. The off-budget outlays of the U.S. Postal Service reflect the net difference between gross expenditures and gross receipts.

Other advancement and regulation of commerce.—Many Federal programs provide technical assistance to and promote the development of new businesses. Other programs provide oversight of the economy and business community to assure fair and equal practices and opportunities.

Net outlays for assistance to small business are estimated to total $0.5 billion for 1978 and 1979. The budget request for the Small Business Administration (SBA) provides for $3.3 billion of new commitments for guaranteed loans—an increase of $350 million over 1978 levels. This expansion will be accompanied by efforts to make the secondary market for the sale of SBA guaranteed loans more attractive to private investors. Such action will help tap new sources of funds to meet the growing financial needs of the Nation's small businesses. The SBA also expects to increase the number of volunteers in the service corps of retired executives (SCORE) from the current level of 7,500 to 12,500 volunteers by 1979. Budget outlays are estimated to increase from $127 million in 1978 to $257 million in 1979 for the Bureau of Census. These resources will be used primarily to carry out the surveys of registration and voting required by the Voting Rights Act following the 1978 congressional elections, and to enable the Census Bureau to complete preparations for the 1980 decennial census. Emphasis will be placed on the evaluation and the adoption of new techniques aimed at improving the completeness of the population count, particularly among minority groups, where the census has tended to undercount. The 1979 budget requests funding to assure the maintenance of basic scientific and engineering competency at the National Bureau of Standards. In addition, funds are being requested to study the feasibility of establishing a cooperative technology program to assist in advancing the technological level of certain U.S. industries.

Taz expenditures.—The largest tax expenditure broadly related to business activity stems from preferential tax treatment of net longterm capital gains. A tax expenditure of $18.5 billion in 1979 has been estimated on the basis of current law. The combined effect of reduced tax rates plus the reform proposals to repeal the alternative tax on capital gains for individuals (25% on $50,000 of capital gains) and increase the minimum tax will reduce this tax expenditure to $15.9 billion. Under current law the tax expenditure for the 10% tax credit for investment in equipment would be $15.0 billion in 1979. The President has proposed a permanent extension of the 10% rate and an extension of the credit to investments in industrial and utility structures. The portion of tax liabilities that can be offset by this credit would be 90%, rather than the 50% that generally applies under current law. The resulting tax expenditure for 1979 will be $17.1 billion. Accelerated methods of depreciation for buildings would result in a tax expenditure of $605 million in 1979 under current law. The tax reform proposals would reduce this tax expenditure to $560 million. The use of shortened periods of time for the depreciation of equipment under the asset depreciation range system produces a tax expenditure of $2.7 billion in 1979. The deductibility of interest on consumer credit generates a $1.8 billion tax expenditure in 1979. Reduced rates of tax on the first $50,000 of corporate income assist all corporations; the small corporation is especially aided since the profits covered by the tax expenditure provision is a higher proportion of total profits than is the case with larger corporations. Estimated revenue losses to the Government, under current law, are $3.5 billion in 1979. The President has proposed that the tax rate on the first $50,000 of corporate income be reduced further from 20% to 18% on the first $25,000 and from 22% to 20% on the second $25,000. The related tax expenditure would increase to $4.2 billion in 1979.

Federal Financing Bank.-The Federal Financing Bank (FFB) provides for coordinated and more efficient financing of Federal and