for the self-employed and employees not covered by employer pension plans will result in an estimated tax expenditure of $1.8 billion in 1979. The administration is proposing new rules that would require tax-favored employer retirement plans integrated with social security benefits not to discriminate against lower compensated employees. Disabled persons benefit from the exemption from taxation of (1) disability insurance benefits under social security; (2) worker's compensation benefits; (3) sick pay; and (4) employer contributions to disability insurance plans. In 1979, these provisions are estimated to reduce individual income taxes by $0.5 billion, $0.8 billion, $0.1 billion, and $0.1 billion, respectively.

Federal employee retirement and disability insurance.—Outlays for Federal retirement and non-work-related disability insurance are estimated to increase from $10.5 billion in 1978 to $11.8 billion in 1979. These Federal programs are estimated to have 1.6 million beneficiaries in 1979. Military retirement is discussed under the defense national need.

The President has proposed that a commission be established to consider the civil service retirement system, other Federal retirement programs, State and local, and private pension plans. The interrelationships among public and private retirement survivor and disability systems and the implications of retirement issues for the future will be the major focus of the commission. Legislation for a 2-year Commission will be proposed. The work of this Commission will be closely coordinated with that of the Advisory Council on Social Security which will be appointed during the year.

The Department of Labor provides tax-free cash and medical benefits to Federal employees, or their survivors, for job-related injuries, illnesses, or deaths. Other Federal agencies subsequently reimburse the Department for payments made on behalf of their employees. Approximately 46,500 workers with long-term disabilities or their survivors are expected to receive monthly payments in 1978 and 49,000 in 1979. Another 97,000 in 1978 and 104,000 in 1979 are expected to have their regular pay continued for up to 45 days, mostly for short-term disabilities. Outlays are estimated to decline from $292 million in 1978 to $228 million in 1979 as reimbursements from other agencies increase.

Although Federal employment has been relatively stable for years, injury reports and costs continue to rise; for example, claims for longterm benefits have risen 52% in the last 3 years. To insure prompt claims processing and to minimize abuse and error, the Department of Labor is installing an automated case-management support system, reorganizing workload processing, and implementing recommendations of a departmental task force.

Unemployment compensation.—The mission of unemployment compensation is twofold. For individuals it provides support while those temporarily out of work search for a job. For the economy as a whole it supports aggregate purchasing power during slack periods by providing income to the unemployed. By 1979, some 97% of all wage and salaried employment in the United States will be covered by unemployment compensation. It is estimated that an average of 3.4 million workers per week will receive unemployment benefits during 1978, and 3.0 million in 1979, compared to 4.3 million in 1977. As the economy improves, outlays for unemployment compensation are projected to decline from $15.3 billion in 1977 to $12.4 billion in 1978 and $11.8 billion in 1979. The President's tax reduction proposals calls for a decrease in the Federal unemployment tax rate from 0.7% to 0.5% on January 1, 1979. This will reduce revenues by $600 million and budget authority by $200 million in 1979.

The Unemployment Compensation Amendments of 1976 provided for extension of the regular Federal-State unemployment insurance program to most of those previously not eligible for unemployment benefits, primarily State and local government employees and agricultural workers. On January 1, 1978, the temporary special unemployment assistance program, enacted in 1974 to pay benefits during the recession to such ineligible workers, will pay its last claim in the final week of June 1978. The Federal supplemental benefits program, also enacted in 1974 to pay additional weeks of benefits to covered workers who used up their full regular and extended benefits, will pay its last claim in the final week of January 1978.

In 1978, the National Commission on Unemployment Compensation will begin an evaluation of the entire unemployment compensation program, including railroad unemployment insurance, and the relationship of unemployment compensation to other programs.

Under current law, unemployment compensation benefits are excluded from income subject to Federal income taxes. The tax expenditure resulting from this provision is estimated to be $1.1 billion in 1979. The President's tax reform proposals would include unemployment compensation in income subject to tax for single taxpayers with annual income, including unemployment compensation, of $20,000, and for married couples filing joint returns with income of more than $25,000. The tax expenditure associated with the exclusion of unemployment compensation would be reduced to $0.9 billion and restricted to families and individuals with lower total incomes. This change will make tax liabilities more similar for those with similar incomes.

Public assistance and other income supplements.-This mission includes programs that provide cash, food, and shelter for people in need. Groups eligible for such aid include families with dependent

children, the aged, the blind, and the disabled. A major administration proposal—the program for better jobs and income-would consolidate some of the programs that fulfill this mission.

The program for better jobs and income.—The program for better jobs and income was proposed by the administration to reform the array of disparate, often conflicting welfare programs for the poor. There are three major components to the program: cash benefits, jobs, and the earned income tax credit. The cash component of the program, which would begin in July 1981, would establish Federal basic benefit levels for various categories of the poor, adjusted for family size, permit supplementation of benefits by the States, and provide fiscal relief to the States for welfare costs. The jobs component would provide improved programs to help those expected to work find unsubsidized jobs. Up to 1.4 million minimum wage full- and part-time jobs could be created. The jobs program would begin to build up well in advance of the implementation date of July 1981 for the cash benefits system. The earned income tax credit which would be expanded to provide tax relief not only to the poor, but also to the near poor, will take effect January 1982.

The present AFDC, supplemental security income, and food stamp programs would be consolidated into the cash benefits component of this reform proposal. The costs of the proposal, as well as the programs that would be consolidated into it, are shown in the following table.

ESTIMATED COSTS OF THE PROGRAM FOR BETTER JOBS AND INCOME 1 (In billions of dollars)

1981 1982

1983

7.8

6.6

Gross costs:

Cash...
Jobs ..-----
Earned income tax credit (EITC)--

26.0
9.9
3.0
(1.0)

26.8 11.1

Supplemental security income.—The supplemental security income (SSI) program, which replaced federally aided State assistance programs for the aged, the blind, and the disabled, provided $5.3 billion in Federal outlays in 1977. Benefits for this program are normally paid on the first of the month. Because October 1, 1978, falls on a Sunday, the October benefits will be paid 2 days early, and will occur in 1978 rather than 1979. As a result, Federal outlays are expected to decline from $6.0 billion in 1978 to $5.6 billion in 1979.

The high error rates associated with the program's initial years have been markedly reduced. The Department of Health, Education, and Welfare is moving to review management practices, target staff resources on error-prone cases, and extensively cross-check benefits provided by other benefit-paying programs. The Department intends to reduce further the number of errors and to promote program integrity without sacrificing equity or incurring substantial new program costs. Improved management techniques and policies will continue to be designed, tested, and refined in order to administer better the SSI program and gain valuable experience for administering the program for better jobs and income program.

Aid to families with dependent children.—The State and local programs of aid to families with dependent children (AFDC) are assisted through Federal grants to States for maintenance assistance. These public assistance programs provide cash benefits to needy households. Benefit levels are determined by the States, and the average monthly payment per family is estimated at $250 in 1978 and $261 in 1979. An estimated 11.0 million individuals, or 3.6 million families are expected to receive benefits in 1979. Outlays are expected to rise to $6.8 billion in 1979, compared to $6.7 billion in 1978. The growth in these costs is due to a projected increase in the average benefit payment, augmented by a small increase in the number of recipients. The Department of Health, Education, and Welfare is working closely with the States in a quality control effort to reduce errors and abuses in the program. In addition, child support payments are being collected from parents who are legally liable for such support. This effort results in a decrease in Federal, State, and local AFDC expenditures. Total collections are anticipated to be $600 million in 1979, compared to $525 million in 1978. Legislation is pending that would make the AFDC income allowed for work-related expenses more uniform among the States and reduce possible abuse of this disregard. Legislation is proposed to double Federal support for AFDC programs in the territories of Puerto Rico, Guam, and the Virgin Islands, to permit the provision of child support enforcement services to certain non-AFDC cases, to expand and revise the emergency assistance program to help low income persons better meet energy and other emergencies, and to eliminate interstate incentives payments in the child support enforcement program which are cumbersome to administer. In 1978, $187 million in outlays will be paid to the State on a one time basis to provide them fiscal relief for welfare payments. Future fiscal relief for welfare costs is proposed in the better jobs and income program.

Food stamps.-The food stamp program was designed to assure needy families an opportunity to purchase food for an adequate diet and to strengthen the agricultural sector of the economy. Outlays are estimated to be $5.7 billion in both 1978 and 1979. Beneficiaries in those years are expected to be 17.7 million and 18.0 million, respectively. The Food Stamp Act of 1977 tightens eligibility requirements and eliminates those households with the highest incomes, improves access to the program by those in need, deters fraud, and simplifies program operations. Major features of the new legislation include: • the reduction of food stamp net income limits to the poverty line; • the elimination of the food stamp purchase requirement; • the replacement of most itemized deductions with a standard deduction; tightening of work requirements; disqualification of persons who have committed fraud; and • several provisions aimed at reaching more of the low-income elderly. In 1981 the food stamp program will become part of the proposed program for better jobs and income.

School lunch and other nutrition programs.-This complex and overlapping array of food programs began in the early 1940's as price support and surplus commodity distribution programs. Outlays are estimated to total $3.5 billion in 1979.

The current child nutrition programs will be continued, with legislative modifications designed to target future increases in Federal spending more on needy children and needy areas. Included is a proposal to modify the cost-of-living increases for subsidies to children from nonneedy families. The legislation also will mandate operation of the school breakfast program in schools with a substantial percentage of needy children.

The administration will propose a major expansion of the special supplemental food program for women, infants, and children (WIC). Evidence indicates that this program is having marked success in reducing anemia and the incidence of low birth-weight infants. Therefore, as a part of the administration's commitment to assuring the