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The deficit expected for 1979 and the other factors noted in the preceding table are estimated to increase the Federal debt held by the public to $690.8 billion by the end of that year.
Gross Federal debt is the sum of the debt held by the public and the debt held by the Government itself, such as the investments of Treasury debt by the social security trust funds. The Federal funds deficit is the principal determinant of changes in gross Federal debt, but deficits of off-budget Federal entities also have an important effect.
Gross Federal debt is estimated to rise from $785.6 billion on September 30, 1978, to $873.7 billion on September 30, 1979. As indicated in the lower section of the table on "Budget Financing and Change in Debt Outstanding,” $15.1 billion of this increase will be held by trust funds and other Federal agencies, reflecting mainly the investment of trust fund surpluses in Treasury debt.
The gross Federal debt consists almost entirely of securities issued by the Treasury Department. However, a few Government agencies are authorized to issue their own debt instruments to the public or to other Government agencies and funds. This borrowing is part of the gross Federal debt. At the end of 1977 the outstanding debt of such agencies that was held by the public was $10.3 billion. This debt is expected to fall by small amounts in 1978 and 1979 due to the operations of the Federal Financing Bank, which buys most new issues of agency debt and finances its purchases through Treasury borrowing. To prevent double counting, these holdings are not included in gross Federal debt. Consequently, the change in agency debt is largely determined by the repayment of securities that have matured.
Almost all Treasury debt issues are covered by a statutory debt limit, but most borrowing by Federal agencies other than the Treasury is excluded from this limit. The ceiling on the debt subject to limit is $752 billion through March 31, 1978. To permit the Federal Government to meet its obligations, this ceiling will have to be extended and raised.
Debt subject to the general statutory limit is somewhat less than gross Federal debt, primarily because of the agency debt excluded from the general statutory limitation. Both debt concepts include internally held debt, such as social security trust fund holdings of Treasury debt securities. At the start of 1978 internally held debt was $157.3 billion. Thus, debt held by the public was much less than debt defined by either of the other two concepts.
Since trust fund surpluses for the most part are invested in debt securities included within the general statutory limit, the Federal
funds deficit and the deficit of the off-budget Federal entities are the main factor requiring increases in the debt subject to the statutory limit. The Federal funds deficit in 1979 is estimated to be $74.5 billion, and the deficit of the off-budget Federal entities is estimated to be $12.5 billion. As shown in the following table, these two factors will account for most of the increase in the debt subject to limit.
FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO LIMIT
[In billions of dollars]
Decrease or increase (-) in Federal funds and off-budget entity
investments in Federal debt..---Increase or decrease (-) in Federal funds and off-budget entity
debt not subject to limit.-
Total, requirements for borrowing subject to debt limit.--
Change in debt subject to limit...
*$50 million or less.
A substantial part of the Federal funds deficit—and, therefore, a substantial part of the growth in debt subject to limit—is associated with transactions between Federal funds and trust funds. These transactions consist primarily of Federal funds payments to trust funds: interest paid on Treasury debt issues held by trust funds; the
employer share of employee retirement, the Federal payment to finance the unfunded liability of the civil service retirement fund; and other payments, mainly to social insurance trust funds—such as the Federal Government's contribution for supplementary medical insurance. The trust fund payments to Federal funds are relatively small.
BUDGET SURPLUS OR DEFICIT (-) BY FUND GROUP 1
[In billions of dollars)
1 For purposes of this analysis, payments from Federal funds to the general revenue sharing trust fund are treated as transactions with the public instead of transactions with a trust fund; and the corresponding payments from the general revenue sharing trust fund to the public are accordingly omitted. This is because the general revenue sharing trust fund has no independent source of funding, and serves only as a channel through which a Federal funds payment is made to the public.
* Includes some incidental transactions with off-budget Federal entities.
From 1967 through 1977, the cumulative Federal funds deficit was $352.3 billion, of which $158.4 billion was attributable to transactions with trust funds and the remaining $ 193.9 billion was attributable to transactions with the public. A significant Federal funds deficit can occur, as was the case in 1969, when there are surpluses in the unified budget and in the transactions of the Federal funds with the public. The relevant figures for 1977 through 1979 are shown in the table above.
In the early 1960's gross Federal debt was well over 50% of GNP, and debt held by the public was well over 40%. Since that time, however, the proportion of both declined more or less steadily through 1974. Because of the large deficits resulting from the recent recession and its aftermath, gross Federal debt as a proportion of GNP has risen slightly from about 36% in 1974 to our estimated 38% in 1979, while debt held by the public has risen from 25% to 30% over the same time span. Even so, the proportion of both gross debt and debt held by the public are estimated to remain nearly constant from 1977 through 1979.
This section of the budget explains, for major programs that have relatively uncontrollable outlays, the differences between their actual 1977 outlays and the amounts estimated in the 1977 budget, which was transmitted to the Congress in January 1976. It also explains
differences between actual receipts and the original estimate of receipts. These reconciliations are required by section 601 of the Congressional Budget Act of 1974.
Reconciliation of actual and estimated outlays that are relatively uncontrollable.—Outlays are defined as relatively uncontrollable in any one year when the President's decisions in that year can neither increase nor decrease them without a change in substantive law. That is, under existing law these outlays depend generally upon factors that are beyond administrative control, such as benefit payments to which beneficiaries are entitled by law or contractual agreements or other currently legally binding commitments that have already been made.
The amounts estimated in the budget for relatively uncontrollable outlays may differ from the actual outlays for a number of reasons. For example, legislation may change benefit rates or coverage; the number of beneficiaries under a program may differ from the number estimated; and economic conditions (such as the interest rates required for Federal borrowing) may differ from what was assumed in developing the outlay estimates.
The January 1976 estimate of uncontrollable outlays did not include the outlay effect of legislation then being proposed. This is a standard practice consistent with the definition of uncontrollable outlays stated above. Where legislation was enacted that significantly affected relatively uncontrollable outlays in 1977, it is identified in the discussion below.
The following table shows the differences between actual outlays for relatively uncontrollable programs in 1977 and the estimated amounts shown in the 1977 budget. The list of such programs in these tables is consistent with Table 14 (Controllability of Budget Outlays) in Part 9 of this year's budget.
As the following table shows, actual 1977 outlays for relatively uncontrollable programs were $9.7 billion lower than originally estimated. Open-ended programs and fixed costs were $1.8 billion below the original estimate for 1977. Open-ended programs and fixed costs consist mainly of benefit programs, grants, and subsidies for which eligibility is automatic or fixed by law; interest payments; and payments for the legislative and judicial branches, which the President must—by law—include in the budget as submitted and without change. Outlays from prior-year contracts and obligations were $7.9 billion below the original estimates.