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[In billions of dollars]

[blocks in formation]


1 350.7



23.4 1-17.8

*$50 million or less.

Revised to treat carned income credit payments in excess of the tax liability other wise owed as tax refunds instead of outlays.

employment tax receipts. The remainder of the underrun in social insurance receipts is accounted for by a shortfall in unemployment tax receipts of $0.8 billion that was only partially offset by $0.2 billion more than anticipated in contributions for other insurance and retirement accounts. Proposed increases in the unemployment insurance tax rate, from 0.5% to 0.65%, and base, from $4,200 to $6,000 (both to become effective January 1, 1977), had been expected to increase unemployment tax receipts by $2.1 billion. However, the Unemployment Compensation Amendments of 1976, which increased the unemployment insurance tax rate from 0.5% to 0.7% effective January 1, 1977, and did not increase the tax base until January 1, 1978, increased unemployment tax receipts by only $0.3 billion. This net decrease in unemployment tax receipts of $1.8 billion was partially offset by higher than anticipated State taxes deposited in the Treasury to finance unemployment benefits.

An increase in estate and gift taxes of $1.5 billion largely reflects accelerated gifts in calendar year 1976 that were made in response to certain provisions of the Tax Reform Act of 1976.

Excise taxes in 1977 were $0.3 billion below the 1977 budget estimate, while customs duties were $0.8 billion higher.

A shortfall in 1977 miscellaneous receipts of $0.7 billion is in large part due to a $0.3 billion overestimate of deposits of earnings by the Federal Reserve System and a $0.3 billion overestimate of import fees on crude oil and petroleum products.

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The budget system of the U.S. Government is based upon a structure for financial administration that has as objectives the efficient management of programs in relation to the requirements of the Nation and effective financial control.


The budget process has four main phases: (1) executive formulation and transmittal; (2) congressional action; (3) budget execution and control; and (4) review and audit. Each of these phases interrelates with and overlaps the others.

Executive formulation and transmittal.-The budget sets forth the President's financial plan of operation and thus indicates his priorities for the Federal Government during the coming year. The President's transmittal of his budget to the Congress early in each calendar year is the climax of many months of planning and analysis throughout the executive branch. Formulation of the 1979 budget began in the spring of 1977, although tentative goals for some programs were set earlier. The 1979 budget was the first prepared using zero-base budgeting (ZBB), a management process that provides for systematic, in-depth consideration of all programs and activities in conjunction with planning, budgeting, and evaluation.

During the period when a budget is being formulated in the executive branch, there is a continuous exchange of information, proposals, evaluations, and policy decisions among the President, the Office of Management and Budget (OMB), and the various Government agencies. Decisionmaking in the budget process is facilitated by the adoption of the zero-base approach.

In the spring, agency programs are evaluated, policy issues are identified, and budgetary projections are made, giving attention both to important modifications and innovations in programs and to alternative long-range program plans. These budgetary projections, including projections of estimated receipts prepared by the Department of the Treasury, are then presented to the President for his consideration, and the major issues are discussed. About the same time, the President receives projections of the economic outlook that are prepared jointly by the Council of Economic Advisers, the Department of the Treasury, and OMB.

Following a review of these projections, the President establishes general budget and fiscal policy guidelines for the fiscal year that will begin about 15 months later—and, beginning this year, for 2 years beyond. Tentative policy decisions and planning ceilings are then given to the agencies to govern the preparation of their budgets.

Throughout the fall and early winter the executive branch is involved in the development of the President's budget. One feature of this process involves preparation of the current services estimates, which are required by the Congressional Budget Act. These estimates are projections of budget authority and outlays required to continue Federal programs and activities in the upcoming fiscal year without policy changes from the fiscal year in progress at the time the estimates are submitted. The current services estimates are intended to provide a basis for review of the President's budget. These estimates are required to be submitted by November 10 in order to provide the Congress with early information on projected costs of current programs. However, when the current services estimates are transmitted approximately 3 months before the President's budget, the economic assumptions underlying them are likely to be different from those in the budget because of changes in the economy during the intervening period. Therefore, this year, the Appropriations, Budget, and Joint Economic Committees have agreed to a 1-year experiment in which the current services estimates are transmitted with the President's budget, and therefore, are based upon the same economic assumptions.

The primary budget process involves the preparation of the President's budget for transmittal to the Congress. This process involves a detailed OMB review of agency zero-base budget requests. These requests and OMB's recommendations on them are presented to the President for decision and are subsequently discussed with the agencies along with the President's final decisions. Overall fiscal policy issues—relating to total budget outlays and receipts—are again examined. The effects of budget decisions on outlays in the years that follow are also considered and are explicitly taken into account. Thus, the budget process involves the simultaneous consideration of the resource needs of individual programs, and the total outlays and receipts that are appropriate in relation to current and prospective economic conditions. The budget reflects the results of both of these considerations.

Congressional action.—The Congress can act as it wishes on the President's budget proposals. It can change programs, eliminate them, or add programs not requested by the President. It can increase or decrease the amounts recommended by the President to finance

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