ECONOMIC ASSUMPTIONS AND LONG RANGE BUDGET PROJECTIONS This part of the budget discusses the long-range budget outlook and the economic assumptions underlying that outlook. The first section presents economic assumptions for calendar years 1975 through 1980 and explains the nature of these assumptions. The second section examines the budget outlook for the period 1976 through 1980, presenting projections of outlays by function and agency and projections of receipts by major source. The outlay and receipts projections are shown on both actual and full-employment bases. ECONOMIC ASSUMPTIONS There is a two-way relationship between the economy and the budget. Economic conditions can strongly affect the budget, and the budget, in turn, significantly influences economic conditions. Both the tax structure and budget outlays can have a major effect on national output, employment, and inflation. At the same time, outlays for many Federal programs are directly linked to developments in the economy, and this linkage has become increasingly strong in recent years. For example, most retirement and other social insurance benefit payments are now tied by law to cost-ofliving indices. Medicare and medicaid outlays are affected directly by the price of medical services. Interest on the debt is linked to interest rates and the size of the budget surplus or deficit, which in turn are influenced by economic conditions. To the extent that outlays rise automatically in response to inflation, of course, the budget is less effective in counteracting inflationary pressures than it would be if these linkages did not exist. Another type of linkage to economic events is shown by outlays for unemployment benefits, which rise and fall with the unemployment rate. Also, budget receipts vary in accordance with individual and corporate incomes, which respond to both real economic growth and inflation. Thus, receipts and unemployment benefits serve as "automatic stabilizers" for the economy by both restraining inflation and cushioning economic downturns. The Congressional Budget and Impoundment Control Act of 1974 takes into account the interrelationships between the budget and the economy. This act requires that the Congress set forth in a concurrent resolution "the amount, if any, of the surplus or deficit in the budget which is appropriate in light of economic conditions and all other "To relevant factors . . ." To assist the Congress in determining the appropriate surplus or deficit, the act requires that a "current services" budget for the fiscal year ahead be submitted on or before November 10 of each year and that it be accompanied by the economic assumptions on which its estimates are based. These assumptions are not required to be included in this budget but are being presented here in order to provide Congress and the public with information that may be helpful in understanding and assessing the budget estimates and long-range projections. The short-term economic assumptions presented in this section have been developed in quite different ways from the longer run assumptions: • The assumptions for calendar years 1975 and 1976 are forecasts of probable economic conditions during these years. • The longer range assumptions for the period 1977 to 1980 are not forecasts of probable economic conditions, but rather projections consistent with moving gradually toward relatively stable prices and maximum feasible employment. $839 $821 $794 $832 Gross national product: Current dollars: Amount.. Percent change.... Constant (1958) dollars: Amount.. Percent change... $1,295 $1,397 $1,498 $1,686 $1,896 $2,123 $2,353 $2,606 11.8 7.9 7.2 12.6 12.4 12.0 10.8 10.8 Incomes (current dollars): Wages and salaries.. Corporate profits... $1,055 $1,150 $1,232 $1,365 $1,536 $1,717 $1,900 $2,102 $999 $1,117 $1,236 $1,367 $163 $185 $208 $233 Prices (percent change): Consumer Price Index.... Unemployment rates (per cent): Insured unemployment as a percentage of covered employment; includes unemployed workers receiving extended benefits. Average rate on new issues within period; the rate shown for 1975 was the current market rate at the time the estimates were made. The table above shows assumptions for the major economic factors related to the budget: gross national product (in both current and constant dollars), personal income, wages and salaries, corporate profits, the GNP deflator, the Consumer Price Index, unemployment rates, Federal employees' pay raises, and interest rates. For 1976, the application of these economic assumptions to program estimates has been modified by the proposed 5% ceiling on increases in Federal employees' pay and in benefit payments to individuals. More detailed assumptions on which estimates for particular programs are based can be provided by the agencies responsible. LONG RANGE BUDGET PROJECTIONS The effects of current decisions extend beyond the budget year. They establish program trends that help to shape the size and composition of budgets for years into the future. Just as the composition and level of the 1976 budget have been largely determined by past decisions, so, too, the decisions and proposals it embodies will strongly affect subsequent budgets. The budgets for the last 5 years have emphasized the longer range implications of current decisions by presenting 5-year projections of Federal outlays and receipts. In the 1973 budget, detailed 5-year projections of the costs of legislative proposals for major new and expanded programs were added. The last 2 budgets have also presented detailed previews of the succeeding year's budget. In accordance with the Congressional Budget and Impoundment Control Act of 1974, this budget presents projections for each of the years 1976 through 1980, and for the 3-month transition quarter between fiscal years 1976 and 1977. The projections for 1976 and the transition quarter are identical to the budget estimates for these periods. Nature of the projections.—The receipts projections presented below are consistent with the foregoing economic assumptions, assuming continuation of current tax laws as modified by the proposals contained in this budget. The outlay and budget authority estimates indicate the degree to which resources would be committed by the continuation of existing and currently-proposed programs at the program levels recommended for 1976. These projections are not intended as forecasts of future receipts, outlays, or budget authority, because no attempt is made to predict future decisions or their effects. Nor are the projections intended as recommendations, since the continuation of Federal programs and taxes is a matter properly subject to continuous review in light of changing conditions. |