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The Federal land banks and Federal home loan banks had both become entirely privately owned a number of years before the unified budget was adopted and therefore have always been excluded. The Federal National Mortgage Association, the Banks for cooperatives, and the Federal intermediate credit banks became wholly privately owned by repaying their Federal equity capital during 1969 and were accordingly removed from the budget. The Federal Home Loan Mortgage Corporation and the Student Loan Marketing Association were subsequently established with full private ownership.

The Government-sponsored enterprises were all created to carry out loan programs, either lending their funds directly for specifically authorized purposes or buying loans originated by the private group that they were established to assist. Their loans primarily support housing but also support agriculture and higher education. As shown in the preceding table, the outlays of the privately owned, Governmentsponsored enterprises have grown considerably—from relatively small amounts in the early 1960's to an average of $9.5 billion (equal to 2.9% of budget outlays) during 1973–77, when more Governmentsponsored enterprises had been established outside the budget. In 1979 these enterprises are expected to spend $14.8 billion, an amount equal to 3.0% of budget outlays in that year.

Guaranteed loans.—Government-guaranteed loans are loans for which the Government guarantees the payment of the principal or interest in whole or in part. Loan guarantees constitute contingent liabilities. They generally do not result in budget outlays except in the case of default.

Loan guarantees are designed to allocate economic resources toward particular uses by providing credit at more favorable terms than would otherwise be available in the private market. The major use of guaranteed loans is to support housing, but in recent years guarantees have increasingly been used for other purposes. The effect of guaranteed loans on the economy is difficult to assess. Some portion of the private loans that are guaranteed would have been made without the guarantee, and those private loans that would not otherwise have been made tend to divert credit away from other economic activities.

Guaranteed (or insured) loans have diverse characteristics. The loan may be made to individuals, businesses, State and local governments, or foreign governments. The guaranteed obligation may be a loan made by a bank or other institutional lender, it may be a security sold in the capital market, or it may be a security sold to the Federal Financing Bank. The guarantee may be full or partial, and in some programs it

may be supplemented by other explicit subsidies or other forms of assistance.

guaranteed. The figures include the full amount of all loans guaranteed (whether guaranteed in whole or in part), in billions of dollars:

TQ 1977 1978 1979 actual actual estimate estimate Guaranteed loans outstanding---------------------- 169.9 183.9 200.4 223.6 Net loans guaranteed----------------------------- —. 1 14.1 16.5 23.2 Gross loans guaranteed---------------------------- 8.4 40.9 44.7 53.4

This table suggests the importance of guaranteed loans. The amount outstanding held by the public is large and growing each year. Gross loans, which measure the total new activity that occurs each year, are much larger than the change in loans outstanding, primarily because of the repayment of old loans. In addition to the $53.7 billion increase in guaranteed loans held by the general public during 1977–79, the total held by the Federal Financing Bank (FFB) and other Federal agencies is estimated to increase by $30.0 billion; whereas the total held by Government-sponsored enterprises is estimated to decrease by $1.8 billion. These amounts are reflected in the outlays of the FFB, other Federal agencies, and Government-sponsored enterprises that buy these loans. When the FFB buys newly issued guaranteed loans (except loan assets), the guaranteed loans are in effect converted into direct Federal loans outside the budget.”

Since guaranteed loans are outside the budget, they are not subject to the same degree of review and control as budget outlays. The authorizing statutes for half or more of the guarantee programs impose a ceiling on the amount of guaranteed loans outstanding, but the limits imposed at one time are usually designed to meet several years of requirements at once. Plans for guarantees are generally reviewed annually in the course of reviewing the budget and personnel requests of the administering agencies, but annual limits usually are not set. Except when explicit subsidies or capital for reserve funds must be appropriated, limits on guarantees are not imposed, directly or indirectly, through the Appropriations Committees of the Congress. Similarly, the Senate and House Budget Committees do not scrutinize the total amount of guaranteed loans in developing their concurrent budget resolutions, and the concurrent budget resolutions do not include a target or ceiling for guaranteed loans as they do for budget outlays and budget authority.

Consequently, the Federal Government does not have any systematic mechanism to consider the resource allocation implied by its loan guarantee plans or to judge whether it makes or guarantees a reasonable share of the Nation's total credit transactions. In order for the Government to influence efficiently the allocation of economic resources and the behavior of financial markets and the economy as a whole, it must exercise control over guaranteed loans as well as over direct loans and other outlays. As discussed in Part 2, the administration will soon propose a set of executive and congressional procedures that would apply budget-type controls to Federal lending programs for guaranteed lending and direct lending alike.

The major loan guarantee programs are discussed by function in Part 5 of the Budget. Guaranteed loans are analyzed further together with other types of credit assistance in Special Analysis F, “Federal Credit Programs.” “

Taxation and tax expenditures.—Taxation affects the economy not only by providing the Government with receipts but also by changing the allocation of resources among private uses and the distribution of income and wealth among individuals. These changes are caused by the structural characteristics of each of the different taxes—for example, the rate schedules, exemptions, deductions, and exclusions of the individual income tax—and by the relative size of the different taxes. The effects of taxation on resource allocation and income distribution are analogous to the effects of outlays, but they are not measured in budget receipts or outlays. Some aspects of taxation, called “tax expenditures,” receive special attention in the budget. Tax expenditures are defined as revenue losses under the individual and corporation income taxes that are attributable to a special exclusion, exemption, or deduction from gross income or to a special credit, preferential tax rate, or deferral of tax liability. Tax expenditures are one means by which the Federal Government pursues its objectives and in most cases can be viewed as alternatives to other instruments of Government policy such as outlays, loan guarantees, regulations, and other provisions of the tax law. The objectives of tax expenditures are varied. Nearly all are intended either to encourage particular economic activities or to reduce the tax liabilities for taxpayers in special circumstances. Among the economic activities encouraged are investment, homeownership, State and local government borrowing, and support of charities; among the persons with reduced tax liabilities are the aged, the unemployed, and those with high medical expenses. Tax expenditures ordinarily result from permanent legislation and therefore, unlike much of the budget, are not submitted to the Congress each year and do not receive a formal and annual systematic review. Tax expenditures have, nonetheless, been systematically reviewed during the past year in preparation for the administration's current program of tax reform, as have other provisions of tax law. Under the Congressional Budget Act of 1974 the estimated levels of tax expenditures are required to be presented each year in the budget that the President submits to the Congress and in the reports of the Senate and House Budget Committees on the proposed congressional budget resolutions. This is intended to encourage regular examination of tax expenditures by the Congress, the rest of the Government, and the public. The provisions of the income tax law other than those that result in tax expenditures—although likewise affecting the allocation of resources and the distribution of income—do not receive either an annual, systematic review or this kind of presentation; nor do other taxes besides the individual and corporation income taxes. The classification of certain provisions of law as resulting in tax expenditures requires some standard against which the law can be compared. Deviations of the law from this standard are deemed to cause tax expenditures. The standard used for the individual income tax includes those provisions that exist under current law for graduated rate schedules, personal exemptions, standard deductions, and other means of establishing the income levels at which tax liabilities begin. Thus, by definition, these characteristics of the tax structure do not generate tax expenditures. However, selecting a standard of comparison depends on normative judgments about what is appropriate. A different standard might exclude personal exemptions and standard deductions and thereby classify these provisions as resulting in tax expenditures; or it might integrate the individual and corporation income taxes, in which case the lack of integration under current law could be thought to produce a gain in receipts and thereby a negative tax expenditure. The provisions of tax law that are not defined as resulting in tax expenditures deserve as much scrutiny as the provisions that are, since both types of provision have the same kinds of economic effects, and since a different normative judgment might change the classification of what is considered to result in a tax expenditure. Tax expenditures are presented at two places in the Budget. Part 5 of the Budget, “Meeting National Needs: the Federal Program by Function,” discusses the most important tax expenditures in each functional category, together with outlays and guaranteed loans, in order to describe more fully the effects of governmental policy toward meeting each national need. Special Analysis G, “Tax Expenditures,” discusses the concept of tax expenditures, presents a complete list of tax expenditure estimates for individuals and corporations in 1977–79,