Reducing the Budget Deficit: The President’s Fiscal Commission and Other Initiatives

Mindy R. Levit
Analyst in Public Finance

The federal budget is on an unsustainable path. Though deficit levels are currently elevated, they are expected to fall towards the middle part of the decade as the economic recovery continues. Looking beyond this decade, however, the country’s fiscal outlook becomes more bleak as spending on programs like Social Security, Medicare, and Medicaid, and net interest are projected to consume a larger portion of the total federal budget.

Budget policy debates thus far in the 112th Congress have centered on how to achieve meaningful deficit reduction and implementation of a plan to stabilize the federal debt. Various views and opinions exist about how to improve the long-term fiscal outlook, specifically centered around which programs should be prioritized or sacrificed. Delays in taking corrective action will exacerbate the size of the changes that need to be made. At the extreme, if no actions are taken, the United States risks a significant economic crisis and the government may be limited in its ability to address these challenges.

Any choices that are made to address the budgetary imbalances have important economic, social, and generational impacts in the present and the future. In order to undertake any substantive changes to the federal policies and programs, sacrifices to favored programs and increases in taxes will likely be required. The sacrifices made today are essential to minimizing the size of potential programmatic cuts or tax increases, reducing the probability of a future crisis, and ensuring an improved standard of living for future generations.

A number of groups have published reports detailing possible ways that the country can put itself on a more sustainable fiscal path. Though the fiscal reform plans differ, they all have several things in common. They recommend that implementation of their plans largely begin in FY2012, with the goal of stabilizing the debt at 60% of GDP near the end of the decade. Over the longerterm, they all provide plans to reduce this ratio further. Some of the reports focus on specific policy options that are available, while others focus on issues of accountability and transparency in the budget process. Some plans also recommend implementing additional, immediate shortterm stimulus that would increase the deficit before calling for deficit reduction. In addition, other groups, including the Senate “Gang of Six” and a new group comprised of Members of Congress and led by Vice President Biden, are formulating additional bipartisan deficit reduction proposals.

President Obama created a bipartisan fiscal commission tasked with putting the nation on a sustainable fiscal path. The commission had two main goals: balancing the budget excluding net interest payments by FY2015 and examining ways to achieve fiscal sustainability over the long run. The Fiscal Commission’s final report contained recommendations that would 1) reduce the deficit by a combined $4 trillion by FY2020; 2) lower the budget deficit to 2.3% of GDP by FY2015; 3) reduce tax rates and tax expenditures; 4) cap revenue collection at 21% of GDP; 5) ensure the solvency of Social Security; and 6) reduce the federal debt to 60% of GDP by FY2023 and 40% by FY2035. In order to achieve these savings, the plan includes cuts to both security and non-security discretionary programs, health care cost containment, additional mandatory savings through cutting agriculture subsidies and the civil service retirement system, Social Security reforms, comprehensive tax reform, and budget process changes.

This report discusses why the federal government’s fiscal path is unsustainable and provides an overview of proposals of selected groups that have published detailed recommendations on how to return the federal budget to a sustainable course.


Date of Report: May 13, 2011
Number of Pages: 23
Order Number: R41784
Price: $29.95

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Commerce, Justice, Science, and Related Agencies: FY2012 Appropriations

Nathan James, Coordinator
Analyst in Crime Policy

Oscar R. Gonzales, Coordinator
Analyst in Economic Development Policy

Jennifer D. Williams, Coordinator
Specialist in American National Government

This report provides an overview of actions taken by Congress to provide FY2012 appropriations for Commerce, Justice, Science, and Related Agencies (CJS) accounts.

On April 15, 2011, President Obama signed into law the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10). The act provides a total of $61.092 billion for agencies and bureaus funded as a part of the annual appropriation for CJS. The $61.092 billion provided by the act includes $7.578 billion for the Department of Commerce, $27.281 billion for the Department of Justice, $25.314 billion for the science agencies, and $917.9 million for the related agencies.

For FY2012, the Administration requests a total of $64.93 billion for the agencies and bureaus funded as part of the annual CJS appropriations bill. The FY2012 request is $3.839 billion, or 6.3%, more than the FY2011-enacted amount of $61.092 billion. The proposed reduction in overall funding for CJS is almost entirely attributable to the Administration requesting nearly $6.3 billion less for the Census Bureau because the 2010 decennial census is complete. The Administration’s FY2012 request includes $8.761 billion for the Department of Commerce, $28.68 billion for the Department of Justice, $26.498 billion for the science agencies, and $991.4 million for the related agencies.

The sources for the FY2011-enacted amounts are based on a CRS analysis of the text of P.L. 112- 10. All FY2011-enacted amounts reflect changes made to CJS accounts in Title III of Division B of the act along with the 0.2% across-the-board rescission of budget authority for any discretionary account in Division B of the act. The calculated amounts presented below also assume that any offsetting receipts, unless specified in the act, are at FY2010 levels. The sources for the FY2010-enacted amounts are S.Rept. 111-229 and the United States Patent and Trademark Office Supplemental Appropriations Act, 2010 (P.L. 111-224). The sources for the FY2012 requested amounts are the FY2012 budget justifications of the Department of Commerce, Department of Justice, Office of Science and Technology Policy, National Aeronautics and Space Administration, and National Science Foundation and the appendix to the Administration’s Budget of the United States Government, FY2012.


Date of Report: May 12, 2011
Number of Pages: 53
Order Number: R41721
Price: $29.95

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Social Security Administration (SSA): Budget Issues

Scott Szymendera
Analyst in Disability Policy

The Social Security Administration (SSA) administers the Old Age and Survivors Insurance (OASI), Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and Special Benefits for Certain World War II Veterans programs that affect the lives of nearly every American family. These programs pay out over $800 billion in annual federal benefits. Program benefit costs are considered mandatory spending not subject to annual appropriations.

The SSA requires annual discretionary appropriations to administer these programs and to provide support to the Medicare and Medicaid programs. The President’s FY2012 budget request for SSA administrative expenses, referred to as the limitation on administrative expenses (LAE) account, is $12.6 billion.

This report provides an overview of the SSA’s mandatory spending but largely focuses on discretionary appropriations for the agency’s administrative expenses. The size of the annual appropriations for administrative expenses affects the agency’s ability to effectively administer the SSA’s benefit programs as well as conduct program integrity activities designed to ensure that only eligible persons receive federal benefits.

The agency has made progress in recent years in reducing the backlog of pending disability cases and reversing the trend in declining program integrity activities. However, the SSA rarely receives administrative funding equal to the President’s request or its own independent budget request, and this trend continues given the status of funding, via a series of continuing resolutions for FY2011. These extended continuing resolutions and LAE appropriations that are below the President’s budget request may make it difficult for the SSA to build on this progress.

For FY2011, the total SSA LAE appropriation is $11.4 billion, taking into account the 0.2% across-the-board rescission. In addition, $275 million was also rescinded from the SSA’s no-year ITS account.


Date of Report: May 19, 2011
Number of Pages: 16
Order Number: R41716
Price: $29.95

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Reducing the Budget Deficit: Tax Policy Options

Molly F. Sherlock
Analyst in Economics

Tax reform and deficit reduction are two issues being considered by the 112th Congress. In recent months, a number of groups have published various plans for tackling the nation’s growing deficits. Presently, the Senate “Gang of Six” and a new group comprised of Members of Congress and led by Vice President Biden are formulating additional bipartisan deficit reduction proposals.

This report analyzes various revenue options for deficit reduction, highlighting proposals made by the President’s Fiscal Commission and the Debt Reduction Task Force. Others, such as House Budget Committee Chairman Paul Ryan and the Obama Administration, have noted the importance of tax reform as part of a deficit reduction plans. These plans, however, do not provide the same level of detail as the Fiscal Commission and Debt Reduction Task Force, and are therefore not reviewed in detail as part of this report.

Large budget deficits, rising national debt, and the growth of entitlement spending have raised questions regarding fiscal sustainability in the United States. The Congressional Budget Office (CBO) predicts a FY2011 budget deficit of nearly $1.5 trillion, or 9.8% of gross domestic product (GDP). Over the past three decades, budget deficits have averaged 3% of GDP. Large budget deficits have contributed to an increased level of federal debt, relative to the size of the economy. Increased debt levels are expected to lead to increased federal interest payments. If not addressed, the current fiscal situation could undermine economic growth.

Reducing federal deficits will likely require reductions in spending, increased federal revenues, or some combination of spending cuts and revenue increases. Federal revenues in 2009 and 2010, relative to the size of the economy, were low by historical standards. Reduced federal collections may be partially attributable to the weak economy and the fiscal policy response. Historically low individual income tax collections may also be partially explained by the 2001 and 2003 tax cuts. Spending through the tax code, via tax expenditures, also reduces federal revenues. The use of tax expenditures may undermine economic efficiency and equity in the tax code.

The primary sources of federal revenues are individual income taxes, payroll taxes, corporate income taxes, and excise taxes. Additional income tax revenues could be raised with a broader tax base, which could be achieved by eliminating various exemptions, credits, and deductions. A broader tax base could also allow for lower tax rates, without a loss in federal revenues. Broadening the tax base could enhance the economic efficiency of the tax system.

There are other options for generating additional revenues outside of the current tax system. The federal government could raise revenues through additional consumption taxes, excise taxes, or by imposing a tax on carbon.

The President’s Fiscal Commission and the Debt Reduction Task Force took different approaches in the tax reform components of their fiscal sustainability plans. The President’s Fiscal Commission raised additional tax revenues primarily through comprehensive income tax reform. The Fiscal Commission chose to broaden the tax base, allowing for both lower tax rates and increased federal revenues. The Debt Reduction Task Force’s proposal also recommended individual income tax reform. The individual income tax reforms recommended by the Debt Reduction Task Force were designed to enhance efficiency and increase progressivity in the income tax system. Additional revenues in the Debt Reduction Task Force’s plan originate from the proposed 6.5% debt-reduction sales tax.


Date of Report: May 17, 2011
Number of Pages: 36
Order Number: R41641
Price: $29.95

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Reaching the Debt Limit: Background and Potential Effects on Government Operations

Mindy R. Levit, Coordinator
Analyst in Public Finance

Clinton T. Brass
Analyst in Government Organization and Management

Thomas J. Nicola
Legislative Attorney

Dawn Nuschler
Specialist in Income Security

Alison M. Shelton
Analyst in Income Security

The gross federal debt, which represents the federal government’s total outstanding debt, consists of two types of debt: (1) debt held by the public and (2) debt held in government accounts, also known as intragovernmental debt. Federal government borrowing increases for two primary reasons: (1) budget deficits and (2) investments of any federal government account surpluses in Treasury securities, as required by law. Nearly all of this debt is subject to the statutory limit. The federal debt limit currently stands at $14,294 billion.

Treasury has yet to face a situation in which it was unable to pay its obligations as a result of reaching the debt limit. In the past, the debt limit has always been raised before the debt reached the limit. However, on several occasions Treasury took extraordinary actions to avoid reaching the limit and, as a result, affected the operations of certain programs. If the Secretary of the Treasury determines that the issuance of obligations of the United States may not be made without exceeding the public debt limit, Treasury can make use of “extraordinary measures.” Some of these measures require the Treasury Secretary to authorize a debt issuance suspension period.

Treasury Secretary Geithner has issued several letters to Congress concerning the debt limit. In these letters, Treasury has stated that it has an ability to delay the date by which the current debt limit would be reached by utilizing similar methods used during past crises, including declaring a debt issuance suspension period, if necessary. According to Treasury, these actions could delay the date that the debt limit would be reached by several weeks. However, if the debt limit is not raised after that point, payment of other obligations and benefits would be “discontinued, limited, or adversely affected.” On May 2, 2011, Secretary Geithner stated that the debt limit would be reached no later than May 16, 2011 and that the use of extraordinary measures would extend Treasury’s ability to meet commitments through August 2, 2011. On May 16, 2011, Secretary Geithner notified Congress of the beginning of a debt issuance suspension period.

Under current estimates, the federal government will have to issue an additional $738 billion in debt above the current statutory limit to finance obligations for the remainder of FY2011. If the debt limit is reached and Treasury is no longer able to issue federal debt, federal spending would have to be decreased or federal revenues would have to be increased by a corresponding amount to cover the gap in what cannot be borrowed. To put this into context, the federal government would have to eliminate all spending on discretionary programs, cut nearly 70% of outlays for mandatory programs, increase revenue collection by nearly two-thirds, or take some combination of those actions in the second half of FY2011 (April through September 30, 2011) in order to avoid increasing the debt limit. Additional spending cuts and/or revenue increases would be required, under current policy, in FY2012 and beyond to avoid increasing the debt limit.

It is extremely difficult for Congress to effectively influence short-term fiscal and budgetary policy through action on legislation adjusting the debt limit. The need to raise (or lower) the limit during a session of Congress is driven by previous decisions regarding revenues and spending stemming from legislation enacted earlier in the session or in prior years. Nevertheless, the consideration of debt-limit legislation often is viewed as an opportunity to reexamine fiscal and budgetary policy. Consequently, House and Senate action on legislation adjusting the debt limit often is complicated, hindered by policy disagreements, and subject to delay.


Date of Report: May 18, 2011
Number of Pages: 23
Order Number: R41633
Price: $29.95

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