>From the web page
http://w3.access.gpo.gov/usbudget/fy2000/guidetoc.html

             A Citizen's Guide to the Federal Budget

              Budget of the United States Government
                        Fiscal Year 2000


Table of Contents

A Note to the Reader

1. What Is the Budget

2. Where the Money Comes From -- and Where It Goes
  * Revenues
  * Spending
  * "On" and "Off" Budget

3. How Does the Government Create a Budget?
  * The President's Budget
  * The Budget Process
  * Action in Congress
  * Monitoring the Budget

4. The Budget Surplus and Fiscal Discipline
  * Why a Budget Surplus in Important
  * Surplus and Debt
  * Returning the Budget to Surplus

5. The President's 2000 Budget
  * Investing in the Future
  * Improving Performance Through Better Management

Glossary

List of Charts and Tables

----------
A Note to the Reader

Next year, your Federal Government will spend nearly $1.8
trillion.

Needless to say, that's a lot of money. And the Government
spends it on lots of things - on programs as large and popular
as Social Security, and on activities as small and unknown as
repairs to the National Zoo. Together, these programs are what
make up the Federal budget.

How much do you know about the budget? If your answer is "not
much," you're not alone. In fact, hardly anybody knows
everything that's in the thousands of pages, and several books,
that make up the budget each year.

But we know you care a lot about how the Government spends your
money. That's why we created A Citizen's Guide to the Federal
Budget four years ago, and why we have published this fifth
edition. With it, we hope to make the budget more accessible and
understandable.

The Guide is designed to give you a walking tour of the budget.
In these pages, we will outline for you how the Government
raises revenues and spends money, how the President and Congress
enact the budget, why the budget deficit and Federal debt have
been problems, and what the President hopes to accomplish with
his 2000 budget.

After you read these pages, we hope that you will think the tour
was worth your time.

----------
1. What Is the Budget?

The Federal budget is:
  * a plan for how the Government spends your money.

What activities are funded? How much does it spend for defense,
national parks, the FBI, Medicare, and meat and fish inspection?
  * a plan for how the Government pays for its activities.

How much revenue does it raise through different kinds of taxes-
income taxes, excise taxes, and social insurance payroll taxes?
  * a plan for Government borrowing.

If revenues are greater than spending, the Government runs a
surplus. When there is a surplus, the Government can reduce the
national debt.
  * something that affects the Nation's economy.

Some types of spending-such as improvements in education and
support for science and technology-increase productivity and
raise incomes in the future.

Taxes, on the other hand, reduce incomes, leaving people with
less money to spend.
  * something that is affected by the Nation's economy.

When the economy is doing well, people are earning more and
unemployment is low. In this atmosphere, revenues increase and
the deficit shrinks.
  * an historical record.

The budget reports on how the Government has spent money in the
past, and how that spending was financed.

The 2000 budget is a document that embodies the President's
budget proposal to Congress for fiscal 2000, the fiscal year
that begins on October 1, 1999. It reflects the President's
priorities and proposes to protect the budget surplus until
Social Security is reformed.

The Federal budget, of course, is not the only budget that
affects the economy or the American people. The budgets of State
and local governments have an impact as well. While Federal
Government spending was a little less than 20 percent of the
Gross Domestic Product (or GDP, which measures the size of the
economy) in 1998, State and local governments spending was about
another nine percent (see Chart 1-1).

State and local governments are independent of the Federal
Government, and they have their own sources of revenue (taxes
and borrowing). But the Federal Government supplements State and
local revenues by making grants to them. Of the $989 billion
that State and local governments spent in 1998, $230 billion
came from Federal grants.

As shown in Chart 1-2, compared to six other industrialized
nations, the United States allocates the smallest share of its
GDP to government spending (Federal, State, and local combined).

----------
2. Where the Money Comes From -- and Where it Goes

In a typical American household, a father and mother might sit
around the kitchen table to review the family budget. They might
discuss how much they expect to earn each year, how much they
can spend on food, shelter, clothing, transportation, and
perhaps a vacation, and how much they might be able to save for
their future needs.

If they do not have enough money to make ends meet, they might
discuss how they can spend less, such as by cutting back on
restaurants, movies, or other entertainment. They also might
consider whether to try to earn more by working more hours or
taking another job. If they expect their shortfall to be
temporary, they might try to borrow.

Generally speaking, the Federal Government plans its budget much
like families do. The President and Congress determine how much
money they expect the Government to receive in each of the next
several years, where it will come from, and how much to spend to
reach their goals-goals for national defense, foreign affairs,
social insurance for the elderly, health insurance for the
elderly and poor, law enforcement, education, transportation,
science and technology, and others.

They decide how much spending they will finance through taxes
and how much through borrowing. They debate how to use the
budget to help the economy grow, or to redistribute income. And,
especially lately, they debate how to use the budget surplus to
address longer-term concerns and invest in the Nation's future.

In this chapter, we will discuss these decisions in some
detail-that is, how the Government raises revenues and where it
spends money.

Revenues

The money that the Federal Government uses to pay its bills-its
revenues- comes mostly from taxes. In 1998, revenues were
greater than spending, and the Government was able to reduce the
national debt with the difference between revenues and
spending-that is, the surplus.

Revenues come from these sources:
  * Individual income taxes will raise an estimated $900 billion
    in 2000, equal to about 10 percent of GDP.

  * Social insurance payroll taxes-the fastest growing category
    of Federal revenues-include Social Security taxes, Medicare
    taxes, unemployment insurance taxes, and Federal employee
    retirement payments. This category has grown from two
    percent of GDP in 1955 to an estimated seven percent in
    2000.

  * Corporate income taxes, which will raise an estimated $189
    billion, have shrunk steadily as a percent of GDP, from 4.5
    percent in 1955 to an estimated 2.1 percent in 2000.

  * Excise taxes apply to various products, including alcohol,
    tobacco, transportation fuels, and telephone services. The
    Government earmarks some of these taxes to support certain
    activities-including highways and airports and airways-and
    deposits others in the general fund.

  * The Government also collects miscellaneous revenues-e.g.,
    customs duties, Federal Reserve earnings, fines, penalties,
    and forfeitures.

Spending

As we have said, the Federal Government will spend nearly $1.8
trillion1, and have a surplus of over $117 billion in 2000,
which we divided into nine large categories as shown in Chart
2-6.
  * The largest Federal program is Social Security, which will
    provide monthly benefits to nearly 45 million retired and
    disabled workers, their dependents, and survivors. It
    accounts for 22 percent of your Federal dollar (or 23
    percent of all Federal spending).

  * Medicare, which will provide health care coverage for over
    almost 40 million elderly Americans and people with
    disabilities, consists of Part A (hospital insurance) and
    Part B (insurance for physician costs and other services).
    Since its birth in 1965, Medicare has accounted for an
    ever-growing share of spending. In 2000 it will comprise 11
    percent of your Federal dollar (or 12 percent of all Federal
    spending).

  * Medicaid, in 2000, will provide health care services to
    almost 34 million Americans, including the poor, people with
    disabilities, and senior citizens in nursing homes. Unlike
    Medicare, the Federal Government shares the costs of
    Medicaid with the States, paying between 50 and 83 percent
    of the total (depending on each State's requirements).
    Federal and State costs are growing rapidly. Medicaid
    accounts for six percent of your Federal dollar (also six
    percent of the budget).

  * Other means-tested entitlements provide benefits to people
    and families with incomes below certain minimum levels that
    vary from program to program. The major means-tested
    entitlements are Food Stamps and food aid to Puerto Rico,
    Supplemental Security Income, Child Nutrition, the Earned
    Income Tax Credit, and veterans' pensions. This category
    will account for an estimated six percent of your Federal
    dollar (also six percent of the budget).

  * The remaining mandatory spending, which mainly consists of
    Federal retirement and insurance programs, unemployment
    insurance, and payments to farmers, comprises six percent of
    your Federal dollar (also six percent of the budget).

  * National defense discretionary spending will total an
    estimated $275 billion in 2000, comprising nearly 15 percent
    of your Federal dollar (and 16 percent of the budget).

  * Non-defense discretionary spending-a wide array of programs
    that include education, training, science, technology,
    housing, transportation, and foreign aid-has shrunk as a
    share of the budget from 23 percent in 1966 to an estimated
    18 percent in 2000 (or 17 percent of your Federal dollar).

  * Interest payments, primarily the result of previous budget
    deficits, averaged seven percent of Federal spending in the
    1960s and 1970s. But, due to the large budget deficits that
    began in the 1980s that share quickly doubled to 15 percent.
    Since the budget is now in surplus, interest payments are
    estimated to drop to 12 percent of the budget in 2000 (11
    percent of your Federal dollar).

  * Six percent of your Federal dollar (the budget surplus) will
    not be spent. The President has proposed that any surplus be
    reserved until a plan to save Social Security has been
    enacted.

"On" and "Off" Budget

>From time to time, you may hear about programs that are
"off-budget," meaning that the Government categorizes them
separately from other programs.

Specifically, the law requires that the spending and revenues of
two Federal programs, Social Security and the Postal Service, be
excluded from the budget totals-that is, categorized as
"off-budget." Therefore, the budget displays "on-budget,"
"off-budget," and "unified budget" totals to satisfy this legal
requirement.

The unified budget is the most useful display of the
Government's finances; it is vital in calculating how much the
Government has to borrow.

The "off-budget" category is designed to give special status to
certain programs. Over the years, the Government has placed
numerous programs "off-budget," then returned them to the
unified budget. But the mere listing of programs as "off-budget"
does not, by itself, protect them from the budget process-e.g.,
Administration and congressional review, possible cuts, and
hiring and procurement rules.

Chart 2-7 illustrates the relationship between on- and
off-budget items, and the unified budget.


1 In calculating Federal spending, the Government deducts
collections (revenues) generated by the Government's
business-like activities, such as fees to national parks. These
collections will total an estimated $216 billion in 2000.
Without them, spending would total an estimated $2.0 trillion in
2000, not $1.8 trillion.

----------
3. How Does the Government Create a Budget?

The President and Congress both play major roles in developing
the Federal budget.

The President's Budget

The law requires that, by the first Monday in February, the
President submit to Congress his proposed Federal budget for the
next fiscal year, which begins October 1.

The White House's Office of Management and Budget (OMB) prepares
the budget proposal, after receiving direction from the
President and consulting with his senior advisors and officials
from Cabinet departments and other agencies.

The President's budget-which typically includes a main book and
several accompanying books1 -covers thousands of pages and
provides reams of details.

The Budget Process

Through the budget process, the President and Congress decide
how much to spend and tax in any one fiscal year. More
specifically, they decide how much to spend on each activity,
ensure that the Government spends no more and spends it only for
that activity, and report on that spending at the end of each
budget cycle.

The President's budget is his plan for the next year. But it's
just a proposal. After receiving it, Congress has its own budget
process to follow. Only after the Congress passes, and the
President signs, the required spending bills has the Government
created its actual budget.

For fiscal 2000-that is, October 1, 1999 to September 30,
2000-the major steps in the budget process are outlined in Chart
3-1.

Action in Congress

Congress first must pass a "budget resolution"-a framework
within which the Members will make their decisions about
spending and taxes. It includes targets for total spending,
total revenues, and the deficit, and allocations within the
spending target for the two types of spending-discretionary and
mandatory-explained below.
  * Discretionary spending, which accounts for one-third of all
    Federal spending, is what the President and Congress must
    decide to spend for the next year through the 13 annual
    appropriations bills. It includes money for such activities
    as the FBI and the Coast Guard, for housing and education,
    for space exploration and highway construction, and for
    defense and foreign aid.

  * Mandatory spending, which accounts for two-thirds of all
    spending, is authorized by permanent laws, not by the 13
    annual appropriations bills. It includes entitlements-such
    as Social Security, Medicare, veterans' benefits, and Food
    Stamps-through which individuals receive benefits because
    they are eligible based on their age, income, or other
    criteria. It also includes interest on the national debt,
    which the Government pays to individuals and institutions
    that hold Treasury bonds and other Government securities.
    The President and Congress can change the law in order to
    change the spending on entitlements and other mandatory
    programs-but they don't have to.

Think of it this way: For discretionary programs, Congress and
the President must act each year to provide spending authority.
For mandatory programs, they may act in order to change the
spending that current laws require.

Currently, the law imposes a limit, or "cap," through 2002 on
total annual discretionary spending. Within the cap, however,
the President and Congress can, and often do, change the
spending levels from year to year for the thousands of
individual Federal spending programs.

In addition, the law requires that legislation that would raise
mandatory spending or lower revenues-compared to existing law-be
offset by spending cuts or revenue increases. This requirement,
called "pay-as-you-go," is designed to prevent new legislation
from increasing the deficit.

Once Congress passes the budget resolution, it turns its
attention to passing the 13 annual appropriations bills and, if
it chooses, "authorizing" bills to change the laws governing
mandatory spending and revenues.

Congress begins by examining the President's budget in detail.
Scores of committees and subcommittees hold hearings on
proposals under their jurisdiction. The House and Senate Armed
Services Authorizing Committees, and the Defense and Military
Construction Subcommittees of the Appropriations Committees, for
instance, hold hearings on the President's defense plan. If the
President's budget proposed changes in taxes, the House Ways and
Means and the Senate Finance Committees would hold hearings. The
Budget Director, Cabinet officers, and other Administration
officials work with Congress as it accepts some of the
President's proposals, rejects others, and changes still others.
Congressional rules require that these committees and
subcommittees take actions that reflect the budget resolution.

If you read through the President's budget, the budget
resolution, or the appropriations or authorizing bills that
Congress drafts, you will notice that the Government measures
spending in two ways-"budget authority" and "outlays."

Budget authority (or BA) is what the law authorizes the Federal
Government to spend for certain programs, projects, or
activities. What the Government actually spends in a particular
year, however, is an outlay. To see the difference, consider
what happens when the Government decides to build a space
exploration system.

The President and Congress may agree to spend $1 billion for the
space system. Congress appropriates $1 billion in BA. But the
system may take 10 years to build. Thus, the Government may
spend $100 million in outlays in the first year to begin
construction and the remaining $900 million over the next nine
years as construction continues.

Monitoring the Budget

Once the President and Congress approve spending, the Government
monitors the budget through:
    * agency program managers and budget officials, including
      the Inspectors General, or IGs;
    * OMB;
    * congressional committees; and
    * the General Accounting Office, an auditing arm of
      Congress.

This oversight is designed to:
    * ensure that agencies comply with legal limits on spending,
      and that they use budget authority only for the purposes
      intended;
    * see that programs are operating consistently with legal
      requirements and existing policy; and, finally,
    * ensure that programs are well managed and achieving the
      intended results.

The Government has paid more attention to good management of
late, through the work of Vice President Gore's National
Partnership for Reinventing Government and implementation of the
1993 Government Performance and Results Act. This law is
designed to improve Government programs by using better
measurements of their results in order to evaluate their
effectiveness.


1They are the main budget book, entitled, Budget of the United
States Government: Fiscal Year 2000, as well as Analytical
Perspectives, Appendix, Historical Tables, and A Citizen's Guide
to the Federal Budget, which you are now reading.

----------
4. The Budget Surplus and Fiscal Discipline

In 1998 the Federal budget reported a surplus of $69 billion,
the first surplus since 1969, and reduced Federal debt held by
the public by over $50 billion. With continued prudent fiscal
policies, the budget can remain in surplus for many years. The
turnaround from deficit to surplus can be attributed to fiscal
discipline and strong economic growth. The change from deficit
to surplus is an important milestone.

Put simply, a surplus occurs when revenues exceed spending in
any year- just as a deficit occurs when spending exceeds
revenues. Generally, to finance

past deficits, the Treasury has borrowed money. With certain
exceptions, the debt is the sum total of our deficits, minus our
surplus, over the years.

The Government incurred its first deficit in 1792, and it
generated 70 annual deficits between 1900 and 1997.

Chart 4-1 provides the history of budget surplus and deficits
since 1940.

For most of the Nation's history, deficits were the result of
either wars or recessions. Wars necessitated major increases in
military spending, while recessions reduced Federal tax revenues
from businesses and individuals.

The Government generated deficits during the War of 1812, the
recession of 1837, the Civil War, the depression of the 1890s,
and World War I. Once the war ended or the economy began to
grow, the Government followed its deficits with budget surplus,
with which it paid down the debt.

Deficits returned in 1931 and remained for the rest of the
decade-due to the Great Depression and the spending associated
with President Roosevelt's New Deal. Then, World War II forced
the Nation to spend unprecedented amounts on defense and to
incur corresponding unprecedented deficits.

Since then-with Democratic and Republican Presidents, Democratic
and Republican Congresses-the Government has balanced its books
only nine times, most recently last year.

Nevertheless, the deficits before 1981 paled in comparison to
what followed. That year, the Government cut income tax rates
and greatly increased defense spending, but it did not cut
non-defense programs enough to make up the difference. Also, the
recession of the early 1980s reduced Federal revenues, increased
Federal outlays for unemployment insurance and similar programs
that are closely tied to economic conditions, and forced the
Government to pay interest on more national debt at a time when
interest rates were high. As a result, the deficit soared.

Why have we been able to move from deficit to surplus? Because
spending growth has been restrained. Outlays are growing slower
and revenues are holding steady.

Revenues have stayed relatively constant, at around 17 to 21
percent of GDP, since the 1960s. In that time, however, outlays
grew from about 17 percent of GDP in 1965 to nearly 24 percent
in 1983 before falling below 20 percent today.

Since 1983, spending had been reduced or held constant as
percent of GDP across a wide variety of programs. The most
significant reduction has occurred in discretionary spending,
which has fallen from 10.3 percent to 6.6 percent of GDP.
Combined spending on Social Security and net interest has
remained roughly constant at about 7-1/2 percent of GDP since
1983. A similar path has been followed in the rest of mandatory
spending in total, but only because the growth in Medicare and
Medicaid has been offset by declines in other mandatory spending
(see Chart 4-2).

Why a Budget Surplus is Important

As Chart 4-3 illustrates, this Nation has a good record when
compared to the recent history of the six other major developed
economies. (To make accurate comparisons with the governments of
other nations, the U.S. data include the activities of State and
local governments.)

Should we worry about the possibility of a return to budget
deficits?

The 2000 Budget forecasts surplus for decades to come, if we
maintain the policy of fiscal discipline and strategic
investments in the American people.

We must do all we can to keep the days of deficits in the past.
Budget deficits force the Government to borrow money in the
private capital markets. That borrowing competes with (1)
borrowing by businesses that want to build factories and
machines that make workers more productive and raise incomes,
and (2) borrowing by families who hope to buy new homes, cars,
and other goods. The competition for funds tends to produce
higher interest rates.

Deficits increase the Federal debt and, with it, the
Government's obligation to pay interest. The more it must pay in
interest, the less it has available to spend on education, law
enforcement, and other important services, or the more it must
collect in taxes-forever after. As recently as 1997, the
Government spent over 15 percent of its budget to pay interest,
in contrast to a projected 12 percent for 2000. Continuing
surplus will reduce these interest payments further in future
years.

In the end, the surplus is a decision about our future. We can
provide a solid foundation for future generations, just as
parents try to do within a family. For a Nation, this means a
strong economy and low interest rates and debt. Alternatively,
we can generate large deficits and debt for those who come after
us.

Surplus and Debt

If the Government incurs a surplus, it generally repays debt
held by the public.

Table 4-1 summarizes the relationship between the budget surplus
or deficit and the repayment of Federal debt.

Federal borrowing involves the sale, to the public, of notes and
bonds of varying sizes and time periods until maturity. The
cumulative amount of borrowing from the public-i.e., the debt
held by the public-is the most important measure of Federal debt
because it is what the Government has borrowed in the private
markets over the years, and it determines how much the
Government pays in interest to the public.

Debt held by the public was $3.7 trillion at the end of
1998-roughly the net effect of deficits and surplus over the
last 200 years. Debt held by the public does not include debt
the Government owes itself-the total of all trust fund surplus
and deficits over the years, like the Social Security surplus,
which the law says must be invested in Federal securities.

Because of the progress in eliminating the budget deficit, the
debt held by the public has been reduced for the first time in
29 years.

The sum of debt held by the public and debt the Government owes
itself is called Gross Federal Debt. At the end of 1998, it
totaled $5.5 trillion.

Another measure of Federal debt is debt subject to legal limit,
which is similar to Gross Federal Debt. When the Government
reaches the limit, it loses its authority to borrow more to
finance its spending; then, the President and Congress must
enact a law to increase the limit. Because the budget has
returned to surplus and debt is being reduced, there will be no
need to increase the statutory limit in 2000.

The Government's ability to finance its debt is tied to the size
and strength of the economy, or GDP. Debt held by the public was
44 percent of GDP at the end of 1998. As a percentage of GDP,
debt held by the public was highest at the end of World War II,
at 109 percent, then fell to 24 percent in 1974 before gradually
rising to a peak of 50 percent in the middle 1990s.

That decline, from 109 to 24 percent, occurred because the
economy grew faster than the debt accumulated; debt held by the
public rose from $242 billion to $344 billion in those years,
but the economy grew faster.

Individuals and institutions in the United States hold
two-thirds of debt held by the public. The rest is held in
foreign countries.

Returning the Budget to Surplus

Ever since the deficit soared in the early 1980s, successive
Presidents and Congresses have tried to cut it. Until recently,
they met with only limited success.

In the early 1980s, President Reagan and Congress agreed on a
large tax cut, but could not agree about cutting spending; the
President wanted to cut domestic spending more than Congress,
while Congress sought fewer defense funds than the President
wanted. They wound up spending more on domestic programs than
the President wanted, and more on defense than Congress wanted.
At the same time, a recession led to more spending to aid those
affected by the recession, and reductions in tax revenues due to
lower incomes and corporate profits.

By 1985, both sides were ready for drastic measures. That year,
they enacted the Balanced Budget and Emergency Deficit Control
Act. It set annual deficit targets for five years, declining to
a balanced budget in 1991. If necessary, GRH required
across-the-board cuts in programs to comply with the deficit
targets.

Faced with the prospect of huge spending cuts in 1987, however,
the President and Congress amended the law, postponing a
balanced budget until 1993. The President and Congress never
achieved those revised targets, in part because of the
extraordinary costs of returning the Nation's savings and loan
industry to a sound financial footing.

By 1990, President Bush and Congress enacted spending cuts and
tax increases that were designed to cut the accumulated deficits
by about $500 billion over five years. They also enacted the
Budget Enforcement Act (BEA)-rather than set annual deficit
targets. The BEA was designed to limit discretionary spending
while ensuring that any new entitlement programs or tax cuts did
not make the deficit worse.

First, the BEA set annual limits on total discretionary spending
for defense, international affairs, and domestic programs.
Second, it created ``pay-as-you-go'' rules for entitlements and
taxes: those who proposed new spending on entitlements or lower
taxes were forced to offset the costs by cutting other
entitlements or raising other taxes.

For what it was designed to do, the law worked. It did, in fact,
limit discretionary spending and force proponents of new
entitlements and tax cuts to find ways to finance them. But the
deficit, which Government and private experts said would fall,
actually rose.

Why? Because the recession of the early 1990s reduced individual
and corporate tax revenues and increased spending that is tied
to economic fluctuations. Federal health care spending also
continued to grow rapidly. In 1993, President Clinton and the
Congress made another effort to cut the deficit. They enacted a
five-year deficit reduction package of spending cuts and higher
revenues. The law was designed to cut the accumulated deficits
from 1994 to 1998 by about $500 billion. The new law extended
the limits on discretionary spending and the "pay-as-you-go''
rules.

Although the 1993 plan exceeded all expectations in reducing the
deficit, the task of reaching balance would require one final
push. That would come with the historic 1997 Balanced Budget Act
(BBA).

Originally designed to balance the budget by 2002, the BBA
provided for $247 billion in savings over five years. It also
extended the solvency of Medicare's trust fund for at least 10
years while providing for the largest investment in higher
education since the G.I. Bill in 1945, the largest investment in
children's health care since the creation of Medicaid in 1965,
and a $500-per-child tax credit for about 27 million working
families.

Clearly, the President's deficit reduction efforts have paid
off. The deficit fell from $290 billion in 1992 to a surplus of
$69 billion in 1998.

The President is now proposing to reserve the surplus until
Social Security is reformed. His plan for reform uses 62 percent
of the projected unified budget surplus of the next 15 years to
put the Social Security system on sound financial footing well
into the next century. In 2000 the challenge for both the
President and the Congress is to maintain fiscal discipline and
reach comprehensive Social Security reform while continuing to
invest in the American people. The next chapter describes the
President's plans for achieving that goal.

----------
5. The President's 2000 Budget

The President's 2000 budget promises the third balanced budget
of this Administration. With it, the Nation's fiscal house is in
order and we are prepared to meet the challenges of the next
century. It continues on the path the President has followed for
the past six years of maintaining fiscal discipline and
investing wisely in our Nation's priorities.

It invests in education and training so Americans can make the
most of this economy's opportunities. It invests in health and
the environment to improve our quality of life. It invests in
our security at home and abroad, strengthens law enforcement and
provides our Armed Forces with the resources they need to
safeguard our national interests in the next century.

The President's budget makes these investments while maintaining
the fiscal discipline that allowed the Federal Government to
record its first surplus in a generation last year. The budget
forecasts that the Government will produce a surplus again this
year, and will continue to do so for decades to come. Our
success in eliminating the budget deficit proves that we are
capable of fulfilling great responsibilities, and there is now
every reason for us to rise to the next challenge. The President
believes it is now time to work together to save Social
Security.

Investing in the Future

In his State of the Union address, the President proposed a
framework for a comprehensive, bipartisan solution to the
long-term financing problems of Social Security. The President's
plan proposes using 62 percent of the unified budget surplus of
the next 15 years to strengthen Social Security. It would tap
the power of financial markets by investing roughly one-fifth of
the surplus dedicated to Social Security in private financial
instruments, including corporate equities. This proposal would
substantially improve the program's fiscal position,
strengthening it until the middle of the next century. Then, in
a bipartisan effort envisioned by the national dialogue of the
last year, the President is urging Congress to join him to make
the difficult but achievable choices to save Social Security
until 2075.

Once Social Security is on sound financial footing, the
President proposes saving and improving Medicare, the Federal
program that finances health care for millions of seniors and
disabled Americans. The President's framework will reserve 15
percent of the projected budget surplus of the next 15 years for
Medicare, ensuring that its trust fund is secure for 20 years.

The President is also committed to helping all Americans save
and invest so that they will have additional sources of income
in retirement. Dedicating just over 10 percent of the surplus of
the next 15 years to Universal Savings Accounts will help
Americans save for the future by allowing them to invest as they
choose and receive matching contributions.

And looking ahead to the Nation's other vital needs that will
arise in the future, the President's framework will reserve 11
percent of the projected surplus for military readiness,
education, and other critical domestic priorities.

The President's budget builds on efforts to invest in the skills
of the American people. It continues his policy of helping
working families with their basic needs-raising their children,
sending them to college, and expanding access to health care. It
also invests in education and training, the environment, science
and technology, law enforcement, and other priorities to help
raise the standard of living and quality of life of Americans.

In this budget, the President is proposing major initiatives
that will continue his investments in high-priority areas-from
helping working families with their child care expenses to
allowing Americans from 55 to 65 to buy into Medicare; from
helping States and school districts recruit and prepare
thousands more teachers and build thousands more classrooms to
making every effort to fight tobacco and its use among young
people.

For six years, the President has sought to help working families
balance the demands of work and family. In this budget he
proposes a major effort to make child care more affordable,
accessible and safe, by expanding tax credits for middle-income
families and for businesses to expand their child care
resources, assisting parents who want to attend college meet
their child care needs, and increasing funds with which the
Child Care and Development Block Grant can help more poor and
near poor children. The budget proposes an Early Learning Fund,
which would provide grants to communities for activities that
improve early childhood education and the quality of childcare
for those under age five.

The President has worked hard to expand health care coverage and
improve the Nation's health. The budget gives new insurance
options to hundreds of thousands of Americans aged 55 to 65 and
it advocates bipartisan national legislation that would reduce
tobacco use among the young. The President's budget proposes
initiatives to help patients, families, and care givers cope
with the burdens of long-term care; and it helps reduce barriers
to employment for individuals with disabilities. The budget also
enables more Medicare beneficiaries to receive promising cancer
treatments by participating more easily in clinical trials. And
it improves the fiscal soundness of Medicare and Medicaid
through new management proposals, including programs to combat
waste, fraud, and abuse.

The President's efforts have also enhanced access to, and the
quality of, education and training. The budget takes the next
steps by continuing to help States and school districts reduce
class size by recruiting and preparing thousands more teachers
and building thousands more new classrooms. The President's
budget proposes improving school accountability by funding
monetary awards to the highest performing schools that serve
low-income students, providing resources to States to help them
identify and change the least successful schools, and ending
social promotion by funding additional education hours through
programs like the 21st Century Community Learning Centers. The
budget also proposes further increases in the maximum Pell Grant
to help low-income undergraduates complete their college
education and more funding for universal reemployment services
to help train or find jobs for all dislocated workers who need
help.

The budget proposes a historic inter-agency Lands Legacy
initiative to both preserve the Nation's Great Places, and
advance preservation of open spaces in every community. This
initiative will give State and local governments the tools for
orderly growth while protecting and enhancing green spaces,
clean water, wildlife habitat and outdoor recreation. The
Administration also proposes a Livability Initiative with a new
financing mechanism, Better America Bonds, to create more open
spaces in urban and suburban areas, improve water quality, and
clean up abandoned industrial sites. In addition, the budget
would restore and rehabilitate national parks, forests, and
public lands and facilities; expand efforts to restore and
protect the water quality of rivers and lakes; and better
protect endangered species.

The President has worked to bring peace to troubled parts of the
world, and has played a leadership role in Northern Ireland,
Bosnia, and most recently in the Wye River Memorandum on the
Middle East. The budget reinforces America's commitment to peace
in the Middle East by providing for an economic and military
assistance package arising from the Wye River Memorandum. The
work of diplomacy, advancing peace and United States interests,
has inherent dangers, as the death toll from the terrorist
attacks on two U.S. Embassies in Africa last year reminds us.
The budget proposes increased funding to ensure the continued
protection of American embassies, consulates and other
facilities, and the valuable employees who work there. It
supports significant increases in funding for State Department
programs to address the threats posed by weapons of mass
destruction. The budget also increases programs that support
U.S. manufacturing exports and continues our long standing
policy of opening foreign markets.

The mission of our Armed Forces has changed in this post-Cold
War era, and in many ways it is more complex. Today, the U.S.
military must guard against major threats to the Nation's
security, including regional dangers like cross-border
aggression, the proliferation of the technology of weapons of
mass destruction, transnational dangers like the spread of drugs
and terrorism, and direct attacks on the U.S. homeland from
intercontinental ballistic missiles or other weapons of mass
destruction. The U.S. Armed Forces are well prepared to meet
this mission. Military readiness-the ability to engage where and
when necessary-is razor sharp, and this budget provides
resources to make sure that it stays that way for years to come.
The budget provides a long term, sustained increase in defense
spending to enhance the military's ability to respond to crises,
build for the future through programs for weapons modernization,
and take care of military personnel and their families by
enhancing the quality of life, thereby increasing retention and
recruitment.

Improving Performance Through Better Management

A key element in the Administration's ability to making these
investments, while balancing the budget, is the reinvention of
Government-doing more with less. Efforts led by Vice President
Gore's National Partnership for Reinvention have streamlined
Government, reduced its work force, and focused on performance
to improve operations and delivery of service. And these
efforts, by reducing the cost of Government operations, have
improved the bottom line and contributed to our strong economy.

Since 1993, the Administration, working with the Congress, has
eliminated and reduced hundreds of unnecessary programs and
projects. The size of Government, that is, the actual total of
Government spending, has equaled a smaller share of GDP than in
any year of the previous two Administrations, and in 2000 will
drop to 19.4 percent of GDP, its lowest level since the early
1970s. Finally, the Administration has cut the size of the
Federal civilian work force by 365,000, creating the smallest
work force in 36 years and, as a share of total civilian
employment, the smallest since 1933 (see Chart 5-1).

The Administration, however, is working to create not just a
smaller Government, but a better one, a Government that best
provides services and benefits to its ultimate customers-the
American people. It has not just cut the Federal work force, it
has streamlined layers of bureaucracy. It has not just
reorganized headquarters and field offices, it has ensured that
those closest to the customers can best serve them.

For 2000, the Administration once again is turning its efforts
to the next stage of "reinventing" the Federal Government. It
plans to dramatically overhaul 32 Federal agencies to improve
performance in key services, such as expediting student loan
processing and speeding aid to disaster victims. It also plans
to continue tackling critical challenges, such as ensuring that
Government computers can process the year 2000 date change and
making more Government services available electronically.

Under the 1993 Government Performance and Results Act, Cabinet
departments and agencies have prepared individual performance
plans that they will send to Congress with the performance goals
they plan to meet in 2000. These plans provided the basis for
the second Government-wide Performance Plan which is contained
in this budget. In 2000, for the first time, agencies will
submit to the President and the Congress annual reports for 1999
that compare actual and target performance levels and explain
any difference between them.

----------
Glossary

Appropriation

An appropriation is an act of Congress that enables Federal
agencies to spend money for specific purposes.

Authorization

An authorization is an act of Congress that establishes or
continues a Federal program or agency, and sets forth the
guidelines to which it must adhere.

Balanced Budget

A balanced budget occurs when total revenues equal total outlays
for a fiscal year.

Budget Authority (BA)

Budget authority is what the law authorizes, or allows, the
Federal Government to spend for programs, projects, or
activities.

Budget Enforcement Act (BEA) of 1990

The BEA is the law that was designed to limit discretionary
spending while ensuring that any new entitlement program or tax
cuts did not make the deficit worse. It set annual limits on
total discretionary spending and created "pay-as-you-go'' rules
for any changes in entitlements and taxes (see
"pay-as-you-go'').

Balanced Budget and Emergency Deficit Control Act of 1985
(Gramm-Rudman-Hollings, or GRH)

The Balanced Budget and Emergency Deficit Control Act of 1985
was designed to end deficit spending. It set annual deficit
targets for five years, declining to a balanced budget in 1991.
If necessary, it required across-the-board cuts in programs to
comply with the deficit targets. It
was never fully implemented.

Budget Resolution
The budget resolution is the annual framework within which
Congress makes its decisions about spending and taxes. This
framework includes targets for total spending, total revenues,
and the deficit, as well as allocations, within the spending
target, for discretionary and mandatory spending.

"Cap''

A "cap'' is a legal limit on annual discretionary spending.

Deficit

The deficit is the difference produced when spending exceeds
revenues in a fiscal year.

Discretionary Spending

Discretionary spending is what the President and Congress must
decide to spend for the next fiscal year through 13 annual
appropriations bills. Examples include money for such activities
as the FBI and the Coast Guard, housing and education, space
exploration and highway construction, and defense and foreign
aid.

Entitlement

An entitlement is a program that legally obligates the Federal
Government to make payments to any person who meets the legal
criteria for eligibility. Examples include Social Security,
Medicare, and
Medicaid.

Excise Taxes

Excise taxes apply to various products, including alcohol,
tobacco, transportation fuels, and telephone service.

Federal Debt

The gross Federal debt is divided into two categories: debt held
by the public, and debt the Government owes itself. Another
category is debt subject to legal limit.

Debt Held by the Public

    Debt held by the public is the total of all Federal
deficits, minus surplus, over the years. This is
    the cumulative amount of money the Federal Government has
borrowed from the public, through
    the sale of notes and bonds of varying sizes and time
periods.

Debt the Government Owes Itself

    Debt the Government owes itself is the total of all trust
fund surplus over the years, like the Social
    Security surplus, that the law says must be invested in
Federal securities.

Debt Subject to Legal Limit

    Debt subject to legal limit, which is roughly the same as
gross Federal debt, is the maximum
    amount of Federal securities that may be legally outstanding
at any time. When the limit is reached,
    the President and Congress must enact a law to increase it.

Fiscal Year

The fiscal year is the Government's accounting period. It begins
October 1 and ends on September 30. For example, fiscal 2000
ends September 30, 2000.

Gramm-Rudman-Hollings

See Balanced Budget and Emergency Deficit Control Act of 1985.

Gross Domestic Product (GDP)

GDP is the standard measurement of the size of the economy. It
is the total production of goods and services within the United
States.

Mandatory Spending

Mandatory spending is authorized by permanent law. An example is
Social Security. The President and Congress can change the law
to change the level of spending on mandatory programs-but they
don't have to.

"Off-Budget''

By law, the Government must distinguish "off-budget'' programs
separate from the budget totals. Social Security and the Postal
Service are "off-budget.''

Outlays

Outlays are the amount of money the Government actually spends
in a given fiscal year.

"Pay-As-You-Go''

Set forth by the BEA, "pay-as-you-go'' refers to requirements
that new spending proposals on entitlements or tax cuts must be
offset by cuts in other entitlements or by other tax increases,
to ensure that the deficit does not rise (see BEA).

Revenue

Revenue is money collected by the Government.

Social Insurance Payroll Taxes

This tax category includes Social Security taxes, Medicare
taxes, unemployment insurance taxes, and Federal employee
retirement payments.

Surplus

A surplus is the amount by which revenues exceed outlays.

Trust Funds

Trust funds are Government accounts, set forth by law as trust
funds, for revenues and spending designated for specific
purposes.

Unified Federal Budget

The unified budget, the most useful display of the Government's
finances, is the presentation of the Federal budget in which
revenues from all sources and outlays to all activities are
consolidated.

----------
List of Charts

What Is the Budget?

1-1 Government Spending as a Share of GDP, 1998
1-2 Total Government Outlays as a Percent of GDP

Where the Money Comes From-and Where It Goes

2-1 Family Budgeting
2-2 National Budgeting
2-3 The Federal Government Dollar-Where It Comes From
2-4 Composition of Revenues
2-5 Revenues as a Percent of GDP-Comparison With Other Countries
2-6 The Federal Government Dollar-Where It Goes
2-7 On- and Off-Budget Deficit Projections

How Does the Government Create a Budget?

3-1 Major Steps in the Budget Process

The Budget Surplus and Fiscal Discipline

4-1 Past and Future Budget Deficits or Surplus
4-2 Outlays as a Percent of GDP
4-3 Total Government Surplus or Deficit as a Percent of GDP

The President's 2000 Budget

5-1 Cuts in Civilian Employment

List of Tables

Where the Money Comes From-and Where It Goes

2-1 Revenues by Source-Summary
2-2 Spending Summary
2-3 Total Spending by Function
2-4 Discretionary Spending by Agency

Deficits and the Debt

4-1 Federal Government Financing and Debt

----------
End of Document



