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This volume compiles some 200 specific policy options for reducing spending or increasing federal revenues in a wide variety of programs. It is the 18th such compendium that the Congressional Budget Office (CBO) has prepared as part of its annual report to the House and Senate Committees on the Budget.

The policy options included in this report come from many sources, and the Congress has considered most of them at some time in the past. In keeping with CBO's mandate to provide objective and impartial analysis, the discussion of each option presents the cases for and against it as fairly as possible. CBO does not endorse the options included, nor does exclusion of any proposal imply a recommendation for or against it.

The report begins with an introductory chapter that provides general background information on CBO's latest deficit projections and explains how to use the options presented in this volume. The next three chapters include more than 150 options for reducing spending, organized by broad categories that have become the focus for deficit reduction efforts--defense and international discretionary spending, domestic discretionary spending, and entitlement and other mandatory spending. The fifth chapter presents several integrated packages of options for reducing the growth of spending for Medicare and Medicaid instead of a series of individual policy options. The discussion highlights the trade-offs and interactions that must be considered when combining detailed policies into comprehensive proposals. The last chapter presents 39 revenue-generating options. The report concludes with an appendix listing the spending options by the budget functions that would be affected, and a glossary of budget and economic terms.

All divisions of the Congressional Budget Office contributed to this report, which was coordinated by James L. Blum. Edward Davis prepared Chapter 1. The options presented in Chapters 2 through 4 and Chapter 6 were coordinated by Mark B. Booth, David H. Moore, R. Mark Musell, Constance Rhind, and R. William Thomas. Joseph R. Antos and Linda Bilheimer prepared Chapter 5. Budget authority and outlay estimates were coordinated by Paul R. Cullinan, Peter H. Fontaine, Michael A. Miller, and Murray N. Ross. The staff of the Joint Committee on Taxation prepared most of the revenue estimates.

Paul L. Houts and Sherry Snyder supervised the editing and production of the report. Major portions were edited by Paul L. Houts, Sherwood D. Kohn, Sherry Snyder, and Christian Spoor. Marlies Dunson provided editorial assistance during production. The authors owe thanks to Cynthia Cleveland, Sharon Corbin-Jallow, Denise Jordan, Angela Z. McCollough, Ronald Moore, L. Rae Roy, and Simone Thomas, who typed the early drafts. Kathryn Quattrone and Jill Sands prepared the report for publication.

ONE        INTRODUCTION

                The Deficit Outlook
                What Is Needed to Balance the Budget by 2002?
                How to Use This Report
                Other General Caveats in Using This Volume
 

TWO DEFENSE AND INTERNATIONAL DISCRETIONARY SPENDING

                    The National Defense Budget
                    The International Affairs Budget
                    How to Use and Combine Savings Estimates

Strategic Systems

DEF-01     Reduce Nuclear Delivery Systems Within Overall Limits of Start II
DEF-02     Terminate Production of D5 Missiles After 1997
DEF-03     Reduce the Scope of DOE's Stockpile Stewardship and Management Program
DEF-04     Focus Theater Missile Defense Efforts on Core Systems
 
Navy/Marine Corps Programs

DEF-05     Cancel the New Attack Submarine
DEF-06     Reduce the Number of Aircraft Carriers and Air Wings to 10
DEF-07     Reduce Procurement of DDG-51 Destroyers
DEF-08     Terminate the Arsenal Ship Program
DEF-09     Cancel the Upgrade of the Navy's F/A-18 Fighter and Buy the Current Model
DEF-10     Cancel the Marine Corps's V-22 Aircraft Program and Buy CH-53E Helicopters
DEF-11     Reduce Air Force Tactical Forces
 
Air Force Programs

DEF-12     Cancel the Air Force's F-22 Aircraft Program
DEF-13     Buy No More Than 72 C-17s and Preposition Equipment Instead
DEF-14     Defer Modernization of Tactical Airlift
DEF-15     Retire Excess KC-135 Tankers
DEF-16     Make the Army Responsible for Close Air Support
 
Army Programs

DEF-17     Reduce the Number of Army Light Divisions
DEF-18     Eliminate Four Guard Divisions
DEF-19     Cancel the Army's Comanche Helicopter Program
 
Other Investment

DEF-20     Cut Spending for Dual-Use Technology Programs to Historical Levels
 
Military Personnel

DEF-21     Assign a Wartime Function to Military Personnel in Training or Transit
DEF-22     Restructure Military Housing Allowances
DEF-23     Reduce the Basic Allowance for Subsistence of Enlisted Personnel
DEF-24     Restructure Officer Accession Programs
DEF-25     Restructure the Bonus Program for Nuclear Officers
DEF-26     Deny Unemployment Compensation to Service Members Who Voluntarily Leave Military Service
DEF-27     Merge the Army National Guard and the Army Reserve
 
Military Health Care

DEF-28     Adopt HMO Staffing Patterns in Military Medical Facilities
DEF-29     Revise Cost Sharing for Military Health Care Benefits
DEF-30     Downsize the Military Medical System
DEF-31     Close the Uniformed Services University of the Health Sciences
 
Operation and Maintenance

DEF-32     Close and Realign Additional Military Bases
DEF-33     Reduce Professional Development Education
DEF-34     Reduce Funding for DOE's Cleanup Program
DEF-35     Increase Competition Between Private-Sector and Department of Defense Housing
DEF-36     Reduce Subsidies for Military Commissaries
DEF-37     Consolidate the Military Exchanges and Include Them in the Federal Budget
 
International Programs

DEF-38     Reduce State Department Funding and Eliminate Miscellaneous Foreign Affairs Activities
DEF-39     Eliminate Overseas Broadcasting
DEF-40     Recover the Full Cost of Military Exports
DEF-41     Reduce Security Assistance
DEF-42     Eliminate the Export-Import Bank, Overseas Private Investment Corporation, and Trade and Development
                    Agency
DEF-43     Cease Supporting Multilateral Development Banks
 

THREE         DOMESTIC DISCRETIONARY SPENDING

                    Recent Developments and Trends
                    Rationales For and Against Spending Reductions
                    Process and Presentation
 
General Science, Space, and Technology
 
DOM-01     Cancel the International Space Station Program
DOM-02     Cancel NASA's Earth Observation System
DOM-03     Eliminate the Experimental Program to Stimulate Competitive Research
 
Energy

DOM-04     Reduce the Department of Energy's Basic Research Programs
DOM-05     Eliminate the Department of Energy's Applied Research Programs for Nuclear Power and Fossil Fuels2
DOM-06     Eliminate the Department of Energy's Applied Research Programs for Energy Conservation and for Solar and
                        Other Renewable Energy Resources
DOM-07     Eliminate Further Funding for the Clean Coal Technology Program
DOM-08     Eliminate Energy Conservation Grant Programs
DOM-09     Eliminate Electrification and Telephone Credit Subsidies Provided by the Rural Utilities Service
 
Natural Resources and Environment

DOM-10     Increase Net Receipts from National Forest Timber Sales
DOM-11     Impose a Five-Year Moratorium on Land Purchases by the Departments of Agriculture and the Interior
DOM-12     Eliminate Federal Grants for Water Infrastructure
DOM-13     Cancel Uneconomic Water Projects
DOM-14     Eliminate the Superfund Program or Revise Its Cleanup Criteria
DOM-15     Reduce National Weather Service Costs
 
Agriculture
 
DOM-16     Reduce Federal Support for Agricultural Research and Extension Activities
DOM-17     Reduce Department of Agriculture Spending for Export Marketing and International Activities
 
Credit and Commerce

DOM-18     End Small Business Administration Loans and Loan Guarantees
DOM-19     Reduce Costs of the ITA by Eliminating Trade Promotion Activities or Charging the Beneficiaries
DOM-20     Eliminate the Advanced Technology Program
DOM-21     Eliminate the Manufacturing Extension Partnership and the National Quality Program
DOM-22     Eliminate the Minority Business Development Agency
DOM-23     Eliminate New Funding for the Rural Rental Housing Assistance Program
DOM-24     Eliminate New Direct Loans for Rural Homeowners
 
Transportation
 
DOM-25     Reduce Federal Aid for Mass Transit 
DOM-26     Eliminate the Intelligent Transportation Systems Program
DOM-27     Eliminate the Operating Subsidy for Amtrak
DOM-28     Eliminate Airport Grants-in-Aid
DOM-29     Eliminate the Essential Air Service Program
DOM-30     Eliminate NASA's Support for Producers and Users of Commercial Airliners
DOM-31     Eliminate Cargo Preferences
 
Community and Regional Development
 
DOM-32     Eliminate Certain Rural Development Programs
DOM-33     Eliminate the Economic Development Administration
DOM-34     Eliminate the Appalachian Regional Commission
DOM-35     Eliminate or Restrict Community Development Block Grants
DOM-36     Eliminate Federal Support for Tennessee Valley Authority Activities
DOM-37     Eliminate the Neighborhood Reinvestment Corporation

Education, Training, Employment, and Social Services

DOM-38     Eliminate Funding for Head Start
DOM-39     Eliminate or Reduce Funding for Title I, Education for the Disadvantaged
DOM-40     Eliminate Funding for Bilingual Education
DOM-41     Eliminate or Reduce Funding to School Districts for Impact Aid
DOM-42     Eliminate Funding for the Safe and Drug-Free Schools and Communities Act
DOM-43     Reduce Funding for Elementary and Secondary Education Programs
DOM-44     Eliminate 16 Small Grant Programs in the Department of Education
DOM-45     Eliminate State Student Incentive Grants
DOM-46     Eliminate Federal Funding for Campus-Based Student Aid
DOM-47     Eliminate Funding for the National and Community Service Act
DOM-48     Eliminate the Senior Community Service Employment Program
DOM-49     Eliminate Funding for the Arts and Humanities

Health
 
DOM-50     Reduce the Maternal and Child Health Care Block Grant and the Preventive Health Services Block Grant
DOM-51     Eliminate Subsidies for Health Professions Education
DOM-52     Reduce Funding for Research Supported by the National Institutes of Health
DOM-53     Limit the Government's Cost for the FEHB Program by Adopting an Employee Voucher Plan
 
Income Security

DOM-54     Eliminate Low-Income Home Energy Assistance
DOM-55     End the Expansion of Programs for Building New Housing Units for Elderly and Disabled People
DOM-56     Reduce Federal Rent Subsidies by Shifting Some Costs to Tenants
DOM-57     Reduce the Number of Families Receiving Rental Assistance
 
Veterans Benefits and Services
 
DOM-58     Reduce Staffing at VA Medical Facilities by 5 Percent
DOM-59     Suspend Funding for Major Construction of Veterans' Medical Facilities
 
Administration of Justice

DOM-60     Reduce Funding for Law Enforcement Efforts to Control Illegal Drugs
DOM-61     Reduce Funding for Justice Assistance and Certain Justice-Related Activities
 
General Government, Allowances, and Multifunction Options

DOM-62     Reduce the Overhead Rate on Federally Sponsored University Research
DOM-63     Reduce the Number of Political Appointees
DOM-64     Repeal the Service Contract Act
DOM-65     Repeal or Modify the Davis-Bacon Act
 

FOUR         ENTITLEMENTS AND OTHER MANDATORY SPENDING
 
                    Factors Underlying the Growth in Mandatory Spending
                    Pay-As-You-Go Rules
                    Program Trends and Options
 
 Energy
 
ENT-01     Restructure the Power Marketing Administrations to Charge Higher Rates and End Direct Subsidies
 
Natural Resources and Environment
 
ENT-02     Change the Revenue-Sharing Formula from a Gross-Receipt to a Net-Receipt Basis for Commercial
                Activities on Federal Lands
ENT-03     Charge Royalties and Holding Fees for Hardrock Mining on Federal Lands
ENT-04     Reform Public Land Recreation Fee Policies
ENT-05     Raise Grazing Fees on Public Lands
ENT-06     Recover Costs Associated with Administering U.S. Army Corps of Engineers Permitting Programs
 
Agriculture

ENT-07     Reduce Loan Guarantees Made Under the USDA's Export Credit Programs by Eliminating Guarantees for Loans
                     to High-Risk Borrowers
ENT-08     Eliminate the Export Enhancement Program
ENT-09     Eliminate the Market Access Program
ENT-10     Increase Producer Assessments to Participants in the Federal Program Supporting the Price of Tobacco
 
Commerce
 
ENT-11     Charge a User Fee on Commodity Futures and Options Contract Transactions
ENT-12     Eliminate the Flood Insurance Subsidy on Pre-FIRM Structures
ENT-13     Extend and Broaden the FCC's Authority to Use Auctions to Assign Licenses to Use the Radio Spectrum
ENT-14     Auction a Portion of the Television Spectrum
ENT-15     Increase Copyright Registration Fees

Transportation

ENT-16     Impose User Fees on the Inland Waterway System
ENT-17     Establish Charges for Airport Takeoff and Landing Slots
ENT-18     Establish User Fees for Air Traffic Control Services
ENT-19     Increase User Fees for FAA Certificates and Registrations
 
Education
 
ENT-20     Reduce Subsidies for Loans to Students and Parents
ENT-21     Raise the Cost of the Student Loan Program to Lenders, Guaranty Agencies, and Schools
ENT-22     Reduce Student Loan Spending by Including Home Equity in the Determination of Financial Need and
                    Modifying the Simplified Needs Test

Health
 
ENT-23     Increase User Fees on Products Regulated by the FDA

Income Security
 
ENT-24     Reduce the 50 Percent Floor on the Federal Share of Foster Care and Adoption Assistance Payments
ENT-25     Reduce Matching Rates for Administrative Costs in the Foster Care and Adoption Assistance Programs
ENT-26     Reduce Federal Employee Retirement Costs
ENT-27     End or Scale Back Trade Adjustment Assistance
ENT-28     Reduce the $20 Exclusion from Income in Supplemental Security Income
ENT-29     Create a Sliding Scale for Children's SSI Benefits Based on the Number of Recipients in a Family
ENT-30     Reduce the Federal Matching Rate and Increase Fees in the Child Support Enforcement Program
 
Social Security
 
ENT-31     Reduce the Replacement Rate Within Each Bracket of the Social Security Benefit Formula
ENT-32     Lengthen the Social Security Benefit Computation Period by Three Years
ENT-33     Eliminate Social Security Benefits for Children of Retirees Ages 62 to 64 
ENT-34     Consider Veterans' Compensation When Determining Social Security Disability Income Payments

Veterans Benefits and Services
 
ENT-35     End Future Veterans' Compensation Payments for Certain Veterans with Low-Rated Disabilities
ENT-36     End Veterans' Disability and Death Compensation Awards in Future Cases When a Disability Is Unrelated to
                    Military Duties 
ENT-37     Eliminate "Sunset" Dates on Certain Provisions for Veterans in the Omnibus Budget Reconciliation Act of 1993
ENT-38     Revise the Terms of the Montgomery GI Bill Program
ENT-39     Extend and Increase Copayments on Drugs and Medical Supplies Provided to Veterans
ENT-40     Increase Beneficiary Cost Sharing for VA Nursing Facility Care
 
Allowances (All Functions)
 
ENT-41     Eliminate the Presidential Election Campaign Fund and Raise the Limit on Presidential Campaign Contributions
                by Individuals
ENT-42     Impose a Cost-of-Capital Offset Fee on Fannie Mae and Freddie Mac
ENT-43     Eliminate the One-Dollar Bill and Replace It with a New Dollar Coin
ENT-44     Restrict Cost-of-Living Adjustments in Non-Means-Tested Benefit Programs 
ENT-45     Apply Means Tests to Federal Entitlements
ENT-46     Charge Federal Employees Commercial Rates for Parking
ENT-47     Make Permanent Various Expiring User Fees Included in the Omnibus Budget Reconciliation Acts of 1990 and 1993
 

FIVE         MEDICARE AND MEDICAID: DEFICIT REDUCTION AND PROGRAM RESTRUCTURING

                I. Medicare
                II. Medicaid
 
 
SIX         REVENUES
 
                Trends and International Comparisons
                Revenue-Raising Options
 
Raise Income Tax Rates
 
REV-01     Raise Marginal Tax Rates for Individuals and Corporations
REV-02     Amend or Repeal the Indexing of Income Tax Schedules
REV-03     Tax All Corporate Income at a 35 Percent Rate 
 
Restrict Itemized Deductions and Credits Under the Income Tax
 
REV-04     Eliminate or Limit Deductions for Mortgage Interest
REV-05     Eliminate or Limit Deductions of State and Local Taxes
REV-06     Eliminate or Limit Deductions for Charitable Giving
REV-07     Limit the Tax Benefit of Itemized Deductions to 15 Percent
REV-08     Phase Out the Dependent-Care Credit
 
  Restrict the Tax-Favored Treatment of Nonretirement Fringe Benefits
 
REV-09     Impose an Excise Tax on Nonretirement Fringe Benefits
REV-10     Tax Employer-Paid Health Insurance
REV-11     Tax Employer-Paid Life Insurance
 
Restrict the Tax-Favored Treatment of Certain Household Income
 
REV-12     Decrease Limits on Contributions to Qualified Pension and Profit-Sharing Plans
REV-13     Impose a 5 Percent Tax on Investment Income of Pension Plans and Individual Retirement Accounts
REV-14     Tax the Income-Replacement Portion of Workers' Compensation and Black Lung Benefits
REV-15     Increase Taxation of Social Security and Railroad Retirement Benefits
REV-16     Tax Investment Income from Life Insurance and All Annuities
REV-17     Tax a Portion of the Insurance Value of Medicare Benefits
 
Increase Taxes Dedicated to Social Insurance Trust Funds
 
REV-18     Expand Medicare and Social Security Coverage
REV-19     Increase the Payroll Tax Rate for Medicare Hospital Insurance by One Percentage Point
REV-20     Increase the Maximum Taxable Earnings for the Social Security Payroll Tax  

Increase Taxes on Income From Worldwide Activity
 
REV-21     Curtail Tax Subsidies for Exports
REV-22     Impose a Minimum Tax on Foreign-Owned Businesses  
 
Broaden Taxes on Wealth and Capital Gains
 
REV-23     Tax Capital Gains from Home Sales
REV-24     Tax Capital Gains Held Until Death
REV-25     Increase Estate and Gift Taxes  

Curtail Income Tax Preferences for Businesses

REV-26     Amortize a Portion of Advertising Costs
REV-27     Eliminate Private-Purpose, Tax-Exempt Bonds
REV-28     Reduce Tax Credits for Rehabilitating Buildings
REV-29     Repeal the Low-Income Housing Credit
REV-30     Tax Credit Unions Like Other Thrift Institutions
REV-31     Repeal Tax Preferences for Extractive Industries
REV-32     Capitalize the Costs of Producing Timber
REV-33     Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on Motor Fuels 

Impose Broad-Based Taxes on Consumption
 
REV-34     Impose a Value-Added Tax
REV-35     Impose a Broad-Based Energy Tax  

Increase Excise Taxes

REV-36     Increase Excise Taxes on Tobacco and Alcoholic Beverages
REV-37     Increase Taxes on Petroleum and Motor Fuels
REV-38     Impose Excise Taxes on Water Pollutants
REV-39     Impose Excise Taxes on Air Pollutants
 

APPENDIXES
 
A              Estimated Savings from the Administration's 1998 Request for Selected National Defense Options
B               Spending Options by Budget Function
 
 
GLOSSARY
 

TABLES
 
1-1.         CBO Budget Outlook Under Current-Policy Economic Assumptions with Inflation in Discretionary Programs After
                 1998
1-2.         Illustrative Balanced Budget Path
2-1.         Appropriations for National Defense for Fiscal Year 1997
2-2.         U.S. Military Forces
2-3.         Appropriations for International Affairs for Fiscal Year 1997
2-4.         Alternative Budget Paths for National Defense
3-1.         Budget Authority and Outlays for Domestic Discretionary Programs, by Budget Function, Fiscal Year 1997
4-1.         Sources of Growth in Mandatory Spending
4-2.         CBO Baseline Projections for Mandatory Spending, Including Deposit Insurance
5-1.         Projections of Medicare Outlays
5-2.         Projections of Medicare Benefits by Type of Service
5-3.         Medicare Spending Compared with Total Federal Outlays and the Economy
5-4.         Medicare Enrollment and Workers per Enrollee
5-5.         Budgetary Impact of Illustrative Medicare Packages, 1998-2002
5-6.         Illustrative Policy Package to Meet a Savings Target of $100 Billion, 1998-2002
5-7.         Projections of Monthly Premiums for Supplementary Medical Insurance
5-8.         Status of the Hospital Insurance Trust Fund, 1998-2002 and 2007
5-9.         Illustrative Policy Package to Meet a Savings Target of $150 Billion, 1998-2002
5-10.       Federal Outlays for Medicaid, 1990-1996
5-11.       Projections of Federal Medicaid Outlays, 1997-2002
5-12.       Federal Medicaid Outlays Under the Block Grant Option, 1997-2002
5-13.       Federal Medicaid Outlays Under the Per Capita Cap Option, 1997-2002
5-14.       Federal Medicaid Outlays Under the Option to Reduce Payments to Disproportionate Share Hospitals, 1997-2002
5-15.       Federal Medicaid Outlays Under Options to Change Federal Matching Rates, 1997-2002
6-1.         CBO Projections for Revenues Under Current-Policy Economic Assumptions
6-2.         Individual Income Tax Brackets, 1997
6-3.         The Size of Two Possible Tax Bases for a Value-Added Tax, 1995
 
A-1.        Estimated Savings from the Administration's 1998 Plan for Selected Department of Defense Options
 
 
FIGURES
 
2-1.         Outlays for National Defense
2-2.         Outlays for International Affairs
6-1.         Total Revenue as a Share of GDP
6-2.         Revenues by Source as a Share of GDP
6-3.         Total Tax Revenues as a Percentage of GDP, 1994
6-4.         Taxes on General Consumption as a Percentage of Total Taxation, 1994
 

BOXES
 
1-1.         Procedures for Controlling the Deficit
3-1.         Categories of Domestic Discretionary Spending
5-1.         Medicare as a Defined Contribution Plan
5-2.         Options to Reduce Growth in Medicare Spending
5-3.         Adjusting Payments for Favorable Selection

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