Letter to the Speaker of
the House of Representatives and the President of the Senate Transmitting the
Fiscal Year 1990 Budget
To
the Speaker of the House of Representatives and the President of the Senate:
Eight
years ago many in this country were concerned about the future of our economy,
our government and, indeed, the Nation itself. Unemployment was high and rising.
Inflation and interest rates were reaching record levels. Our Nation's defense
capabilities had been weakened by neglect. The international prestige of the
To
resolve the economic problems then facing us, our administration proposed a
recovery program centering on four fundamental principles:
d
Reduce
personal and business tax rates.
d
Reduce
the rate of growth of Federal spending.
d
Reduce
the Federal regulatory burden by eliminating unnecessary restrictions while
protecting the public's interest and safety.
d
Support
a moderate and steady monetary policy to bring inflation under control.
To
rebuild our defense capabilities and restore
We
also initiated the largest management improvement program ever attempted in
order to restore the proper relationships among the Federal, State and local
governments, and the private sector; to eliminate waste in Federal programs;
and to introduce management controls and efficiencies, while improving
services.
Today,
the American people can be proud of the progress that has been made on each of
these fronts. As a result of this progress,
Eight
Years of Accomplishment
Working
together, we have accomplished much over the last eight years.
The
Economy
d
The
current economic expansion, now in its seventy-fourth month, has outlasted all
previous peacetime expansions in
d
Since
this expansion began, 19 million new jobs have been created, while the
unemployment rate has fallen by more than 5 percentage points -- to 5.4
percent, the lowest level in 14 years.
d
Inflation,
which averaged 10.4 percent annually during the four years before our
administration began, has averaged less than a third of that during the past
six years.
d
Real
after-tax personal income has risen 24 percent since 1982, increasing our
overall standard of living.
Taxes
and Regulations
d
Between
1981 and 1987, changes in the Federal tax code have made the tax laws more
equitable, cut income tax rates, and eliminated Federal income taxes for 4.3
million low-income individuals and families.
d
Since
1981, the time spent by the public filling out forms required by the Federal
Government has been cut by 600 million hours annually, and the number of pages
of regulations published annually in the Federal Register has been reduced by
over 45 percent.
Budget
d
The
growth in domestic spending has been slowed, and the budget priorities have
been shifted to those functions the Federal Government should provide, such as
national defense, basic scientific research, and protecting the rights of all
citizens.
d
The
social security system has been rescued from the brink of insolvency and made
sound into the next century.
d
The
runaway growth of spending for means-tested entitlement programs that occurred
in the 1970's has been curbed. Eligibility rules have been tightened to
retarget benefits to the needy. Basic benefits for the poor, the elderly, and
others in need of Federal assistance have been maintained.
d
We
have begun the process of putting other entitlement programs on a more rational
basis, including medicare hospital insurance, which
was converted to a system that encourages efficiency and lower costs.
Defense
and International Affairs
d
Our
defenses have been strengthened. Weapons systems have been modernized and
upgraded. We are recruiting and retaining higher caliber military personnel.
The readiness, training, and morale of our troops have been improved
significantly.
d
As
a result of our greater strength, we were able to negotiate with the
d
We
began the Strategic Defense Initiative research and technology program that
offers our best hope of a safer world in which our security,
and that of our allies, no longer rests on deterrence through the threat of
nuclear retaliation, but on defenses that threaten no one.
d
Our
willingness to defend freedom throughout the world has met with success in the
spread of democracy and in turning back the tide of communist expansion.
Management
of the Government
d
Federal
agencies undertook a major management improvement program, ``Reform '88,'' to
carry out the cash, credit, and financial operations of the Federal Government
in a more business-like manner, and to reduce waste, fraud, and abuse.
d
Functions
that were pre-empted by the Federal Government are being transferred back to
the private sector or to State and local governments.
d
Greater
use is being made of cost sharing and user fees, shifting the cost of projects
and programs where appropriate to those who benefit from them.
The
Federal Deficit
The
one area in which I have been persistently disappointed throughout my term of
office has been in the efforts to bring the budget under control. Time and
again I have proposed measures to help curb Federal domestic program spending.
Time and again these proposals have been rejected by Congress.
The
reasons for the rise in the Federal deficit in the early 1980's are simple.
First, we experienced one of the most severe recessions of the post-war period.
It has been estimated that 81 percent -- over $640 billion -- of the growth of
the deficit over the 1981 - 1986 levels originally projected in my March 1981
budget was attributable to that recession. The second reason is that, even
after including necessary increases for defense, my March 1981 budget called
for net spending reductions totalling $331 billion
over five years; but Congress approved less than 40 percent of those
reductions. Wasteful programs continued to be funded. The necessary reductions
have still not been made.
If
the deficit is not curbed by continuing to limit the appetite of government, we
put in jeopardy all that we worked so hard over the years to achieve. Large
deficits brought on by excessive domestic spending undercut the incentives to
work and save by absorbing the savings that would otherwise lead to productive
investment. We cannot allow this to happen.
I
am proud of
This
Budget Reduces the 1990 Deficit Below the G - R - H
Target and Achieves Balance in 1993
The
fiscal year 1990 budget, my last, represents a continuation of my efforts to
reduce the Federal budget deficit through restraint in domestic spending.
The
budget I am submitting today complies with the deficit targets set in the
Gramm-Rudman-Hollings (G - R - H) Act, by proposing measures that meet the 1990
deficit target of $100 billion and assure a steady reduction in the deficit
leading to a balanced budget in 1993.
Under
my proposals, the deficit would decline to less than 2 percent of GNP in 1990,
and the Federal debt held by the public would also decline as a proportion of
GNP.@c8,i1,s10,7,7,7,6,6,5.1,6
BUDGET
SUMMARY
[dollar amounts in billions]
1988 1989 1990 1991 1992 1993 1994
Receipts 909.0 975.5 1,059.3 1,140.5 1,212.2 1,281.4
1,345.0
Outlays 1,064.0 1,137.0 1,151.8 1,207.3 1,244.4 1,279.0 1,311.6
Surplus
or deficit () 155.1 161.5 92.5 66.8 32.2 2.4 33.4
Surplus
or deficit ()
without asset sales 155.1 161.5
98.6 69.2
34.3
1.6
32.6
G
- R - H deficit targets 144.0 136.0 100.0 64.0
28.0
0.0
Difference 11.1 5.5 1.4 5.2
6.3
1.6
NA
ADDENDUM
Surplus
or deficit () as a percent of GNP
3.2 3.2
1.7
1.1 0.5 0.0 0.5
Footnote:
Note. -- Totals include social security, which is off-budget.
Footnote:
NA: Not available.
(TABLE
END)
This
budget shows that a gradual elimination of the deficit is possible without raising
taxes, without cutting into essential social programs, without devastating
defense, and without neglecting other national priorities. It can be done in a
reasonable, responsible way -- with discipline and fairness. New taxes are not
required. Receipts will grow dramatically between 1989 and 1990 because our
economy is growing. This budget simply proposes to increase spending by less
than the increase in revenues, and therefore, reduce the deficit. The proposed
reforms will yield additional deficit reductions in future years. We have an
opportunity this year to put the worst of the deficit problem behind us and
enable the next Administration to begin its term of office with a clean slate
and with the promise of continuing prosperity.
Funding
National Priorities
To
address urgent national priorities within the deficit limit set by the G - R -
H Act, my budget proposes that some programs -- such as those for AIDS research
and prevention, drug enforcement, and technology development -- receive
significant funding increases, while others are reduced, reformed, or, in some
cases, terminated.
Defense
Maintaining
peace and protecting our country are the foremost responsibilities of the
Federal government. Defense budget authority declined in real (inflation-adjusted)
terms for the fourth straight year with funding of $299 billion for 1989. This
trend cannot continue without severe impact on combat readiness. Therefore, my
budget requests defense funding of $315 billion in budget authority and $303 billion
in outlays for 1990, and $331 billion in budget authority and $314 billion in
outlays in 1991. These amounts provide 2 percent annual real growth in budget
authority over the 1989 level, bringing it back up to the 1984 level in
inflation-adjusted terms by 1991. The budget also projects 2 percent real
growth in these programs in future years.
We
must continue to maintain our nuclear deterrent. For 1990, the budget proposes
$9.0 billion for atomic energy defense programs, a $0.9 billion increase over 1989.
A total of $2.8 billion is dedicated to the modernization of the nuclear
materials production complex and to increase environmental clean-up and waste
management efforts.
International
To
consolidate and build on the foreign policy gains of the past eight years,
additional funds are needed for international affairs that would promote our
foreign policy and national security interests in the
Drug
Abuse and Law Enforcement
Our
fight against drug abuse must continue, as well as our efforts to protect the
individual against crime:
For
drug law enforcement, prevention, and treatment programs, I propose $5.7
billion in 1990, an increase of $164 million over 1989. This funding, together
with the new authorities and sanctions contained in the Anti-Drug Abuse Act of
1988, will enable us to move toward our goal of a drug-free
To
relieve prison overcrowding and adequately house a growing inmate population, I
would provide $1.6 billion for prison construction and operation, $193 million
more than was devoted to this purpose in 1989.
AIDS
Research and Education
This
budget reflects my belief that addressing the problem of AIDS must remain a top
priority:
Preventing
and alleviating suffering from the Human Immunodeficiency Virus (HIV), which
causes AIDS, is our highest public health priority. Federal support for
research, prevention, and treatment exceeds $2.1 billion in 1989, and will
approach $2.8 billion in 1990. This budget asks for $1.6 billion, or 24 percent
over 1989, for Public Health Service HIV funding.
Research
One
of our highest priorities is to strengthen
I
propose a continued increase in federally supported basic research aimed at
longer-term improvements in the Nation's productivity and global
competitiveness. This budget continues the commitment to double National
Science Foundation support for academic basic research by 1993, increases
support for training future scientists and engineers, and expedites transfer of
the results of Government-funded basic research to industry.
Our
space program will provide $13.1 billion for continued development of
Also
included in the budget is $250 million in 1990 as the Federal share of support
for initiating construction of the Superconducting Super Collider
(SSC). Non-Federal cost sharing arrangements will be required to support
one-third of the project's costs. The SSC as currently envisaged will be the
largest pure science project ever undertaken. It will help keep this country on
the cutting edge of high energy physics research well into the next century.
Other
Priorities
Other
areas of Federal responsibility receive priority funding in this budget:
To
continue the Federal Aviation Administration's multi-year program to increase
its controller and inspector workforces and to modernize the Nation's air
traffic control systems, the budget provides $7.7 billion -- a 17 percent
increase over the 1989 level.
To
alleviate the problems facing our savings institutions, I propose that the
Federal Savings and Loan Insurance Corporation (FSLIC) spend $16 billion in
1989 and $9 billion in 1990 to address the most serious thrift institution
problems. The Secretary of the Treasury is developing a comprehensive plan to
resolve the savings industry's problems, and reform the financial institution regulatory
structure and deposit insurance system to prevent a reoccurrence of these
problems. I expect the Secretary to submit his proposals to the new President
shortly.
To
improve coordination of Federal rural development programs and to redirect
funding toward needy rural areas and program recipients, I am continuing
support of the rural development initiative coordinated by the Secretary of
Agriculture.
By
emphasizing housing vouchers, I would provide housing assistance to 132,000
additional low-income households in 1990, 5 percent more than the 126,124
additional households receiving housing subsidies in 1989. Housing vouchers can
serve more low-income households at a lower Federal cost and provide greater
opportunity for these families to rent housing of their own choosing.
To
maintain the progress we have been making in fostering State and local
education reform, I would sustain the present level of spending on
discretionary education programs at $18.5 billion, but refocus those funds to
put more money where the needs of the disadvantaged and students with handicaps
are greatest.
To
continue the significant progress we have made in cleaning up the environment,
I recommend a $153 million increase for the Environmental Protection Agency's
regulatory, research and enforcement programs. I also recommend an increase of
$315 million for the Superfund hazardous waste cleanup program in order to
maintain the program's momentum and support a stronger enforcement role.
Because
changes in the earth's natural systems can have tremendous economic and social
effects, global climate change is becoming a critical concern. Our ability to
understand and predict these changes is currently limited, and a better
understanding is essential for developing policies. The budget proposes a
coordinated and effective Federal research program on global change. This
budget is accompanied by a report by the Committee on Earth Sciences that describes this program and its strategy.
Last
year's fires on Federal forestlands indicated the need for more
timely funding for annual fire-fighting costs. I therefore propose that
two new Federal wild land firefighting accounts be established in the
Departments of Agriculture and Interior.
To
further strengthen our energy security, I propose legislation authorizing the
sale of the naval petroleum reserves to the private sector in exchange for cash
and oil to be added to the strategic petroleum reserve. I also propose the
establishment of a separate 10 million barrel defense petroleum inventory.
To
provide for the timely completion of my Reform '88 management improvement
program I propose an additional $103 million for 1990, to further improve our
management and credit systems.
Major
Programs Are Reformed To Achieve Deficit Reduction
The
program structure and incentives underlying many domestic Federal programs need
to be altered to promote greater efficiency and cost-effectiveness.
Current
farm price support programs are far too costly. For the period 1986 - 89 an
estimated $130 billion in Federal spending for farm-related assistance programs
provided an average of nearly $600,000 per farmer. Much of this assistance goes
to farmers with high incomes -- more than twice the
The
rapidly rising costs of the medicare program need to
be moderated. I propose a reasonable increase in the medicare
prospective payment system rate and reductions in hospital capital payments and
special graduate medical education payments. Also, in an effort to restrain
excessive growth in supplementary medical insurance (SMI) costs, I propose
extension of the current law SMI premiums, limitations on physician payments,
reductions in payments for certain overpriced procedures,
and reforms in the durable medical equipment payment system. Medicare spending
would still grow by 9 percent between 1989 and 1990 under these proposals --
but not by the 13 percent that would occur under current law.
I
also propose reforms in the medicaid program to
reduce spending growth between 1989 and 1990 to $1.7 billion, or 5 percent,
rather than the $3.3 billion, or 9 percent, that would
occur under current law. These reforms reinstate successful incentives employed
in the early 1980's. My budget also proposes restructuring Federal financing of
administrative expenses to give States greater incentives to operate their
administrative systems as efficiently as possible.
The
Government often continues programs at the Federal level that are either
duplicative or are no longer needed, or more appropriately undertaken by other
levels of government or the private sector. This is the case with the Economic
Development Administration, Amtrak, urban mass transit discretionary grants,
and most operating subsidies for the Postal Service. Efforts to reverse this
situation have been undertaken by prior administrations as well as my own.
These programs should be eliminated. The budget proposes termination of 82
programs that are not needed to satisfy national priorities.
Under
current law, outlays for Federal employee retirement and health benefits are
estimated to grow from $51.3 billion in 1989 to $55.9 billion in 1990. I
propose freezing retirement cost-of-living allowances (COLAs) and other reforms
to hold the 1990 level to slightly above that for 1989, reducing the growth
that would otherwise occur by $4.4 billion.
Achieving
a Proper Federal Role and Improving Management
As
the Federal Government grew, it took on improper responsibilities, and managed
its programs inefficiently. We undertook to return the Federal Government to
its proper role. We also initiated a major program to improve the management of
the remaining programs. These priorities are continued and expanded in this
budget.
Privatization. -- The Government and
the private sector should each do what it does best. The Federal Government
should not be involved in providing goods and services where private enterprise
can do the job cheaper and better.
Accordingly,
my budget proposes that a number of Federal enterprises be opened to the
private sector, through public offerings or outright sales. Following our
success in the sale of Conrail and the sale of $21 billion in selected loan
portfolios, I am proposing sale of the naval petroleum reserves, the Alaska
Power Administration, and the Southeastern Power Administration. I also propose
sale of the Federal Government's helium-processing assets, excess real
property, and a further $4.3 billion in loan portfolios. In addition, my budget
proposes legislation to establish a government corporation for the uranium
enrichment enterprise, as the first step towards eventual privatization.
The
Federal Government should also depend more on the private sector to provide
ancillary and support services for activities that remain in Federal hands.
Therefore, I propose a number of pilot projects and studies in areas such as
the private delivery of advertising materials and urgent mail, and the
Department of Justice's prison hospitals.
Improved
Management
In
1981, I made a promise to the American people ``to limit Government to its
proper role and make it the servant, not the master, of the people.'' My
``Management Improvement Program: Reform '88'' has helped make Government more
efficient and more responsive. We reduced waste and
fraud in Federal programs by combining the efforts of the inspectors general
into the President's Council on Integrity and Efficiency, resulting in over
$110 billion saved or put to better use -- and their efforts are continuing.
I
saw that the Federal Government did not have effective cash management
practices for dealing with what is now a $2 trillion annual cash flow, nor did
it have a government-wide credit management program for what is now a $1
trillion portfolio. This resulted in the waste of billions of dollars each
year. We built the necessary government-wide controls in both areas and stopped
the drain.
Moreover,
we began the establishment of the first government-wide financial accounting
system, consolidating and making uniform over 400 previously incompatible
individual agency systems. This was essential for any well-managed government,
and is presently being implemented.
The
Federal Government has a major effect on our daily lives through the collection
of taxes and fees, the direct provisions of services, the payment of financial
assistance through various entitlement programs, and the regulation of
commercial enterprises. Through modernization, improved administration, and
automated services the Government has made substantial reductions in the time
it takes to provide services to the public. As the 21st century approaches, the
Federal Government must adapt its role in our society to changing conditions
and changing technology. At the turn of the century, the
The
1990 Management Report, which is being forwarded to the Congress as part of the
1990 budget submission, reflects the highlights of OMB's report to me on
``Government of the Future.'' That Management Report has been expanded as a
beginning to a planning process that has, in part, shaped the proposals in this
budget and should become a part of the annual budget process.
Budget
Process Reform Is Desperately Needed To Continue Deficit Reduction
The
persistence of the budget deficit is overwhelming evidence that the Federal
budget process is fundamentally flawed. Past efforts at ``reform'' have been
directed largely toward protecting a large portion of domestic spending from
real fiscal discipline. Fourteen years after passage of the Congressional
Budget Act and three years after enactment of the Balanced Budget and Emergency
Deficit Control Act, the Federal budget process remains unwieldy and
undisciplined. The American people expect better of their political system, and
they deserve it.
Under
the Congressional Budget Act, Congressional budget resolutions -- Congress'
proposed budgets -- are passed each year. They are not sent to the President
for approval and, therefore, are not law. They provide guidance to the
committees of Congress, but the guidance is often late and ambiguous. The
resolutions are usually passed well after the dates required by law, and well
after they are needed by the finance, authorizing, and appropriations
committees. Moreover, there is little agreement within Congress on the guidance
provided. The House of Representatives and the Senate do not agree, except in
the most general terms, on the priorities implied by resolutions both have
approved.
Except
for last year's on-time performance, Congress self-imposed budget deadlines
have usually been missed, and massive continuing resolutions and reconciliation
bills have been the rule rather than the exception. These large, cumbersome
bills provide cozy hiding places for hundreds of special interest add-ons,
which line-item veto authority would permit the President to challenge.
A
number of changes in the budget process -- most of which I have recommended
before -- are needed to instill budget discipline throughout the legislative
process. I urge Congress to adopt the following measures:
Balanced budget amendment. -- I remain committed
to and urge approval of a constitutional amendment requiring a balanced budget.
The amendment should require a super-majority vote (at least 60 percent) in the
Congress to increase taxes.
Line-item
veto. -- My successors should be given the authority, subject to Congressional
override, to veto line-items in annual appropriations bills, in authorizing
legislation that provides or mandates funding for programs, and in revenue
bills. Such authority would permit the elimination of substantial waste and
would be an effective instrument for enforcing budget discipline.
Enhanced rescission authority. -- To enhance the
President's ability to control Government spending, I recommend that line-item
veto authority be complemented by a change in law that would require the
Congress to vote ``yea'' or ``nay'' on any rescission proposed by the
President. Current law allows the Congress to duck responsibility by simply
ignoring proposed rescissions for 45 days.
Biennial budgeting. -- The annual budget
process consumes too much time and energy. A biennial budget would reduce the
repetitive budget tasks, allow more time for considering key spending and
revenue decisions, provide less scope for gimmicks that give the illusion of ``savings,''
such as shifting spending from one year to another without affecting the
underlying programs, and permit the realization of real savings that would be
possible with a more assured availability of funds. For these reasons, I
recommend that biennial budgeting be adopted.
Joint budget resolution. -- To ensure the
broader scrutiny and stricter discipline that is needed in the congressional
budget process, I propose that Congress be required to prepare a budget
resolution covering a minimum of two years showing revenue proposals
individually and showing spending priorities. The Congress should also be
required to submit its budget resolution to the President for his signature or
veto. Subsequent legislation which exceeds these allocations should not be
considered without super-majority approval.
Individual transmittal of appropriations bills. -- The practice of
transmitting full-year continuing resolutions covering a number of
appropriations bill does not permit the Legislative and Executive Branches to
exercise proper scrutiny of those bills. Too often in the past, such continuing
resolutions have provided convenient cover for special-interest spending that
would not survive close scrutiny. To minimize this risk, I propose that
appropriations bills be transmitted individually to the President.
Credit reform. -- The effects of
credit activities are recorded imperfectly under current budget accounting. The
subsidy component of Federal lending programs remains hidden.
To
correct this major fault in the budget system, I recommended credit reform
legislation two years ago. This legislation, which I am recommending again,
would measure the true cost -- the present value -- of the subsidies provided
by Federal credit programs and put that cost on an expenditure basis equivalent
to the cost of other Federal programs. This change must be an integral part of
the reform of the budget process.
Measuring the effects of budget proposals. -- Budget discipline
and lasting deficit reduction would be facilitated if the Legislative and
Executive Branches were to use a common set of principles for scoring budget
proposals and actions on them. I urge that the Congressional Budget Office and
the Office of Management and Budget be charged with the responsibility to
develop, in consultation with the budget, finance, authorizing, and
appropriations committees, a common set of budget scoring principles for use by
the Legislative and Executive Branches.
Adoption
of these reforms should enable the Federal Government to make informed
decisions in a deliberate fashion that fosters rational priorities. The
American people deserve no less from their elected representatives.
Conclusion
The
accomplishments of the American people in past eight years will always be for
me a source of pride. However, we must continue our recent progress in reducing
the Federal deficit.
Deficit
reduction is a key national priority, written into law by the G - R - H Act,
which, despite its defects, legislated a process to
achieve a balanced budget.
This
budget achieves the 1990 target of the amended Act, and projects a budget
balanced in 1993. It preserves legitimate programs for the aged and needy,
provides for adequate national security, devotes more resources to other
high-priority activities, and accomplishes all this without raising taxes. Tax
increases are not needed. History shows that they would simply be used by the
Congress to increase spending. Tax increases have been overwhelmingly voted
down in the last three Presidential elections.
I
call upon the Congress to enact this budget. Higher taxes are not needed -- as
this budget demonstrates -- but genuine deficit reduction through moderating
the growth in spending is essential to enable the next Administration and Congress
to address the Nation's agenda for the future.
Over
the past eight years, we Americans have made our world a safer place for
freedom because we had the will to reinvigorate our economy, rebuild our
defenses, and provide for the less fortunate among us. Together, we achieved a
new beginning for our country and prepared the way for the next Administration
to build on our accomplishments.
Ronald
Reagan
January
9, 1989
Note: Identical letters
were sent to Jim Wright, Speaker of the House of Representatives, and George
Bush, President of the Senate.