Suspension of the Rules: House Practice in the 114th Congress (2015-2016)

Summary: Suspension of the rules is the most commonly used procedure to call up measures on the floor of the House of Representatives. As the name suggests, the procedure allows the House to suspend its standing and statutory rules in order to consider broadly supported legislation in an expedited manner. More specifically, the House temporarily sets aside its rules that govern the raising and consideration of measures and assumes a new set of constraints particular to the suspension procedure.

Summary: The suspension of the rules procedure has several parliamentary advantages: (1) it allows nonprivileged measures to be raised on the House floor without the need for a special rule, (2) it enables the consideration of measures that would otherwise be subject to a point of order, and (3) it streamlines floor action by limiting debate and prohibiting floor amendments. Given these features, as well as the required two-thirds supermajority vote for passage, suspension motions are generally used to process less controversial legislation.

Summary: In the 114th Congress (2015-2016), measures considered under suspension made up 62% of the bills and resolutions that received floor action in the House (743 out of 1,200 measures). The majority of suspension measures were House bills (83%), followed by Senate bills (11%) and House resolutions (4%). The measures covered a variety of policy areas but most often addressed government operations, such as the designation of federal facilities or amending administrative policies.

Summary: Most measures that are considered in the House under the suspension procedure are sponsored by a House or Senate majority party member. However, suspension is the most common House procedure used to consider minority-party-sponsored legislation regardless of whether the legislation originated in the House or Senate. In 2015 and 2016, minority-party members sponsored 31% of suspension measures, compared to 9% of legislation subject to different procedures, including privileged business (17 measures), unanimous consent (21 measures), and under the terms of a special rule (one Senate bill).

Summary: Most suspension measures are referred to at least one House committee before their consideration on the floor. The House Committee on Oversight and Government Reform (now called the Committee on Oversight and Reform) was the committee of primary jurisdiction for the plurality of suspension measures considered in the 114th Congress. Additional committees—such as Energy and Commerce, Homeland Security, Natural Resources, Foreign Affairs, and Veterans' Affairs—also served as the primary committee for a large number of suspension measures.

Summary: Suspension motions are debatable for up to 40 minutes. In most cases, only a fraction of that debate time is actually used. In the 114th Congress, the average amount of time spent considering a motion to suspend the rules was 13 minutes and 10 seconds.

Summary: The House adopted nearly every suspension motion considered in 2015 and 2016. Approval by the House, however, did not guarantee final approval in the 114th Congress. The Senate passed or agreed to 40% of the bills, joint resolutions, and concurrent resolutions initially considered in the House under suspension of the rules, and 276 measures were signed into law.

Summary: This report briefly describes the suspension of the rules procedure, which is defined in House Rule XV, and provides an analysis of measures considered under this procedure during the 114th Congress. Figures and one table display statistics on the use of the procedure, including the prevalence and form of suspension measures, sponsorship of measures by party, committee consideration, length of debate, voting, resolution of differences between the chambers, and the final status of legislation. In addition, an Appendix illustrates trends in the use of the suspension procedure from the 110th to the 114th Congress (2007-2016).

The House of Representatives has standing rules that govern how bills and resolutions are to be taken up and considered on the floor. However, to expedite legislation receiving floor action, the House may temporarily set aside these rules for measures that are not otherwise privileged for consideration. This can be done by agreeing to a special order of business resolution (special rule) or by adopting a motion to suspend the rules and pass the underlying measure. In general, special rules enable the consideration of complex or contentious legislation, such as major appropriations or reauthorizations, while the suspension of the rules procedure is usually applied to broadly supported legislation that can be approved without floor amendments or extensive debate in the chamber.

Most bills and resolutions that receive floor action in the House are called up and considered under suspension of the rules. The suspension procedure allows nonprivileged measures to be raised without a special rule, waives points of order, limits debate, and prohibits floor amendments. Motions to suspend the rules and pass the measure require a two-thirds vote, so the procedure is typically reserved for bills and resolutions that can meet a supermajority threshold.

Decisions to schedule bills for consideration under suspension are generally based on how widely supported the measures are, how long Members wish to debate them, and whether they want to propose floor amendments. These decisions are not necessarily related to the subject matter of the measure. Accordingly, measures brought up under suspension cover a wide range of policy areas but most often address government operations, such as the designation of federal facilities.

This report describes the suspension procedure, which is defined in clause 1 of House Rule XV, and provides an analysis of measures considered under suspension during the 114 th Congress (2015-2016). Figures 1- 8 display statistical data, including the prevalence and form of suspension measures, sponsors of measures, committee consideration, length of floor debate, voting, and resolution of differences between the chambers. Table 1 summarizes the final legislative status of measures initially considered in the House under the suspension of the rules. Finally, Figure A-1 depicts the use of the suspension procedure from the 110 th through the 114 th Congresses (2007-2016).

The suspension of the rules procedure is established by clause 1 of House Rule XV. Bills, resolutions, House amendments to Senate bills, amendments to the Constitution, conference reports, and other types of business may be considered under suspension, even those "that would otherwise be subject to a point of order … [or have] not been reported or referred to any calendar or previously introduced."

Suspension motions are in order on designated days. As Rule XV states, "the Speaker may not entertain a motion that the House suspend the rules except on Mondays, Tuesdays, and Wednesdays and during the last six days of a session of Congress." Suspension measures, however, may be considered on other days by unanimous consent or under the terms of a special order of business (special rule) reported by the Committee on Rules and agreed to by the House.

A motion to suspend the rules is a compound motion to suspend the House rules and pass a bill or agree to a resolution. When considering such a motion, the House is voting on the two questions simultaneously. Once recognized, the Member making the motion will say, "Mr. [or Madam] Speaker, I move to suspend the rules and pass___." The House rules that are suspended under this procedure include those that "would impede an immediate vote on passage of a measure … such as ordering the previous question, third reading, recommittal, or division of the question."

A measure considered under the suspension procedure is not subject to floor amendment. The motion to suspend and pass the measure, though, may provide for passage of the measure in an amended form. That is, the text to be approved may be presented in a form altered by committee amendments or by informal negotiations. Suspension measures that are passed with changes incorporated into the text are passed "as amended." There are no separate votes on the floor approving such amendments.

Suspension motions are "debatable for 40 minutes, one-half in favor of the motion and one-half in opposition thereto." However, in most instances, a true opponent never claims half the time, and most speakers come to the floor to express support for the measure. Debate time is controlled by two floor managers, one from each party, who sit on a committee of jurisdiction. Each manager makes an opening statement and may yield increments of the 20 minutes they control to other Members to debate the measure.

Once debate has concluded, a single vote is held on the motion to suspend the rules and pass the measure. The motion requires approval by "two-thirds of the Members voting, a quorum being present." Should the vote fall short of the two-thirds required for passage (290, if all Members vote), the measure is not permanently rejected. Before the end of the Congress, the House may consider the measure again under suspension, or the Committee on Rules may report a special rule that provides for floor consideration of the measure.

Prevalence and Form of Suspension Measures, 114th Congress

As illustrated in Figure 1 , the majority of measures considered on the House floor during the 114 th Congress were called up under the suspension of the rules procedure. Sixty-two percent of all measures that received floor action were considered under suspension (743 out of the 1,200), compared to those under the terms of a special rule (14%), unanimous consent (7%), or privileged business (16%).

Figure 2 displays the form of suspension measures. Most of the measures considered under suspension during the 114 th Congress (94%) were bills. House bills made up 83% of the suspension total, Senate bills 11%.

As represented in Figure 3 , most suspension measures were sponsored by members of the majority party during the 114 th Congress. House or Senate majority-party members sponsored 69% of all bills and resolutions initially considered in the House under suspension, while House majority-party members sponsored 467 (71%) of the 660 House-originated measures (designated with an H.R., H.Res., H.Con.Res. or H.J.Res. prefix).

Suspension is, however, the most common procedure used to consider minority-sponsored legislation in the House by a wide margin. In the 114 th Congress, 85% of the minority-sponsored measures that were considered on the House floor were raised under the suspension procedure. Members of the House or Senate minority parties sponsored 31% of all suspension measures originating in either chamber, compared to 9% of legislation subject to different procedures, including privileged business (17 measures), unanimous consent (21 measures), and special rules (one Senate bill).

Minority-party House Members sponsored 193 (29%) of the 660 House measures considered under suspension. No minority-party House Member sponsored a House-originated measure that was considered under a special rule.

Most suspension measures are referred to at least one House committee before their consideration on the chamber floor. In the 114 th Congress, 710 out of the 743 suspension measures considered (96%) were previously referred to a House committee. Of the 33 measures that were considered without a referral, 31 were Senate bills that were "held at the desk," and two were House resolutions that provided concurrence to Senate amendments.

Measures may be referred to multiple House committees before receiving floor action. When a bill or resolution is referred to more than one House committee, the Speaker will designate one committee as primary, meaning it is the committee exercising jurisdiction over the largest part of the measure. Generally, the chair of the committee of primary jurisdiction works with majority party leadership to determine if and when a measure should be considered under suspension. Figure 4 shows the number and percentage of measures brought up under suspension from each House committee of primary jurisdiction.

The House Committee on Oversight and Government Reform (now Oversight and Reform) was the committee of primary jurisdiction for the plurality of measures considered under suspension in the 114 th Congress: 106, or 14%, of the total number of suspension measures considered. Many of these bills designated names for post offices or other federal properties.

For most House committees, the majority of their referred measures that reached the floor were raised under the suspension procedure. In the 114 th Congress, the four exceptions were the Committee on House Administration—which had several measures considered by unanimous consent—and the Committees on Appropriations, the Budget, and Armed Services, which had at least half of their measures considered pursuant to special rules. For the other committees, suspension measures ranged from 57% to 100% of the total number of the committee's measures receiving floor action ( Figure 5 ).

Since suspension motions require a two-thirds majority for passage, House committees that handle less contentious subjects tend to have more of their measures considered under the suspension procedure in comparison to other committees. In the 114 th Congress, high-suspension committees included Small Business (100% of measures receiving floor action) and Veterans' Affairs (92%). The Small Business Committee's measures sought to authorize new business development programs. Veterans' Affairs measures included authorizations, reauthorizations, and bills designating federal facilities.

While suspension measures are not subject to floor amendments, committees may recommend amendments to legislative texts during markup meetings or through informal negotiations. The motion to suspend the rules can include these proposed changes when a Member moves to suspend the rules and pass the measure "as amended." In the 114 th Congress, 396 suspension measures (53% of the total) were considered "as amended," meaning that the text to be approved differed from the measure's introduced text.

Clause 2 of House Rule XIII requires that measures reported by House committees must be accompanied by a written report. Otherwise, they are not placed on a calendar of measures eligible for floor consideration. However, the written report requirement is among those rules suspended under the suspension procedure. Thus, measures may be called up on the floor under suspension of the rules even if a committee never ordered them to be reported or wrote an accompanying committee report. Instead, the motion to suspend the rules discharges the committee and moves the legislation directly to the House floor.

In the 114 th Congress, 517 (70%) suspension measures were ordered to be reported by a House committee. Of this number, 398 were reported with an accompanying House committee report. Twenty measures that did not have a House report did have a Senate report, while 325 measures had no written report from either chamber (43% of the total number of suspension measures).

Pursuant to Rule XV, motions to suspend the rules are regularly in order on Mondays, Tuesdays, and Wednesdays or on the last six days of a session of Congress. However, suspension motions may be considered on other days by unanimous consent or under the terms of a special rule reported by the Committee on Rules and agreed to by the House.

As displayed in Figure 6 , in the 114 th Congress, the plurality of suspension measures were considered on Tuesdays (312, 42% of the total number considered), followed by Mondays (291, 39%) and Wednesdays (114, 15%). In addition, 25 suspension measures were considered on Thursdays and one on a Friday. Of these, one was considered by unanimous consent, while 25 were called up under suspension pursuant to permission included in a special rule reported by the Rules Committee and agreed to by the full House. Such special rules included a provision stating, "It shall be in order at any time on the legislative day of ___ for the Speaker to entertain motions that the House suspend the rules as though under clause 1 of rule XV."

Pursuant to Rule XV, suspension measures are "debatable for 40 minutes, one-half in favor of the motion and one-half in opposition thereto." In practice, there is rarely a true opponent to a motion to suspend the rules, and the time is divided between two floor managers, usually one from each party, who both favor the motion. The floor managers each control 20 minutes of debate. The managers may be their parties' sole representative for or against the motion, or they may yield increments of the 20-minute allotment to other Members.

Typically, the relevant committee chairs and ranking members select the majority and minority floor managers for particular bills and resolutions. These managers may be the measure's sponsor, the chair or ranking member of the measure's committee of primary jurisdiction, or another committee member.

In the 114 th Congress, the measure's sponsor served as the majority manager on 26% of the suspension measures receiving floor action. The committee chair managed 29% of the measures. The minority manager was the measure's sponsor for 11% of the measures and the committee's ranking member for 26% of the measures considered.

Occasionally, floor managers controlling time on a motion to suspend the rules ceded their control to other Members during debate. In two identified cases, both the majority and minority floor managers favored the measure, and another Member claimed the time in true opposition during the initial floor consideration of the measure. In at least one other instance, the minority manager asked unanimous consent to yield managerial control to another Member.

A majority floor manager makes the motion to suspend the rules by stating, "Mr. [Madam] Speaker, I move to suspend the rules and pass the bill [or resolution] ____." The Speaker [or Speaker pro tempore] responds, "Pursuant to the rule, the gentleman[woman] from [state] and the gentleman[woman] from [state] each will control twenty minutes." The majority and minority managers then, in turn, make opening statements regarding the measure using the 20 minutes each controls.

If the majority and minority managers have secured additional speakers, the speakers generally alternate between the parties within the 40-minute limit. During the 114 th Congress, on a motion to suspend the rules, the average number of speakers in addition to the floor managers was fewer than two. On 83% of the measures (620) considered, there were one or two additional speakers. On 27% of the measures (199) considered, there were no additional speakers, and in 16% of the measures (120) considered, there were 3 to 12 additional speakers. Three measures had 20, 21, and 25 additional speakers, respectively.

At the start of the debate period, the majority manager may request "unanimous consent that all Members may have five legislative days in which to revise and extend their remarks and add extraneous materials on this bill [resolution]." This request enables general leave statements to be inserted into the Congressional Record . In 29% of the suspension measures considered in the 114 th Congress, a written general leave statement appeared in the Record following in-person remarks, indicating that the remarks were submitted on the day the legislation was considered. General leave statements submitted on a day other than the day of consideration appear in the Extension of Remarks section of the Congressional Record .

Suspension measures are limited to a maximum of 40 minutes of debate under Rule XV. However, if there are time gaps between speakers or procedural interruptions, such as a vote on a motion to adjourn, the time period between the start of the first speaker's remarks and the conclusion of debate may exceed 40 minutes. The statistics displayed in Figure 7 show the length of consideration of suspension measures as documented in Congress.gov, not the accumulated length of statements, as kept by official timekeepers in the chamber.

In the 114 th Congress, the average length of consideration on a motion to suspend the rules was 13 minutes and 10 seconds, and half of the measures considered had a debate period of 10 minutes or less. Thus, while overall debate is limited to 40 minutes under the rule, on most suspension measures, only a fraction of that time was actually expended during consideration. Seventeen measures, however, had consideration periods that exceeded 40 minutes due to procedural delays or, in the case of one measure, a request for unanimous consent to extend debate by 10 minutes to each side.

House leaders generally choose measures for suspension that are likely to achieve the two-thirds majority threshold for passage. Thus, almost all suspension measures were passed by the House in the 114 th Congress. The full House approved all House resolutions (28), concurrent resolutions (12), joint resolutions (2), and Senate bills (82) that were considered under suspension. The House also passed, via motions to suspend the rules, 612 of the 619 House bills that were initially considered under suspension. Seven bills did not receive the requisite supermajority. Two of these bills were later considered and approved under the terms of a special rule. The remaining five bills did not return to the floor and therefore did not pass the House.

Most suspension motions are agreed to in the House by voice vote, which is the chamber's default method of voting on most questions. In 2015 and 2016, this method of voting led to the final approval of 72% (531) of the motions to suspend the rules and pass the measures (see Figure 8 ).

After the initial voice vote, Members triggered an eventual record vote (often called a roll call vote) on 212 (28%) of the suspension measures considered in the 114 th Congress. This was done by demanding the "yeas and nays," objecting to the vote "on the grounds that a quorum is not present," or, in one case, demanding a recorded vote. In most instances, the chair elected to postpone the vote to a later period, within two additional legislative days, pursuant to clause 8 of House Rule XX. Of the 212 record votes, 3 immediately followed debate on the measure. The remaining 209 votes were postponed to another time on the legislative schedule, usually later the same day.

In the 114 th Congress, 205 suspension motions were adopted by record vote, and 7 motions to suspend the rules were defeated by record votes. The defeat of a motion to suspend the rules, however, does not necessarily kill the legislation. The Speaker may choose to recognize a Member at a later time to make another motion to suspend the rules and pass the bill, or the House may consider the measure pursuant to a special rule reported by the Committee on Rules. Accordingly, two of the initially unsuccessful measures were later called up and passed under the terms of a special rule. Five measures were not considered again, via any House floor procedure, before the end of the 114 th Congress.

Final Disposition of Measures Considered Under Suspension of the Rules

Although suspension measures generally receive broad support, measures that receive the requisite two-thirds majority in the House are not guaranteed passage in the Senate. As noted in Table 1 , in the 114 th Congress, the Senate passed 197 of the 619 House bills initially considered under suspension (32%). Additionally, the Senate agreed to 1 of the 2 House joint resolutions and 5 of the 11 House concurrent resolutions considered under suspension of the rules.

Of the number of suspension measures that passed the House and Senate, 60 required a resolution of differences between the chambers. Forty-four House measures and 15 Senate bills were subject to an amendment exchange process, and on one occasion, a conference committee was used to resolve the differences between the House and Senate versions of a House bill.

The Senate passed three House bills, initially approved in the House under suspension, that did not become public law because the House did not agree to the final bill text, as amended by the Senate. In those instances, the House did not reconsider the bills once the Senate returned the Senate-amended versions to the House chamber. Thus, 194 House bills were presented to the President for signature.

Of the measures initially considered under suspension during the 114 th Congress, President Obama was presented with 194 House bills, 82 Senate bills, and 1 House joint resolution for signature or veto. The President vetoed H.R. 1777 (Presidential Allowance Modernization Act of 2016) and S. 2040 (Justice Against Sponsors of Terrorism Act). The House chose not to attempt a veto override on H.R. 1777 , so the measure did not become public law. Both the Senate and House voted to override the veto of S. 2040 , enabling it to become law without the President's signature ( P.L. 114-222 ). Thus, of the 703 law-making measures (bills and joint resolutions) initially considered under suspension of the rules, 193 House bills, 82 Senate bills, and 1 House joint resolution became public law (see Table 1 ).

Appendix. Use of Suspension Motions, 110th-114th Congresses


Addressing the Long-Run Deficit: A Comparison of Approaches

Summary: The growth of the national debt, which is considered unsustainable under current policies, continues to be one of the central issues of domestic federal policymaking.

Summary: Addressing a federal budget deficit that is unsustainable over the long run involves choices. Fundamentally, the issues require deciding what government goods, services, and transfers are worth paying taxes for. Most people would agree that the country benefits from a wide range of government services—air traffic controllers, border security, courts and corrections, and so forth—provided by the federal government. Yet federal government provision of goods and services comprises only a modest portion of the federal budget. Transfers, including interest payments, accounted for around 75% of the federal budget.

Summary: Central findings of this analysis include the following:

Summary: A comparatively small share of federal spending is for the direct provision of domestic government goods and services. Transfers and payments to persons and to state and local governments constitute most of federal spending, about 75% of all federal spending. Defense spending, accounting for about 15% of federal spending, has declined as a share of output over the past 35 years, but it also tends to vary depending, in part, on the presence and magnitude of international conflicts. The problem with the debt lies not in the past but in the future, as growth in spending for health and Social Security is projected to continue faster than the economy as a whole. The increase in deficits and debt, in turn, leads to a significant increase in interest payments. Because much of the pressure on future spending arises from imbalances in Social Security and Medicare Part A (Hospital Insurance) trust funds, keeping these funds and their sources of financing intact is a concern that could constrain choices. Preserving entitlements would likely require significant increases in taxes, such as raising rates, reducing tax expenditures, increasing other taxes, or introducing new revenue sources. Reductions in discretionary spending are insufficient to reduce the deficit to a sustainable level, so limiting taxes as a percentage of output or constraining the overall size of the government to current levels would likely require significant cuts in mandatory spending, including entitlement programs such as Social Security, Medicare, and Medicaid. Because the federal government provides about one-fifth of the revenue for state and local governments, cutbacks in transfers to these governments may, in part, shift the burden of providing services from the national to subnational governments rather than altering the overall size of government services.

The growth of the national debt, which is considered unsustainable under current policies, continues to be one of the central issues of domestic federal policymaking.

This report examines alternative approaches to reducing annual budget deficits and decisions about how to bring the national debt under control over the long term. To do this, the report first examines historical trends in federal spending and revenue policy to illustrate both the challenges and trade-offs inherent to making choices between (1) limiting the provision of defense and domestic public goods, (2) reducing transfers to persons including entitlements for the elderly and those with low income, (3) reducing support for state and local governments, and (4) raising taxes. Using projections of the debt and deficit, the report then addresses how limiting reliance on one source of deficit reduction creates pressure on other sources.

The federal government incurs a budget deficit when total spending exceeds revenues over the course of a fiscal year. Over the past 50 years, the federal government has, on average, run budget deficits of 2.9% of gross domestic product (GDP), though as seen in Figure 1 , the amount has fluctuated from a surplus of 2.3% of GDP in 2000 to a deficit of 9.8% of GDP in 2009.

A portion of the budget outcomes is a function of general economic conditions, and the remainder is a function of policy choices. For example, deficits tend to rise during recessions (through a combination of decreased revenues and increased spending on programs like unemployment), whereas the opposite is generally true during economic expansions. Policy choices, such as the decline in defense spending after the dissolution of the Soviet Union in 1991, may change the budget situation due to changes in national priorities.

The accumulation of net deficits over time results in the federal debt. As shown in Table 1 , the cumulative federal debt in 2018 was 78% of GDP.

Of concern is that the federal budget deficit has resulted in the growth of the federal debt that has regularly exceeded the growth rate of the economy. The debt can grow without increasing the ratio of debt to GDP as long as it rises at a rate less than or equal to GDP growth. For example, if the debt is 80% of GDP and the economy is growing at 1.6%, a deficit of 1.28% of GDP (1.6% of 80%) will maintain the debt-to-GDP ratio. The FY2018 deficit is 4% of GDP—a situation viewed by most economists as unsustainable.

Addressing a federal budget deficit that is unsustainable over the long run involves strategic choices. Fundamentally, the issues require deciding what government goods, services, and transfers are worth paying taxes for. Most people would agree that the country benefits from a wide range of government services—air traffic controllers, border security, courts and corrections, and so forth—provided by the federal government. Yet, as shown below, in 2007, the federal government provision of goods and services, outside of defense, constituted 10% of federal spending and 2% of GDP. Transfers, including interest payments, accounted for around 70% of the federal budget. Finding budget savings by reducing nondefense federal government services alone would fall short of what is needed to address the deficit.

In 2018, transfers, including interest payments, accounted for 76% of the federal budget, up from 70% in 2007. Outside of the 9% provision for domestic goods, defense spending for goods and services constitutes about 15% of federal spending. In this area as well, there are limits to the savings that might be found without compromising national security. Therefore, to address the budget shortfalls facing the country over the long run, it is likely that (1) transfer payments, such as Social Security, Medicare, and Medicaid, to or on behalf of individuals (which already account for half of federal spending and are growing) must be reduced; (2) transfers to state and local governments must be reduced (which would shift the budget decisions to a different level of government); (3) taxes must be raised; or some combination of the three.

The next section of this report examines the government's spending allocation, the method of its financing, and how these shares and sources have changed over time. It demonstrates that the surge in the debt is a recent phenomenon that has occurred with the recession and is inherently transitory. Going forward, however, as shown in the subsequent section, the growth in transfers to the elderly and spending for health care—a trend that has been under way for some time but was offset by a decline in spending for other purposes, relative to GDP—will increasingly contribute to unsustainable deficits. The following section addresses philosophies for approaching deficit reduction, as embodied in a number of proposals. It discusses how different approaches to and constraints imposed on deficit reduction will have consequences for the menus of other available choices. For example, if deficit reduction begins with a constraint that taxes will not rise, policy would almost certainly require significant cutbacks in Social Security and Medicare. If the benefits of these programs are to be maintained, an increase in taxes would likely be required.

Central findings of this analysis include the following:

A comparatively small share of federal spending is for the direct provision of domestic government goods and services. Transfers and payments to persons and to state and local governments constitute most of federal spending, about 75% of all federal spending. Defense spending, accounting for about 15% of federal spending, has declined as a share of output over the past 35 years, but it also tends to vary depending, in part, on the presence and magnitude of international conflicts. The problem with the debt lies not in the past but in the future, as spending growth for health and Social Security is projected to continue faster than the economy as a whole. The increase in debt, in turn, leads to a significant increase in interest payments. Because much of the pressure on future spending arises from imbalances in Social Security and Medicare Part A (Hospital Insurance) trust funds, keeping these funds and their sources of financing intact is a concern that could constrain choices. Preserving entitlements would likely require significant increases in taxes, such as raising rates, reducing tax expenditures, increasing other taxes, or introducing new revenue sources. Reductions in discretionary spending are insufficient to reduce the deficit to a sustainable level; thus, limiting taxes as a percentage of output or constraining the overall size of the government to current levels would likely require significant cuts in mandatory spending, including entitlement programs such as Social Security, Medicare, and Medicaid. Because the federal government provides about one-fifth of the revenue for state and local governments, cutbacks in transfers to these governments may, in part, shift the burden of providing services from the national to subnational governments rather than altering the overall size of government services.

The objectives of government spending and taxes are generally viewed as providing for public and quasi-public goods, such as defense, law enforcement, infrastructure, and education; correcting market failures, including externalities (both negative, such as pollution, and positive, such as research and development); achieving distributive justice; and managing business cycles. Measured by the amount of spending, defense is the most important pure public good the federal government provides. Many public and quasi-public goods, as well as income-support programs, are provided by state and local governments, and some federal spending is through grants to state and local governments for these programs. For example, in FY2016, state governments received 29.1% of total revenues from federal transfers, and local governments received 3.8%. States also provide transfers to local governments, and local governments provide transfers among themselves as well. These intergovernmental transfers are important in evaluating budget proposals, because a reduction in transfers to state and local governments may in large part shift the burden to these governments rather than reduce the overall government role.

Spending in the U.S. budget can be divided in various ways that are relevant to considering deficit reduction. In the discussion that follows, government spending is divided by whether the spending is to provide public goods or transfers, whether it is discretionary or mandatory (and the major categories within those divisions), and by function. The first approach to presenting spending distinguishes between the provision of goods and services (defense and nondefense) and transfers to persons or to state and local governments. This approach is not a typical way of presenting budget data. It is important to divide spending in this way, however, to address concerns about potential inefficiency in federal government operations, especially outside of defense, as it indicates the scope for cutbacks relative to the deficit. The second approach divides spending into discretionary (provided in annual appropriations acts) and mandatory (controlled by permanent laws, and including entitlements to benefits). It is associated with the procedures needed to alter spending. The third, a common way of presenting budget data, divides spending by function (defense, education, energy, health, etc.). Later, this section also discusses trends in federal taxes by source, tax structure, tax expenditures, and receipts and payments in the major trust funds.

Distribution of Spending by Fundamental Economic Form: Government Goods and Services Versus Transfers

One way to look at spending is to examine the extent to which spending involves actual government consumption or production (that is, spending on the direct provision of goods and services) as compared with transfers, subsidies, and interest. The discussion in this section indicates that although total spending as a percentage of GDP fluctuated around 20% of GDP between 1973 and 2007, government involvement in the economy—narrowly defined as using resources to provide public goods directly—had fallen by a third and outside of defense had remained roughly constant and small (at around 2% of GDP). At the same time, transfers to persons increased by more than 40%, and transfers to state and local governments increased by less than 5%. Spending rose nearly 2% of GDP by 2018, primarily due to transfers to persons, whereas consumption continued to decline. Figure 2 shows how the economic form of federal spending has shifted since 1968.

In calendar year 2007, 28% of government spending was categorized as consumption and involved the direct provision of goods and services. Of the remaining amount, 44% were transfers to persons, 13% transfers to state and local governments, 14% interest payments, and 2% subsidies. Although federal government spending amounted to 19.9% of output in 2007, federal government spending on the provision of public and quasi-public goods was 5.5% of output. Based on budget data reported subsequently, 3.8% was for defense, leaving 1.7% for nondefense. Because total nondefense discretionary spending was 3.4% of GDP, half of this amount was transfers.

By 2018, with the economy at or near full employment, federal government consumption spending had declined to 5% of output, whereas transfers had increased. Government spending on nondefense goods and services was 1.9% of GDP, and defense spending was 3.2% of GDP. Budget data for FY2017 indicate that discretionary spending was 6.3% of GDP, with defense spending at 3.1% of GDP and nondefense at 3.2% of GDP. Thus, roughly 60% of nondefense spending, about 1.9% of GDP, was transfers at that time.

State and local government spending (netting out transfers between these remaining two levels of government spending) in 2007 was 14% of output, and total spending by all forms of government (after netting out federal transfers) was 31.5% of output. A larger share of state and local spending (which includes federal government transfers), 69%, was in government provision of goods and services (consumption), with 21% in transfers to persons, 9% in interest payments, and less than 1% in subsidies. In the third quarter of 2018, state and local spending net of federal transfers was 14%, for a total of 32.5% for all government spending. Provision of goods and services was 64%; transfers were 26%; and interest was 9%.

Combining all levels of government, in 2007, government production of goods and services was 15.2% of output, thus the federal government share (5.5%) was about one-third of the total provided by all levels of government. Subtracting 3.8% from the federal government share and the total share to eliminate national defense spending (shown subsequently), the federal share of nondefense provision of goods and services by all levels of government was 11%. In 2018, the nondefense share had risen to 14%, with the federal share (5% of output) remaining at 36%.

Similar results are found when examining employment levels. Total government civilian employment in 2007 was 16% of total nonagricultural employment, with the federal government accounting for 2%, the state government accounting for 3.7%, and local government accounting for the remaining 10.4%. By September 2018, the employment share remained at about 15%, and each level of government maintained approximately the same shares (with local government falling to 9.6%).

The share of federal government spending that goes to the direct provision of public or quasi-public goods (consumption) has declined over time, as shown in Table 2 , which compares 1980 with 2007 and 2018. The decline from 7.2% of GDP in 1980 to 5.5% of GDP in 2007 is largely due to a reduction in defense spending.

The discussion in this section indicates that although total spending as a percentage of GDP fluctuated around 20% of GDP between 1973 and 2007, government involvement in the economy—narrowly defined as using resources to provide public goods directly—had fallen by a third and outside of defense had remained roughly constant and small (at around 2% of output). At the same time, transfers to persons increased by more than 40% and transfers to state and local governments increased by less than 5%. Spending rose nearly 2% of GDP by 2018, primarily due to transfers to persons, whereas consumption continued to decline.

Distribution of Federal Spending by Mandatory and Discretionary Categories10

Budget accounts often classify spending in budget documents as mandatory or discretionary spending, along with subcategories of spending. Though technically classified as mandatory spending, interest payments tend to be listed separately because they are a consequence of past spending and tax policies. Discretionary spending is controlled by the annual appropriations process and is normally divided into defense and nondefense categories. Discretionary spending is where most of the public provision of goods and services occurs, but some discretionary spending is in the form of transfers. Mandatory spending is generally governed by a set of permanent statutory provisions, and some of these programs (such as Social Security and Medicare) are referred to as entitlements.

Since the late 1960s, as shown in Figure 3 , defense spending has declined as a share of output, first as a result of the ending of the Vietnam War (by FY1981, defense spending was 5.2% of output). It rose in the 1980s and then fell, reaching 3.0% by 2001, before rising again with the Afghanistan and (second) Iraq wars. This pattern suggests that although defense spending may generally grow with the economy and be affected by other factors (such as moving to an all-volunteer force or the peacetime buildup in the 1980s), it also fluctuates depending on whether the United States is engaged in prolonged international conflicts.

Nondefense discretionary spending has fluctuated much less, although it rose in the late 1970s, then reverted to historical levels. Nondefense discretionary funding, although small as a share of the budget and of GDP, is largely the spending that many people think of when they think of the direct provision of goods and services by the federal government.

Mandatory spending, although it varies over time, has generally increased as a share of the economy since the 1960s. The increase is most pronounced for health spending and has grown relative to GDP due to rising health care costs, certain other benefit changes, aging, and increased life spans.

Table 3 further disaggregates mandatory spending for selected years since the FY1980 (FY1980, FY2007, and FY2018). Overall discretionary spending over this time period declined from 9.9% of GDP to 6.2% of GDP, or a change of 36.9% (with declines of 35.4% for defense and 37.3% for nondefense discretionary spending), whereas total mandatory spending has increased by 35.9% over the same time period.

Within mandatory spending, health spending (Medicare and Medicaid)—which has increased 223.5% since FY1980—primarily drives the overall increase in mandatory spending. This increase is attributed to changes in demographics from an aging population and medical cost growth primarily, although benefit changes also contribute to the increase. Spending for Social Security also rose 16.7% over this period—primarily due to number of Social Security beneficiaries and increased life expectancies. Other mandatory programs that provide benefits for low-income individuals, the unemployed, retirement programs for federal workers, and other purposes (such as agricultural support payments) have remained relatively constant or declined since FY1980.

Another traditional way of viewing the budget is by budget function relating to the purpose of spending (education, health, etc.). Figure 4 shows federal spending by budget function since 1969.

These comparisons, shown in Table 4 , provide a similar picture to the previous allocation: although total spending as a share of output has fluctuated somewhat from FY1980 to FY2018, the federal government has an increasing share of output in health and programs for the elderly, with declining shares for almost every other functional category. In FY2007, 64% of spending was for human resources, with 20% for defense, 9% for interest, and 5% for all other functions. In FY2018, the share devoted to human resources had further risen, whereas the share spent on national defense had declined. Table 4 presents these categories as a percentage of GDP and illustrates that the subcategories for many types of spending, which are those that represent direct provision of government goods and services, are small as a percentage of GDP.

This section discusses four issues related to taxes: (1) the sources of tax revenue and their growth over time; (2) the differences in structure and distribution of revenue sources; (3) the size and distribution of tax expenditures (special income tax provisions such as exclusions, deductions, and credits); and (4) taxes that are specified as the revenue source for certain spending.

The federal income tax system has several components. The largest component, in terms of revenue generated, is the individual income tax. For FY2018, an estimated $1.7 trillion, or 50% of the federal government's revenue, came from the individual income tax. The corporate income tax was estimated to generate another $218 billion in revenue in FY2018, or just under 7% of total revenue. Social insurance or payroll taxes generated an estimated $1.2 trillion, or 35% of revenue in FY2018. Estimates indicate that the remainder of federal revenue collected in FY2018 came from excise taxes (3%) or other sources (6%).

The relative importance of these components can change over time, as seen in Figure 5 . The individual income tax, the largest single source of revenue as a percentage of GDP, has fluctuated considerably over time. Individual income tax revenues grew in the late 1970s due to bracket creep, reaching 9.4% in FY1981. The tax cuts in the Reagan Administration are the major reason revenues declined, falling to 7.9% in FY1990. Revenues increased slightly with the 1993 Clinton Administration tax increase ( P.L. 103-66 ), but the more significant growth occurred with the strong economic performance in the late 1990s, leading to a ratio of 9.9% in FY2000. They declined during the first decade of the 21 st century following the George W. Bush Administration tax cuts ( P.L. 107-16 ) and JGTRRA ( P.L. 108-27 ). Along with the individual income tax, total taxes have also fluctuated. Prior to the Bush tax cuts, total taxes dropped as low as 17.1% in FY1977 and rose as high as 20.6% in FY2001. During the 2007-2009 recession taxes fell to less than 15% of GDP.

Corporate taxes have fluctuated as well, although largely due to economic conditions, whereas payroll taxes rose to around their current levels as a percentage of GDP by the mid-1980s, reached a peak of 6.8% in 2001, and have since declined slightly. Excise taxes have declined by two-thirds, and other revenue sources have remained about the same. Part of the decline in excise taxes is because these taxes are imposed on a per-unit basis and not indexed for inflation and, with the exception of tobacco taxes, have generally not been increased.

These revenue sources differ in some important ways. Individual income taxes are progressive, have graduated rates, and can be revised in a variety of ways, including changing rates, deductions, exclusions, and credits. Income taxes are the main source of revenue for most federal spending outside of Social Security and Medicare Hospital Insurance (HI, whose benefits are less than half of Medicare spending). Corporate income taxes are levied at a flat rate after allowing for various deductions and credits. Estate taxes are also progressive, but they are a small share of government revenues and have been declining in magnitude over the past 20 years.

Payroll taxes tend to fall more heavily on middle- and lower-income individuals. Payroll taxes, the next-largest source of revenue after individual income taxes, have flat rates (except for the Additional Medicare Tax) with an earnings cap for Social Security (but not Medicare). These taxes tend to be proportional, with a reduced burden on high-income taxpayers. Because of their simple structure, the main options for increasing revenues from this source are increasing rates and raising or eliminating the earnings cap.

Social Security payroll taxes are the basic source of finance for Social Security, and they are linked to benefits so that larger taxes lead eventually to larger benefits, although there are progressive elements in the benefit formula. Medicare payroll taxes qualify individuals for Medicare HI coverage, but the Medicare benefits are the same for all recipients.

Excise taxes , which largely apply to alcohol, tobacco, and transportation fuels, tend to be regressive and fall more heavily on middle- and lower-income individuals, but are also a smaller revenue source. Transportation fuel taxes are a major source of finance for highways, airports, and other transportation needs.

Tax expenditures are revenue losses attributable to federal income tax laws that allow a special exclusion, exemption, deduction, credit, preferential tax rate, or deferred tax liability. The special tax credits and deductions in the income tax can also be viewed as a form of spending through the tax code. That is, one can view revenues as receipts without the special benefits and the special benefits from tax expenditures as spending. According to an FY1974-FY2004 Government Accountability Office (GAO) study, tax expenditures averaged 7.5% of GDP during that period. In FY2007, tax expenditures were 7.2% of GDP and about 36% of total government direct spending. In FY2018, tax expenditures were 7.2% of GDP and about 35% of government spending.

From the perspective of dividing government activity between transfers and direct provision of public goods, as in Table 2 , tax expenditures are transfers and subsidies that go to persons, as is the case with the bulk of federal spending. From the perspective of discretionary versus mandatory spending, as in Table 3 , they are similar to a mandatory form of spending. Finally, from the perspective of budget function, as in Table 4 and as shown in Table 5 , which compares spending and tax expenditures by budget function for FY2018, the pattern of tax expenditures is quite different from that of spending. A much larger share of tax expenditures is for physical resources. For specific subcategories, the largest share of tax expenditures is for commerce and housing, a category that attracts a small share of spending. The size of this category reflects special benefits for earnings from capital income. It also reflects benefits for housing in the form of mortgage interest and property tax deductions and, to a lesser extent, exemption from capital gains tax on owner-occupied housing and the low-income housing credit. The relatively large share for general government reflects tax-exempt bonds and itemized deductions for state and local income and sales taxes. (These amounts could also be distributed across the functional categories of state spending and thus would be more broadly distributed.) Much of the benefit for tax-exempt bonds goes to education and highways, where funds are borrowed for capital improvements.) Tax expenditures also provide significant benefits for health through the exemption of employer-provided health insurance and for income security, largely through benefits for pensions and other retirement savings.

As noted above, dedicated revenues finance spending on certain categories of services, some of which are termed trust funds and some special federal funds. There are about 200 trust funds, but only a few of them are important in terms of magnitude or for considering budgetary reform.

In some cases, the trust funds lead to questions about addressing the deficit. Although some of these funds rely on contributions from general revenues, the Social Security and the Medicare HI trust funds primarily rely on payroll taxes. The largest trust funds relate to Social Security, which is divided into Old Age and Survivors Insurance (OASI) and Disability Insurance (DI), and Medicare, which is divided into Hospital Insurance Part A and Supplementary Medical Insurance (SMI) Parts B and D.

Payroll taxes are the primary source of finance for Social Security and Medicare HI (also known as Medicare Part A). The funding of these programs is organized through trust funds that can also hold assets and earn interest. Medicare SMI, which pays for physician services and outpatient drugs, is financed primarily by a combination of premiums and general revenues.

Table 6 shows the inflow of revenues and the payment of benefits in the three trust funds financed by payroll taxes. (This table does not include earnings from interest on government securities held by the funds and transfers of income taxes collected on Social Security benefits; it also does not reflect administrative costs.) As indicated in the table, OASI payroll tax revenue (as a percentage of GDP) has declined over the past 11 years, while payments have increased substantially. In contrast, DI and HI payroll tax revenues have been flat or increasing (as a percentage of GDP) over the same time period, while payments have been flat or increasing more modestly than OASI. By FY2018, payments for Social Security and Medicare benefits exceeded payroll tax collections. Because initial Social Security benefits are indexed to wages (and subsequently to prices), they tend to be a relatively constant share of output. Benefits have grown because of increasing longevity and an aging population. Revenues also tend to be a relatively constant share of output but were increased in the mid-1980s.

Table 7 provides information on the income and outflow for the SMI trust fund. In FY1971, this fund was nearly equally financed by premiums paid by beneficiaries and federal contributions from general revenues. Although premiums have increased as a percentage of output, the vast majority of financing is now from general revenues. The premium share for Medicare Part B (physicians) fluctuated over time, but it is now set by law at 25% of the cost of funding Medicare Part B; the premiums share for Medicare Part D (drug) program is set at 25.5% of the estimated cost of the standard benefit.

As these tables indicate, the size of these programs, particularly Medicare, has grown over time. SMI has grown faster than HI, and general revenue contributions have grown at a similar pace. SMI currently accounts for more than half the cost of Medicare.

One open question surrounding the formulation of a long-run budget policy is whether to continue financing Social Security and Medicare HI from payroll taxes. In this case, both programs' future benefits are expected to outstrip future receipts and eventually draw down all the assets. The Social Security (OASI) trust fund is projected to run out of accumulated assets in 2034, and the HI trust fund is predicted to run out in 2026.

Since its implementation in 1935, Social Security has been treated as a separate program, similar to a retirement plan, in which contributions (e.g., payroll taxes) during the working years create an entitlement to benefits in old age. A similar approach has been used for the more recently established Medicare HI. If these programs are to be kept separate, then they must be brought into balance separately and, to maintain the historic source of financing, any shortfall not addressed through benefit cuts or delayed eligibility must be addressed through increases in a specific tax—the payroll tax.

Federal debt may be divided into two major categories: (1) debt held by the public, which is the sum of accrued net deficits and outstanding money from federal credit programs; and (2) intragovernmental debt, which is the amount of federal debt held by other federal agencies. As of February 28, 2019, the amount of federal debt outstanding was $22.116 trillion, with 73.5% of that debt held by the public and 26.5% held as intragovernmental debt. Figure 6 shows the federal debt as a share of the economy from FY1969 projected through FY2023.

Individuals, firms, the Federal Reserve, state and local governments, and foreign governments are eligible to purchase publicly held debt. Such debt may be acquired directly through the auction process from which most publicly held debt is initially sold or on the secondary market if the debt is deemed "marketable," or eligible for resale. As of February 28, 2019, the total amount of publicly held debt outstanding was $16.251 trillion. Publicly held debt is the measure of concern for the sustainability of the debt since it measures debt owned outside of the government. This debt grew rapidly as a percent of GDP during the 2007-2009 recession and afterward and has continued to grow (while intergovernmental debt relative to GDP has declined).

The majority of publicly held debt is marketable, and it includes all Treasury notes, bonds, bills, Treasury Inflation Protected Securities (TIPS), and Treasury-issued Floating Rate Notes (FRNs). Nonmarketable debt held by the public is composed of U.S. savings bonds, State and Local Government Securities (SLGS), and other, smaller issues. As of February 28, 2019, 96.6% of publicly held issues, or $15.741 trillion, was marketable.

Unlike publicly held debt, intragovernmental debt issuances are almost exclusively nonmarketable. As of February 28, 2019, of the $5.865 trillion in total intragovernmental debt, $0.029 trillion (0.5%) was marketable debt. Intragovernmental debt is held by components of the federal government, with the majority of nonmarketable debt held by trust funds devoted to Social Security and military and federal worker retirements and marketable debt held by the Federal Financing Bank (a government corporation created to reduce the cost of federal borrowing). Intragovernmental debt has declined in recent years as major trust funds have begun to finance benefits from assets.

Because intragovernmental debt is held only in federal government accounts, such debt cannot be accessed by the outside institutions. Conversely, the bonds that finance publicly held debt activity may compete for assets in private and financial markets. Public debt issues may be a particularly attractive collateral option on the secondary market if the federal government is perceived as a safe credit risk.

The CBO budget baseline projects that over the next 10 years, the deficit will average roughly 4.4% of GDP. This is 1.5% of GDP more than the average deficit (i.e., 2.9% of GDP) over the preceding 50 years. Figure 7 shows the federal budget deficit (surplus) from FY1968 through projected deficits in FY2048.

Most economists agree that deficits are sustainable as long as the deficits as a share of the economy are less than the growth rate of the economy. The CBO budget baseline assumes that economic growth will be just under 1.8% over the next 10 years. This growth rate is less than both the average deficit over the preceding 50 years (2.9% of GDP) and the projected federal deficits over the next 10 years (4.4% of GDP).

Although the budget situation over the next 10 years is challenging, the long-term outlook is even more daunting—with the budget deficit estimated to be an average of 8.4% of GDP from FY2039 to FY2048. As deficits are a result of the combination of spending and tax decisions, examining them separately may offer some insights. Figure 8 shows CBO's analysis of federal spending projected for FY2028 and FY2048 compared with the selected historical level of spending—showing total spending growing by 14.6% as a percentage of GDP in FY2028 and 42.2% in FY2048 compared with FY2018. Breaking down the categories shows projected spending increases on Social Security of 28.6% (1.4% of GDP), health programs of 76.9% (4.0% of GDP), and interest payments of 293.8% (4.7% of GDP) over the next 30 years. During the same period, other projected spending (including both defense and nondefense discretionary spending) is projected to decrease 14.6% (1.3% of GDP).

The trend in the share of spending going toward Social Security and major health care programs and away from discretionary spending choices seen in Figure 8 is a continuation of the trend seen in Figure 3 . In FY1988, 30.6% of federal spending went to Social Security and major health program spending. By FY2018, the share was 49.0% of the federal budget and is estimated to be 52.9% of the federal budget in FY2048. In addition, there is significant growth in the share of federal spending used to pay interest on the debt due to the continuing deficits and growing debt.

Similar to projected federal spending, federal revenue over the next 10 years is projected to grow above its 50-year average of 17.4% of GDP—assuming that the temporary provisions contained in P.L. 115-97 are allowed to expire as scheduled. As Figure 9 shows, CBO's projections of total federal revenue are projected to grow by 11.4% as a percentage of GDP in FY2028 and 19.3% in FY2048 compared with FY2018.

The increasing reliance on personal income taxes as a revenue source, seen in Figure 9 , is a continuation of the trend seen in Figure 5 . In FY1988, 44.3% of federal revenue (8.2% of GDP) came from individual income taxes, and 10.2% of federal revenue (1.2% of GDP) came from corporate income taxes. By FY2018, the shares were 49.4% (9.8% of GDP) and 7.2% (1.5% of GDP) of federal revenue, respectively, and are estimated to be 55.1% (10.9% of GDP) and 7.1% (1.4% of GDP) of federal revenue in FY2048, respectively.

How much should be done to address the budget issues, and how quickly, is a topic of debate. The relative strength of the current U.S. economy makes a case for addressing the deficit in the near term. The faster the debt-to-GDP ratio grows, the more burdensome interest payments become and the more the debt compounds. CBO also projects that a sustained reduction in the deficit to 1.9% of GDP would be required to stabilize debt at 78% of GDP, its current level, under the standard baseline, whereas a 3.0% cut would be required to bring debt to the average of the past 50 years (41% of GDP). If the reduction is delayed for 5 years, the required decreases would be 2.3% and 3.6% of GDP; if delayed for 10 years, 2.9% and 4.6% of GDP.

However, addressing the deficit quickly may temporarily dampen economic activity. In addition, if the measures to address the deficit are implemented too quickly, some people may not have sufficient time to plan or adjust to the new set of rules.

The need to not move too slowly or quickly can also affect the optimal approaches to deficit reduction. For example, it is difficult to change current entitlements for the elderly (such as Social Security, Medicare, and part of Medicaid, which funds nursing home care). Many retired individuals have little leeway to adjust to such changes and could be particularly burdened by benefit reductions, which suggests that benefit changes be adopted in the near term but applicable to the future. Changing discretionary spending or increasing taxes can be achieved more quickly, although, as discussed below, the long-run gap between spending and taxes is too large to be addressed with discretionary spending revisions alone.

In addition to its standard budget baseline, CBO also regularly analyzes the budgetary effects of different alternative baselines. One regularly estimated baseline maintains the current policies in place at the time of the estimate—referred to as a current policy baseline. This baseline is presented in Table 8 along with the standard—or current law—extended baseline.

These baselines differ in a number of ways. Revenues are lower under the alternative baseline as it assumes an extension of the individual income tax provisions of P.L. 115-97 , which are scheduled to expire in 2026 under current law. In addition, noninterest spending is higher under the alternative baseline, which assumes limits on discretionary spending are not to take effect and the base for emergency spending is set at historical levels.

Under the alternative baseline, deficit reduction becomes more difficult because debt and interest payments have grown more quickly.

The Peter G. Peterson Foundation's 2015 Fiscal Summit (Solutions Initiative III) brought together the American Action Forum, the American Enterprise Institute, the Bipartisan Budget Center, the Center for American Progress, and the Economic Policy Institute to develop specific, "scoreable" policy proposals that would place the federal budget on a sustainable long-term path. Each plan provided a roadmap to reduce budget deficits and stabilize the debt, although they differed in the details.

All of the plans aimed at reducing the debt-to-GDP ratio, but they varied in spending, taxes, and the deficit relative to output. For those plans in which measures were reported (for 2040), spending-to-GDP ratios ranged from 17.8% to 24.3%, whereas taxes-to-GDP ratios varied from 21.2% to 23.5%. The resulting fiscal outcomes ranged from a surplus of 4.5% to a deficit of 1.9%.

A debt level can still be sustainable with some continuing deficit. The deficit causes the debt to grow, but as long as it is not large enough to cause debt to grow faster than GDP, the debt-to-GDP ratio will be stable or in decline.

Although summarizing the plans is beyond the scope of this report, Table 9 shows the five plans along with the contemporaneous (2015) CBO baseline projections and the most recent (2018) CBO baseline projection.

All of the proposed plans would have increased revenue collections relative to both CBO projections and reduced spending relative to the most recent CBO baseline.

Discussions on how to reduce the budget deficit often begin narrowly, then expand to broader proposals. This section examines several of these more narrow beginnings to illustrate the challenges of reducing the deficit sufficiently to address the long-term challenge.

How Much Can Discretionary Spending Cuts Reduce the Budget Deficit?

Discretionary spending, as discussed above, whether for defense or nondefense purposes, does not cause long-run growth in spending and has historically been relatively constant or in decline as a percentage of GDP. Discretionary spending, however, is targeted as a source of budget savings in the proposals and, because it is easier to change in the short run, may be a source of initial savings. Caps on discretionary spending were the main source of projected deficit reduction enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25 ).

The CBO baseline incorporates the reductions from the BCA through FY2021 and then assumes that discretionary spending will grow at the rate of inflation going forward. As shown in the historical analysis from Table 3 and Figure 3 , defense and nondefense discretionary spending has been higher in the past, and hence cuts would lead to a lower level of government services than has traditionally been the case. (Defense spending, as noted above, also fluctuates depending on international conflicts, although it has increased to respond to perceived threats or other changes such as an all-volunteer force.)

At the same time, proposals presented in the Solutions Initiative III did not spell out the specific cuts proposed, an important issue given the diversity in the types of programs in defense and nondefense discretionary spending. That is, these plans generally directed agencies to cut spending without outlining the specifics. Thus, the plans did not indicate, for example, whether fewer prisons will exist, grants for special-needs children will be reduced, a smaller military was to be maintained, fewer highways will be built or repaired, etc. However, these reductions might have needed to be significant. For example, Solutions Initiative III plans proposed cuts to total discretionary spending that were on average 19% below the CBO baseline.

Nevertheless, it is unlikely that reductions in discretionary spending could close much of the long-run deficit gap. The Solutions Initiative III plans' proposed cuts in discretionary spending would have reduced overall discretionary spending by about 1.4 percentage points of GDP on average. Yet, as seen in Table 9 , CBO estimated the gap between spending and taxes by FY2040 to be 5.9% of GDP, and it has subsequently grown to an estimated 7.6% of GDP. Thus, closing this gap is likely to require cuts in other spending, including entitlements, increases in tax revenues, or a combination thereof.

CBO's 2018 study on budget options contained some specific options for cuts in discretionary spending, which might suggest the types of cuts that might be considered in these proposals, although most of these were small. For example, implementing the 10 largest discretionary options listed in the CBO report would reduce spending by up to $148.1 billion per year, or 0.7% of GDP. Doing so would, however, require reducing defense spending by 10%, eliminating the Section 8 housing voucher and the Head Start programs, and reducing federal highway funding by roughly 25% along with other program reductions. In contrast, the Solutions Initiative III plans would have on average required reductions twice as large.

Are Social Security and Medicare Hospital Insurance Trust Funds to Be Preserved?

Since its inception in the 1930s, Social Security has been financed through a trust fund mechanism in which benefits were financed from payroll tax contributions. Payroll taxes are imposed at a flat rate fixed in statute, with a cap on income covered that is indexed to wages. Because of increasing disparities in income, this ceiling falls lower in the income distribution than it has in the past. Benefits, although they are linked to contributions (e.g., lifetime payroll taxes), are progressive in that the replacement rate for wages falls as wages rise.

Because of the link between wages and benefits, many view Social Security like a pension, with income in retirement earned through contributions. With Social Security, there is a link between contributions and benefits. Because the trust fund does not accumulate retirement contributions in the same way as a pension plan (but rather pays most benefits out of current contributions), the trust fund's financing was affected by demographics. Currently, the trust fund is spending more in benefits than it collects in payroll taxes and uses interest earnings to fill the gap.

Benefits, as shown in Table 6 , are growing faster than payroll taxes. As a result, under current policy, the Social Security (OASI) trust fund has been using its assets and will become insolvent by 2034, at which point it will have income sufficient to pay about three-fourths of benefits. Moreover, if a position is taken that taxes cannot be increased (as discussed below) or that payroll tax collections are not to be increased, then either the close link between payroll contributions and earnings will have to be abandoned or the burden of restoring solvency will fall on cutting benefits (by roughly 25%).

The plans presented in the Solutions Initiative III provide a range of alternatives. On average, they would have decreased Social Security spending by 3.2%, or 0.2% of GDP. While not quantified in the report, three of the five plans presented would have increased payroll taxes on higher earners.

CBO's 2018 report identifies several options related to Social Security benefits and payroll taxes. The two largest options to reduce Social Security spending—lower initial benefit amounts and grow the benefits more slowly over time—were estimated to reduce Social Security spending by up to an average of 0.2% of GDP per year over the next 10 years. The two largest options to increase payroll tax collections—raise payroll tax rates and increase the contributions cap—were estimated to raise up to 1.2% of GDP per year of payroll tax revenue over the next 10 years.

The Medicare HI trust fund has been affected over time (as has Medicare in general) by demographics and, more importantly, by the growth in health care expenditures per capita due to technical advances and cultural expectations. The plans presented in the Solutions Initiative III provide a varied selection of options—though all advocated for various forms of cost containment.

CBO's 2018 report identifies several options related to Medicare benefits and payroll taxes. The largest option to reduce Medicare spending—by increasing cost sharing and restricting Medigap insurance—was estimated to reduce Medicare spending by up to an average of 0.05% of GDP per year over the next 10 years. The two largest options to raise revenue associated with Medicare—raising payroll tax rates and increasing premiums on Medicare Part B and D—were estimated to collectively raise up to 1.0% of GDP per year of payroll tax revenue over the next 10 years.

Can Long-Run Budget Issues Be Addressed by Keeping Tax Levels Constant?

One philosophy behind the viewpoint of keeping revenues fixed relative to GDP is that government spending takes away from private choices and creates inefficiency and that taxes impose distortions, inhibiting economic activity. (This viewpoint depends on strong assumptions about benefits generated by federal spending.) By limiting revenues available, the scope of the federal government would be constrained. An argument is also sometimes made that tax increases would inhibit economic activity so much that revenues would decline rather than rise. However, empirical evidence does not generally support this view.

If revenues are limited, significant pressure would be placed on major entitlements. For example, Social Security, health spending, and interest alone are projected to total 19.2% of GDP in FY2040. If revenues are around 19.4% of GDP, 0.2% of GDP is left for everything else. (In the CBO 2018 baseline, this amount was 0.1% of GDP.) The budget situation would be more constrained if current policies scheduled to expire are extended. Defense, nondefense discretionary, and other mandatory programs are projected to amount to 6.9% of GDP in FY2040 (7.6% of GDP in the CBO 2018 baseline). Thus, it would appear that major reductions in Social Security and health spending would be required to constrain tax levels at current percentages of GDP.

The Solutions Initiative III proposals all choose to raise additional revenue, which reduces the required cutbacks in Social Security and health spending to address the long-run deficit. As seen in Table 9 , the proposals would have increased taxes as a percentage of output relative to the CBO 2015 baseline to an average of 22.0% of GDP (an increase of 2.3% of GDP relative to the 2015 CBO baseline). This additional revenue allows the Solutions Initiative III proposals to achieve their policy goal with reductions in Social Security and health care spending of 0.9% of GDP.

Although the Solutions Initiative III plans and their approaches are illustrative, they are also suggestive of what would likely be necessary to hold the tax revenues fixed and address the long-run deficit: major changes to government programs for health care and other entitlements.

What Would Be Required to Protect Entitlements? A Review of Tax Options

To examine the other side of this coin, consider what would be required to protect entitlements. Protecting entitlements reflects the view that government should maintain its social safety net for lower-income persons and programs for the elderly, including provisions for health care, because they are important components of maintaining a reasonable standard of living.

The Social Security trust funds hold sizable assets, accumulated from prior years of cash surpluses that can be used to support the payment of future benefits. Medicare HI also has accumulated surpluses that will maintain benefits for some years to come. Nevertheless, neither of these plans is sustainable in its current formulation, and the shortfall in revenues relative to payments contributes to the overall deficit.

If maintaining these programs is the policy goal, taxes would need to be increased—as it is unlikely that discretionary spending or other non-entitlement spending alone would fully address the long-run deficit.

Justifications for Maintaining Entitlements

Is there a justification for increasing the size of government to continue the present Social Security and health benefit payments? It is useful to consider separately Social Security, whose issues arise from demographics, and health care, whose issues arise from a combination of demographics and health care costs.

Social Security benefits are expected to rise from the current 4.95% of output to 6.29% in FY2035. The problem with Social Security funding did not arise from the baby boom; it arose from the increase in life span whose pressures on the system were masked for a time by the growth in the labor force (both from the baby boom and the entry of women into the labor force). Unlike health care, Social Security benefits are not expected to grow continuously but to stabilize over time so that benefits and costs are relatively constant (with benefits around 6.3% and revenues about 4.4% of GDP). Therefore, a range of tax increases, as well as benefit cuts, could bring the program into permanent balance.

Social Security has been justified due to a number of market failures, and given these justifications, a case can be made that solutions that raise taxes are more equitable than those that reduce benefits. A mixed option, which affects both taxes and benefits, would be to increase the retirement age, although such an increase would put pressure on the disability-insurance program because some individuals will find it more difficult to work longer and would disproportionally affect low-income workers.

This assessment considers outcomes in the steady state. There is also the issue of which generation bears the burden during the transition. The more the system relies on tax increases as opposed to benefit cuts in the short and medium term, the more the burden is shifted to younger generations. Similar life-cycle arguments could be applied to any program for the elderly—including Medicare and nursing home costs under Medicaid—to the extent that the program's costs increase because of longevity. These programs are financed by a combination of payroll taxes and general revenues, but most of these taxes would be collected during most individuals' working years.

Cost increases for health care are a different matter, in part because they seem to be growing continuously and in part because they can be viewed in different ways. To the extent that rising costs reflect better medical care that extends and improves the quality of life, spending more money on health care may appropriately reflect preferences of individuals whose higher incomes permit them to spend more of their resources in this area. However, to the extent that rising medical costs reflect serious inefficiencies in the system arising from failure to allocate resources by price and causing patients and their physicians to consume large and inefficient amounts of health care, then increased benefits may not be justified.

If benefits are to be largely maintained, and because it is relatively clear that cutting other forms of spending will probably not be adequate, what are the tax options? Basically, these options, some of which are discussed in a number of the budget proposals, are

raising income tax rates, broadening the income tax base through reductions in tax expenditures, increasing other taxes (such as payroll and excise taxes), and introducing new taxes (such as a value-added tax or a carbon tax).

Rates can easily be varied, and several of the proposals included in the CBO Budget Options incorporate rate changes. The barriers for rate increases might be viewed as largely political rather than technical, and top tax rates in the past have been much higher than they are today.

Although tax expenditures have received much attention and eliminating or curtailing them have been included in various budget proposals, policymakers face significant political and technical barriers to implementing changes. Some tax expenditures are technically difficult to eliminate (especially employer fringe benefits), some are valued as part of the social safety net (such as the earned income credit or exclusion of transfers), some are desirable for other reasons, and some are so politically popular (e.g., the home mortgage interest deduction) that eliminating them or scaling them back could be difficult.

For example, considering technical challenges alone, four of the Solutions Initiative III proposals would have eliminated or limited the exclusion of employer health insurance, the largest individual tax expenditure, which accounts for 11.9% of the total revenue forgone. If including these expenditures as income, fairly designing an inclusion is very difficult because the value of insurance varies, for example, with the employee's age and other characteristics. If not allowed to vary by age, young employees who work for firms with higher average employee ages will be imputed more income than employees working for firms with younger employees. Potentially more serious imputation problems arise with valuing the tax expenditure associated with defined benefit pension plans, which accounts for 7.2% of the total. Problems arise with regard to this tax expenditure because of defined benefit pension plans, whose benefits are difficult to allocate because they ultimately depend on future work history with the firm.

At the same time, the Solutions Initiative III proposals also envision eliminating a broad array of tax expenditures. If used to generate additional revenue, reducing tax expenditures could result in significant progress toward reducing the deficit. One study, for example, suggests that a more realistic appraisal of tax expenditure options, taking into account technical barriers, political barriers, and justification for some provisions, would increase income-tax revenues by about 15%.

Two other types of taxes that might be altered are the payroll and excise taxes. For example, some of the Solution Initiative III proposals would have raised or eliminated the cap on earnings for payroll taxes. Other options include raising rates and expanding the base to include fringe benefits, such as pension contributions and health care. (Imputing income, however, as noted above, may be problematic.) A number of options could significantly extend solvency to the Social Security trust fund. Revenue could also be raised by taxing Social Security benefits in the same way as pensions, and this revenue, although considered as part of tax expenditures, could be designated to finance Social Security benefits. In addition, proposals have included increases in gasoline taxes to provide additional funding for highways and increases in alcohol taxes, whose real value has been declining since 1991.

Finally, there are options for additional types of taxes. Three new tax sources that have been included in the proposals are value-added taxes and carbon taxes (revenue could also be collected through an auction of carbon rights through a cap-and-trade system). Both value-added taxes and carbon taxes could raise significant amounts of additional revenues—$1.9 trillion and $1.1 trillion, respectively, over 10 years, according to CBO.

These revenue sources differ in the incentives they create and also in their progressivity. Because income taxes tend to fall more heavily than other taxes on high-income individuals and tax expenditures tend to benefit higher-income individuals, these changes would likely add to the progressivity of the system. Changes in payroll rates would tend to be proportional and affect higher-income individuals less, although raising the wage cap would concentrate the effect on higher-income workers. Flat-rate consumption taxes, including value-added taxes, carbon taxes, and specific excise taxes (such as those on gasoline, alcohol, and sugared beverages) tend to be regressive. A combination of changes could, however, achieve approximately the same distribution as current revenues.

To what extent, if any, the Solutions Initiative III proposals would have reduced transfers to state and local governments was not generally specified. This is because the details of discretionary spending (other than caps and limits) was done at a highly aggregated level. As these were not generally spelled out, some of these reductions could have reduced transfers to state and local governments in areas such as education, transportation, and community development where states directly provide the services. In addition, the state and local governments administer many entitlements, for both health and income security, with federal transfers. Two of the Solutions Initiative III proposals would have reduced federal transfers to the state for Medicaid. As noted above, federal transfers to state and local governments are 2.8% of output and constitute 33% of the receipts of these governments. State and local governments also benefit from tax expenditures that allow itemized deductions for state and local taxes and exclusions for interest on state and local bonds. Depending on how these governments respond, restrictions that affect state and local transfers could largely shift the burden of spending from federal to subnational governments.