Federal fiscal programs.

Wakefield, Joseph C.

Federal Fiscal Programs

The fiscal year 1990 budget returns to the fiscal course charted early in the 1980's. The 1989 budget had veered from that course to comply with a bipartisan budget agreement negotiated by the Congress and the administration in late 1987. The 1990 budget, like its predecessors, calls for substantial reductions from current services outlays--that is, outlays that would take place without policy changes--to bring the deficit within the mandated limits of the Balanced Budget and Emergency Deficit Control Act of 1985 (as amended). The outlay reductions--which are not as deep as those in earlier budgets--are to be implemented by program reductions, terminations and recessions, credit reform, management improvements, and sales of loans and physical assets.

To increase receipts, the budget proposes to extend medicare hospital insurance coverage to State and local government employees, to implement administration actions to improve tax collections, and to introduce or increase a variety of fees--such as Nuclear Regulatory Commission fees and airport and airway fees--to be paid by users and beneficiaries of Federal services. These proposals increase receipts by a relatively small amount.

National defense outlays increase 1.6 percent in 1990; in real terms, according to the administration, national defense outlays decline 2.2 percent. Procurement outlays decline 2.4 percent in 1990, in contrast to a 4.5 percent increase in 1989. The largest increase--3.8 percent --is for operation and maintenance, which increases 1.0 percent in 1989. Nondefense outlays increase 1.2 percent in 1990; in real terms, the decline is 2.4 percent. Excluding net interest and social security, nondefense outlays decline 2.0 percent. The largest proposed reduction is for medicare. A large increase in the category of receipts--called undistributed offsetting receipts--that is a direct offset to outlays in the budget is proposed for 1990. The largest proposed increase is for social security.

Economic assumptions

According to the Economic Report of the President, the "economic forecast for 1989 reflects the three continuing changes in the U.S. economy: improved international competitiveness, more restrictive macroeconomic policies, and the effects of temporary shocks to the economy. The forecast anticipates a continuation of the transition of the U.S. economy from growth led by domestic demand to growth driven by expanding world markets... Tempering overall growth, however, are policies of monetary and fiscal restraint."

Real GNP is forecast to increase 3.5 percent from the fourth quarter of 1988 to the fourth quarter of 1989 and 3.4 percent to the fourth quarter of 1990. Real GNP increased 2.6 percent during 1988. According to the Council of Economic Advisers, "these figures are not, however, representative of the underlying patterns of slower growth expected for most sectors of the economy in 1989. Distorting the picture of slower growth are the concluding effects of last year's drought." Removing the effect of the drought, real GNP is estimated to have increased 3.3 percent in 1988 and is forecast to increase 2.8 percent in 1989. The rate of inflation is expected to abate slightly in 1989: The GNP deflator is forecast to increase 3.7 percent (fourth quarter to fourth quarter). The Council states that "in line with slower growth in the nonfarm economy, little change is expected in capacity utilization rates and the rate of unemployment this year. This will help to contain sectoral capacity problems that can put upward pressure on prices." The unemployment rate is expected to drop slightly to 5.2 percent by the fourth quarter of 1989, and the level of employment is expected to increase 1.9 million by the end of the year. The interest rate for 91-day Treasury bills is expected to decline to 6.3 percent, consistent with slower growth and moderating inflation.

For 1989, the Council based the real GNP increase (fourth quarter to fourth quarter) on the following assessment. Personal consumption expenditures are expected to increase 2.0 percent, down from 3.3 percent in 1988. Nonresidential fixed investment is expected to increase 4.9 percent, substantially under the 8.4 percent in 1988. The continued growth in nonresidential fixed investment is expected because of the "need for further capacity in the exporting and import-competing sectors of the economy." Residential investment is expected to increase 2.7 percent, in contrast to a 0.4-percent decline in 1988. The increase began in late 1988 and the Council states that it "comes after nearly a year and a half of decline, prompted by reduced incentives for multi-unit construction arising under the Tax Reform Act of 1986." According to the Council, "exports will continue to be one of the biggest factors contributing to growth in 1989. Real import growth will slow compared with growth in recent years, as a result of slower drought-adjusted GNP growth and continued substitution away from more costly foreign, toward less costly domestically, produced products. Although the improvement in real net exports is not expected to continue at the record-setting pace of 1988, the trade sector... is projected to contribute to growth in 1989 and beyond."

Federal purchases of goods and services are expected to decline 0.6 percent, compared to a 4.4-percent decline in 1988. According to the Council, although "the decline in total Federal purchases appears to be slowing in 1989 relative to 1988, the drought explains much of the 1988 drop. Net Commodity Credit Corporation (CCC) farm inventory purchases were reduced as higher drought-related crop prices and lower production induced farmers to redeem crops and the CCC to sell inventories directly to the open market. Crop redemptions and government inventory sales are expected to diminish in 1989, as farm production recovers." State and local government purchases are expected to increase 3.0 percent, slightly faster than in 1988.

Current services estimates

Current services estimates show what receipts and outlays would be without policy changes. In concept, they are neither recommended amounts nor forecasts; they are bases with which administration or congressional proposals can be compared. The level of receipts generally assumes that tax changes occur as scheduled under current law. The level of outlays generally is that needed to maintain ongoing Federal programs and activities in real terms.

Unified budget receipts in 1990 are $1.8 billion higher than current services receipts, reflecting the administration proposals to increase receipts. Unified budget outlays are $32.6 billion lower than current services outlays; proposed program reductions ($38.1 billion) exceed proposed program increases ($5.7 billion).

The largest program increase--$2.1 billion--is for national defense and reflects the administration proposal to increase real national defense spending by 2 percent annually from 1990 through 1994. Increased spending for a proposed space station, a space shuttle program, and basic research contributes to the $1.3 billion increase for general science, space, and technology. Increased spending for Federal law enforcement and correctional activities contributes to the increase in the administration of justice.

The largest program reduction--$5.0 billion--is for medicare and reflects proposals to reduce payments for hospitals' capital costs and to limit increases in payments to physicians and other nonhospital providers. A proposal to eliminate the January 1990 cost-of-living adjustment and to eliminate the lump-sum withdrawal of employee contributions reduces spending for Federal employee retirement and disability. Proposals to reduce target prices and to lower the share of production eligible for deficiency payments contribute to the reduction in spending for farm income stabilization. A proposal to renew the cost containment incentives that were originally authorized by the Omnibus Budget Reconciliation Act of 1981 and that expired at the end of 1984 contributes to the reduction in medicaid. A number of proposals increase undistributed offsetting receipts, including the use of a competitive bidding process to sell Federal Communication Commission radio licenses and the sale of various power marketing administrations and the naval petroleum reserve.

Unified budget

The unified budget deficit decreases from $161.5 billion in fiscal year 1989 to $92.5 billion in fiscal year 1990. Of the $69.0 billion decline in the deficit, $33.1 billion is the result of an assumed decline in the current services budget deficit and $35.9 billion is the result of administration deficit-reduction proposals.

Receipts increase $83.8 billion--or 8.6 percent--in 1990, to $1,059.3 billion. Receipts in 1989 are $975.5 billion, up 7.3 percent from 1988. Administration proposals increase receipts $1.8 billion in 1990. The largest proposed increase is $1.8 billion from the extension of medicare hospital insurance coverage to State and local government employees not currently covered by social security. This increase is partly offset by a proposal to liberalize the research and experimentation allocation rules. (Currently, companies with foreign operations are allowed to allocate 64 percent of domestic research and experimentation expenses to their domestic operations and 64 percent of foreign expenses to their foreign operations. The remaining expenses are allocated on the basis of gross income or sales. The administration is proposing to allow companies to allocate at least 67 percent of total research and experimentation expenses to domestic operations.) Other proposals, on balance, increase receipts $1.6 billion.

Outlays increase $14.8 billion--or 1.3 percent--in 1990, to $1,151.8 billion. Outlays in 1989 are $1,137.0 billion, up 6.9 percent from 1988. The 1990 increase is the net result of $48.4 billion in increases and $33.4 billion in decreases. Unified budget outlays by function: Four functions--national defense, social security, net interest, and medicare--more than account for the increase in total outlays; on balance, outlays for all other functions decline. The largest increase--$14.4 billion--is for social security and includes $6.2 billion for a 3.6-percent cost-of-living adjustment, effective January 1, 1990. The largest decline--$11.7 billion--is for commerce and housing credit and is due to large declines in spending by the Federal Savings and Loan Insurance Corporation ($6.7 billion) and by the Federal Deposit Insurance Corporation ($5.1 billion). A large increase in undistributed receipts in 1990 is the result of the proposals to sell radio licenses, the elective power marketing administrations, and the naval petroleum reserve.

The large declines in spending by the Federal Savings and Loan Insurance Corporation (FSLIC) and the Federal Deposit Insurance Corporation (FDIC) reflect a significant decline in the number of insolvencies of thrift institutions expected in 1990. The FSLIC insures deposits at savings institutions up to a statutory limit of $100,000 per account. From January through November 1988, the FSLIC closed and/or assisted 150 savings institutions, an historic high number. Although the industry as a whole incurred losses during 1988, the aggregate loss in the third quarter of 1988 was only $1.6 billion, down sharply from the more than $3.5 billion losses in each of the previous two quarters. Net outlays for the FSLIC are estimated to be $8.7 billion in 1989 and $2.1 billion in 1990. According to the budget, this level of spending should allow the FSLIC to close at least 100 of the most unprofitable of the remaining insolvent institutions. The budget points out that this proposal will not solve the problems of the savings industry and that a comprehensive plan is being formulated within the administration to resolve remaining problems.

The FDIC insures deposits of all federally chartered and of many State-chartered commercial and savings banks. In 1988, the FDIC handled over 200 transactions involving failures and assistance. The FDIC anticipates bank failure and assistance agreements will decrease to approximately 150 in 1990. Net outlays for the FDIC are $3.3 billion in 1989 (a net loss) and a negative $1.3 billion in 1990 (a net gain).

Federal sector

BEA has prepared estimates of the Federal sector on the national income and product accounts (NIPA) basis that are consistent with the unified budget estimates. Estimates of the Federal sector, which are integrated conceptually and statistically with the rest of the NIPA's, differ in several respects from the unified budget estimates. Unlike the unified budget, these estimates exclude financial transactions, such as loans, and they record several categories of receipts and expenditures on a timing basis that is different from that of the budget. (For a more detailed discussion of the differences, see Government Transactions, Methodology Paper Series MP-5. See page 40 for information on where to order this latest paper in the BEA methodology series.) The relation between unified budget receipts and NIPA receipts, shows the relation between unified budget outlays and NIPA expenditures.

Federal receipts on the NIPA basis are $1,133.4 billion in fiscal year 1990, up $104.1 billion from 1989 The increase is the result of a $63.8 billion increase due to higher tax bases and a $40.3 billion increase due to tax changes. The increase due to tax changes is largely accounted for by the Tax Reform Act of 1986 ($11.5 billion), by the Medicare Catastrophic Coverage Act of 1988 ($6.5 billion), and by increases in the social security tax rates and bases ($14.7 billion). Proposed legislation, including extension of current airport and airway trust fund taxes (which are scheduled to drop by 50 percent in 1990), increases indirect business tax and nontax accruals. The proposal to extend medicare hospital insurance coverage to State and local government employees increases contributions for social insurance.

Federal expenditures on the NIPA basis are $1,213.0 billion in 1990, up $38.8 billion from 1989. The major factors that contribute to recent changes in Federal expenditures. The largest increase in 1990--$13.9 billion--is for social security benefits, including $8.6 billion for cost-of-living adjustments. Within purchases, Federal employee pay raises add $3.9 billion, purchases of agricultural commodities by the Commodity Credit Corporation (CCC) increase $3.8 billion, and purchases by the National Aeronautics and Space Administration increase $2.1 billion; partly offsetting these increases is a $2.7 billion decline in purchases of military hardware. Catastrophic health insurance contributes $2.6 billion to the increase in transfer payments, and a decline in the CCC deficit accounts for the decline in subsidies less the current surplus of government enterprises.

The relation between national defense outlays in the unified budget and national defense purchases on the NIPA Basis. In 1990, outlays, which are recorded on a checks-issued basis, increase less than purchases, which are recorded on a delivery basis.

Quarterly pattern.--The major factors that affect the quarterly pattern of receipts and expenditures through fiscal year 1990. Receipts reflect the pattern of enacted and proposed legislation and the administration's projected quarterly pattern of wages and profits. Expenditures reflect the pattern of proposed legislation and selected other items, mainly pay raises for Federal employees and cost-of-living adjustments in social security and Federal employee retirement benefits.

The Federal deficit increased sharply in the fourth quarter of 1988 and was largely due to transactions of the CCC. The deficit is essentially unchanged in the first quarter of 1989; increases in all categories in receipts, including a tax base increase for social security, are largely offset by expenditure increases, including cost-of-living adjustments in social security and other benefits. Thereafter, the deficit declines steadily as increases in receipts outpace increases in expenditures.

Table 10.--Federal Government Receipts and Expenditures, NIPA Basis

[Billions of dollars; quarters at seasonally adjusted annual rates]

 Fiscal year
 Estimates
 Actual Actual
 Estimate
 1988 1988
 1989 1990
 1989
 Receipts 964.8 1,029.3 1,133.4 974.2
 1,047.9
Personal tax and nontax receipts 413.1 436.8 470.5 413.4
 443.2
 Tax Reform Act of 1986 -31.8 -43.5 -43.0 -37.2
 -44.2

Omnibus Budget Reconciliation Act

of 1987 .7 1.8 2.6 1.2

2.0

Technical and Miscellaneous Revenue

 Act of 1988 -.6 -.2
 -.6
 Other 444.2 479.1 511.6 449.4
 486.0
Corporate profits tax accruals 109.9 118.5 140.7 110.3
 122.9
 Federal Reserve banks 17.5 17.9 18.5 18.8
 18.2
 Other 92.4 100.6 122.2 91.5
 104.7
 Tax Reform Act of 1986 17.4 18.5 29.6 15.0
 20.7

Omnibus Budget Reconciliation Act

of 1987 3.9 5.8 7.7 5.2

6.0

Technical and Miscellaneous

 Revenue Act of 1988 .2
 Proposed legislation -1.3 -1.5
 -1.7
 Other 71.1 77.6 86.4 71.3
 79.7

Indirect business tax and nontax

 accruals 57.0 57.5 65.7 56.8
 58.7
 Tax Reform Act of 1986 .4 .4 .3 .5
 .3

Omnibus Budget Reconciliation Act

of 1987 2.4 3.1 3.3 3.0

3.1

Technical and Miscellaneous Revenue

 Act of 1988 -.3 -.1
 -.4
 Proposed legislation 1.9
 .1
 Other 54.2 54.3 60.3 53.3
 55.6
Contributions for social insurance 384.8 416.5 456.5 393.6
 423.1

Base increases:

 January 1989 2.7 7.2
 3.6
 January 1990 3.1

Rate increase:

 January 1990 4.8
 Tax Reform Act of 1986 .1 .2 .2 .1
 .2

Omnibus Budget Reconciliation Act

of 1987 1.3 1.9 2.0 1.7

1.9

Medicare Catastrophic Coverage Act

of 1988:

 Income tax-based premium .6 6.5
 .6
 Flat rate premium 1.2 1.8
 1.6

Technical and Miscellaneous Revenue

 Act of 1988 .1
 Proposed legislation 2.0
 .5
 Other 383.4 409.9 428.8 391.9
 414.7
 Expenditures 1,106.3 1,174.2 1,213.0 1,116.1
 1,187.0
Purchases of goods and services 378.3 398.4 413.0 380.2
 403.1
 National defense 296.9 298.3 304.8 297.5
 298.9

Pay raises:

 January 1989 2.6 3.5
 3.5
 January 1990 2.0
 Other 296.9 295.6 299.2 297.5
 295.3
 Nondefense 81.4 100.1 108.2 82.7
 104.3

Pay raises:

 January 1989 1.1 1.5
 1.5
 January 1990 .6

Commodity Credit Corporation

 inventory change -14.8 -5.0 -1.2 -15.2
 -2.8
 1990 Census .1 .5 1.4 .2
 .5
 Sale of power administrations -1.0
 Other 96.1 103.5 107.0 97.7
 105.2
Transfer payments 434.2 463.4 488.0 440.1
 470.0
 To persons 421.3 450.1 474.5 427.2
 456.6
 Social Security 210.7 223.7 237.6 213.9
 227.1

Benefit increases:

 January 1989 6.5 8.9
 8.7
 January 1990 6.2

Medicare Catastrophic Coverage

 Act of 1988 1.0 3.6
 1.5
 Other 210.6 225.4 233.3 213.3
 228.0
 To foreigners 12.9 13.3 13.5 12.9
 13.4

Grants-in-aid to State and local

 governments 108.5 116.9 117.5 110.4
 117.6
 Public assistance 43.7 48.1 49.3 44.4
 48.9
 Highways 13.6 13.1 12.9 13.8
 13.0
 Education 10.0 10.9 11.4 10.2
 11.0
 Food and nutrition 7.0 7.7 7.1 7.2
 7.7
 Other 34.2 37.0 36.8 34.8
 37.0
Net interest paid 150.4 165.9 171.1 154.2
 168.2

Subsidies less current surplus of

government enterprises 34.8 29.6 23.4 31.2

28.1

Agriculture:

Commodity Credit Corporation

 deficit 10.6 9.0 2.7 10.3
 7.3
 Agricultural subsidies 15.1 10.6 10.1 13.6
 10.5
 Housing 14.0 15.3 16.3 13.5
 15.7
 Postal Service -.2 -1.3 -.1 -.7
 -1.1
 Amtrak .6 .6 .1 .6
 .5
 Other -5.3 -4.6 -5.7 -6.1
 -4.8
Less: Wage accruals less disbursements -.1
 Surplus or deficit (-) -141.5 -144.9 -79.6 -141.8
 -139.1
 Calendar year
 Actual Estimates
 1988 1989
 I II III IV I II III IV
 I
 951.0 983.0 975.5 987.3 1,017.6 1,037.9 1,054.0 1,081.9
1,127.1
 404.6 425.0 408.3 415.8 431.6 441.6 445.4 454.3
 466.0
 -34.0 -22.0 -46.5 -47.6 -44.5 -41.6 -45.3 -45.2
 -43.9
 1.0 1.1 1.0 1.5 1.8 1.8 1.8 2.5
 2.6
 -.6 -.6 -.6 -.6
 -.2
 437.7 446.1 453.9 461.9 474.9 482.0 489.5 497.6
 507.5
 107.2 111.7 113.1 109.3 114.2 119.3 126.4 131.5
 139.1
 18.4 18.3 19.1 19.4 18.1 18.2 18.2 18.3
 18.6
 88.8 93.4 94.0 89.9 96.1 101.1 108.3 113.3
 120.5
 14.5 14.1 15.2 16.0 17.1 19.3 21.8 24.6
 28.5
 5.2 5.2 5.2 5.2 6.0 6.0 6.0 6.0
 8.3

 .2
 -1.7 -1.7 -1.7 -1.7
 -1.4
 69.1 74.1 73.6 68.7 74.8 77.6 82.2 84.4
 84.9
 55.9 55.9 57.1 58.3 56.9 57.0 57.2 63.5
 66.3
 .5 .5 .5 .5 .3 .3 .3 .3
 .3
 3.0 3.0 3.1 3.0 3.0 3.1 3.1 3.2
 3.3
 -.4 -.4 -.4 -.4
 .4
 2.4
 52.4 52.4 53.5 54.8 54.0 54.0 54.2 60.0
 60.3
 383.4 390.3 397.0 403.9 414.9 420.0 425.0 432.6
 455.7
 3.5 3.6 3.6 3.7
 8.3

 4.1

 6.2
 .1 .1 .1 .1 .2 .2 .2 .2
 .2
 1.7 1.7 1.7 1.7 1.9 1.9 1.9 1.9
 2.0
 .6 .6 .6 .6
 6.5
 1.6 1.6 1.6 1.6
 1.8

 .1
 2.0
 2.1
 381.6 388.5 395.2 402.1 407.1 412.1 417.1 422.6
 424.4
1,106.1 1,116.3 1,099.0 1,143.0 1,174.2 1,187.1 1,187.5 1,199.1
1,211.1
 377.7 382.2 367.7 393.2 398.4 403.6 406.3 404.2
 412.0
 298.4 298.8 294.3 298.4 298.3 299.3 300.5 297.3
 303.8
 3.4 3.5 3.5 3.5
 3.5

 2.5
 298.4 298.8 294.3 298.4 294.8 295.7 296.9 293.7
 297.7
 79.3 83.4 73.4 94.9 100.1 104.3 105.8 106.9
 108.2
 1.4 1.5 1.5 1.5
 1.5

 .7
 -17.5 -16.8 -22.6 -4.0 -5.0 -3.0 -2.0 -1.3
 -1.3
 .1 .1 .2 .2 .4 .5 .5 .5
 .6
 96.8 100.2 95.7 98.7 103.3 105.3 105.8 106.2
 106.7
 434.4 437.6 440.7 447.6 463.4 468.2 471.7 476.6
 487.9
 422.9 426.5 428.3 431.0 450.9 455.7 459.1 460.8
 475.2
 212.5 213.4 214.4 215.3 225.3 226.4 227.6 229.1
 239.0
 8.7 8.7 8.7 8.8
 8.9

 8.3
 1.0 1.6 1.6 1.7
 3.9
 210.4 213.1 213.9 215.7 224.6 227.7 229.9 230.0
 232.3
 11.5 11.0 12.5 16.6 12.5 12.5 12.6 15.8
 12.7
 111.1 110.4 111.5 108.6 116.9 118.1 117.9 117.5
 117.4
 44.6 45.3 44.7 43.0 47.7 49.0 49.4 49.3
 49.2
 14.3 13.6 13.7 13.6 13.1 13.0 13.0 12.9
 12.9
 10.3 8.5 10.9 11.1 10.8 10.9 11.0 11.1
 11.3
 7.0 7.3 7.4 7.2 7.9 7.9 7.6 7.3
 7.2
 34.9 35.7 34.8 33.7 37.4 37.3 36.9 36.9
 36.8
 149.9 152.1 154.9 159.8 165.4 167.9 169.4 170.1
 170.8
 33.0 34.0 24.1 33.7 30.1 29.3 22.2 30.7
 23.0
 8.5 10.6 16.1 6.1 10.0 9.0 6.0 4.0
 3.0
 14.8 17.6 1.8 20.2 10.0 9.8 5.6 16.5
 9.5
 13.1 13.3 13.5 13.9 15.2 15.6 15.9 16.1
 16.3
 1.9 -1.9 -1.7 -1.3 -1.4 -1.2 -1.0 -.7
 -.3
 .6 .6 .6 .6 .6 .5 .5 .3
 .1
 -5.9 -6.2 -6.2 -5.8 -4.3 -4.4 -4.8 -5.5
 -5.6
 -155.1 -133.3 -123.5 -155.7 -156.6 -149.2 -133.5 -117.2
 -84.0

1990

 II III
1,445.5 1,163.1
 472.7 480.8
 -44.3 -44.4
 2.6 2.6
 -.2 -.2
 514.6 522.8
 143.8 148.5
 18.7 18.7
 125.1 129.8
 31.6 33.6
 8.2 8.2
 .2 .2
 -1.4 -1.4
 86.5 89.2
 66.5 66.8
 .3 .3
 3.3 3.3
 2.4 2.4
 60.5 60.8
 461.5 467.0
 8.5 8.5
 4.2 4.2
 6.3 6.5
 .2 .2
 2.0 2.0
 6.5 6.5
 1.8 1.8
 .1 .1
 2.1 2.1
 429.8 435.1
1,222.0 1,220.4
 419.1 416.2
 308.1 309.6
 3.5 3.5
 2.6 2.6
 301.9 303.4
 111.0 106.6
 1.5 1.5
 .8 .8
 -1.2 -1.2
 2.7 1.7
 -3.9
 107.2 107.7
 491.9 496.1
 479.2 483.3
 240.4 242.0
 8.9 9.0
 8.3 8.4
 4.4 4.5
 234.4 236.8
 12.7 12.8
 117.5 117.7
 49.3 49.4
 12.9 12.9
 11.5 11.7
 7.1 7.0
 36.7 36.7
 171.5 172.2
 22.0 18.2
 2.0 2.0
 9.3 5.1
 16.5 16.7
 .3
 -5.8 -5.9
 -77.5 -57.3

Cyclically adjusted deficit.--Cyclically adjusted receipts, expenditures, and surplus or deficit are estimates of what these measures would be if the economy were moving along a trend GNP path--a path free from cyclical fluctuations--rather than along its actual path. Consequently, cyclical fluctuations in the economy do not affect cyclically adjusted budgets. Two measures of the cyclically adjusted budget--one a middle-expansion trend GNP and one based on a 6-percent unemployment rate trend GNP.

As measured using cyclical adjustments based on middle-expansion trend GNP, the Federal sector of the NIPA's was in deficit in calendar year 1987. The deficit increased in 1988 and is expected to continue to increase in 1989. In 1989 and 1990, the cyclically adjusted deficit, although at a higher level, follows a pattern similar to that of the NIPA deficit. It increases in the first quarter of 1989 and then declines steadily through the third quarter of 1990.

The cyclically adjusted budget based on middle-expansion trend GNP is associated with a middle-expansion trend unemployment rate of 6.9 percent. The cyclically adjusted deficit based on a 6-percent unemployment rate is lower but follows the same quarterly pattern.