Outlook for Federal Fiscal Policy

Abstract

THE 1972 BUDGET on the national income accounts basis (NIA) was programmed in January 1972 to have a full employment deficit of $4.3 billion. Instead, the fiscal year ended with a $4.9 billion full employment surplus. The $9.2 billion shift from deficit to surplus occurred largely as a result of two developments: (1) the unexpected increase in withheld individual income taxes that resulted from the change in the withholding schedules, and (2) the delay in the enactment of general revenue sharing. For fiscal 1973, the budget document of January 1972 implied another full employnment deficit, amounting to $2.5 billion. On a unified basis, the federal budget was essentially in balance. As shown in Table 1, legislation subsequently enacted, plus reestimates of interest expenditures, have increased projected federal outlays by $9.7 billion in spite of several presidential vetoes. Although the military's request for new obligational authority was reduced by $5.2 billion, the decrease in expenditures in fiscal 1973 is estimated to be only $1.8 billion, which is offset by increased expenditures for Vietnam of approximately $1.2 billion for a net reduction of only $0.6 billion in these two categories. Congress reduced the request for funds to equalize military retired pay and took no action either on another retirement proposal or on further increases to finance the volunteer army program. Thus, total defense expenditures should be $1.3 billion below last January's request-$0.9 billion in purchases of goods and services and $0.4 billion in transfer payments. One of the major components of the increase in expenditures is the nearly $3.3 billion to make general revenue sharing