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In support of its mission to deter conflict or fight in wars if necessary, the Navy considers it a core responsibility to maintain a forward presence to keep some of its fleet far from U.S. shores at all times in areas that are important to national interests. Toward that end, at any given time, about one-third of the fleet is deployed overseas. The rest of the Navy s ships are in or near their home ports in the United States for maintenance, training, or sustainment (a period in which a ship is in port but ready to deploy quickly). Most of the ships that contribute to the Navy s current forward presence of about 100 ships sail from ports in the United States; 31 others are now stationed permanently in foreign countries or at overseas U.S. military bases. In the future, the Navy expects to boost the proportion of ships that it bases abroad. The Congressional Budget Office estimates that, for the next 30 years, the Navy s 2015 shipbuilding plan (which aims to increase the fleet from 281 ships in 2014 to 306 ships by 2022) would cost about $21 billion annually, on average, in constant 2014 dollars. The Navy's estimates set the figure somewhat lower at about $19 billion per year. Both estimates are greater than the annual average of almost $16 billion that the Navy has spent for the past three decades, which suggests that the Navy may have difficulty affording its plans. The Chief of Naval Operations emphasis on forward operations indicates that the Navy has committed to maintaining the largest possible forward presence under any given budget plan.

At the request of the Chairman of the Senate Budget Committee, Senator Mike Enzi, and the Chairman of the House Budget Committee, Congressman Tom Price, the Congressional Budget Office has projected budgetary and economic outcomes over the 2016 2025 period assuming certain paths for federal revenues and spending (excluding interest payments). Those paths are consistent with the amounts of overall revenues and spending specified in the conference report on the 2016 budget resolution (S. Con. Res. 11), which was filed on April 29, 2015. However, the projections do not represent a cost estimate for legislation or an analysis of the effects of any specific policies that might be adopted to produce the revenue and spending paths anticipated in the resolution. The specified paths envision cuts in spending (from the amounts projected to occur under current law) that begin in 2016 and grow successively larger in later years. The paths also envision allowing revenues to rise roughly as projected under current law over the next decade. Under those paths, the cumulative deficit over the 2016 2025 period, excluding interest savings and macroeconomic effects, would be roughly $5 trillion lower than in CBO s current-law baseline, as adjusted to reflect recently enacted legislation.3 The projections in this report represent CBO s assessment of how federal debt and economic output would evolve from 2016 to 2025 under those specified paths for revenues and noninterest spending. The projections show how the total amounts of federal revenues and spending and the resulting amount of federal borrowing under those paths would affect the economy and how those macroeconomic effects (or feedback) in turn would affect the federal budget.

The Congressional Budget Office (CBO) is required by law to issue a report within 10 days of the end of a session of Congress that provides estimates of the limits (often called caps ) on discretionary budget authority in effect for each fiscal year through 2021.1 CBO is also required to report whether, according to its estimates, enacted legislation for the current fiscal year has exceeded those caps; if the caps were exceeded, a sequestration (that is, a cancellation of budgetary resources) would be required. In CBO s estimation, such a sequestration will not be required for 2015. However, the authority to determine whether a sequestration is required and, if so, exactly how to make the necessary cuts in budget authority rests with the Administration s Office of Management and Budget (OMB). Those determinations are based on OMB s own estimates of federal spending.

The term authorization is used to describe two types of laws. One is an organic, or enabling, statute, which creates a federal agency, establishes a federal program, prescribes a federal function, or provides for a particular federal obligation or expenditure within a program. That type of authorization may allow a federal agency, program, or function to continue indefinitely or only for a specific period. Such an authorization may provide an agency with the authority to obligate and spend federal funds in the form of direct, or mandatory, spending, or it may simply specify a purpose for which a subsequent appropriation may be made available. This report focuses on the second type of law described by the term authorization : a specific provision that authorizes the appropriation of funds (generally providing for what is known as discretionary spending) to carry out the program or function established in the enabling statute. Such a provision constitutes guidance to the Congress regarding the amount of funding that may be necessary to implement the enabling statute. An authorization of appropriations may be contained in an enabling statute or may be provided separately. Such an authorization may set a specific dollar amount (a definite authorization) or allow the appropriation of such sums as may be necessary (an indefinite authorization), and it may be annual, multiyear, or permanent. House and Senate rules dating from the 19th century contain restrictions on the consideration of appropriations that are unauthorized.2 Whether an appropriation is unauthorized and whether it is a violation of a House or Senate rule are determined by the Speaker of the House or the Presiding Officer of the Senate, respectively, on the basis of advice from the respective House s Office of the Parliamentarian.

During the past two years, the Congress has considered proposals to modify the nation s immigration system. The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), passed by the Senate in June 2013, addresses multiple facets of immigration policy, including changes to the existing visa system, improvements in border security and law enforcement, and changes to the status of people who currently live in the country without legal authorization. Other proposals have focused on one component of immigration policy for example, improving border security or changing certain aspects of the visa system. Whether the proposals involve broad or narrow changes to immigration policy, they could have a variety of consequences for both citizens and noncitizens, for the federal government, and for state and local governments. This Congressional Budget Office (CBO) report examines some of those proposals and how such changes would affect the federal budget. When estimating the budgetary consequences of immigration reform, CBO considers various factors. Depending on the details of proposed legislation, changes to immigration policy could have a significant effect on the size and composition of the noncitizen population and, as a result, on rates of participation in federal programs and the payment of taxes. For that reason, when estimating the budgetary effects of proposals, CBO considers the demographic and labor force characteristics of foreign born people, their eligibility for and participation in federal programs, their tax liability, changes in the economy, and a number of other factors. If proposals were combined into a single, more comprehensive immigration bill, estimates of the budgetary effects would take into account the complex interactions among the various provisions; the net effect would not be a simple summation of the individual effects.

In February 2009, in response to significant weakness in the economy, lawmakers enacted the American Recovery and Reinvestment Act (ARRA). The legislation s numerous spending and revenue provisions can be grouped into several categories according to their focus: Providing funds to states and localities for example, by raising federal matching rates under Medicaid, providing aid for education, and increasing financial support for some transportation projects; Supporting people in need such as by extending and expanding unemployment benefits and increasing benefits under the Supplemental Nutrition Assistance Program (formerly the Food Stamp program); Purchasing goods and services for instance, by funding construction and other investment activities that could take several years to complete; and Providing temporary tax relief for individuals and businesses such as by raising exemption amounts for the alternative minimum tax, adding a new Making Work Pay tax credit, and creating enhanced deductions for depreciation of business equipment.

The federal budget deficit, which has fallen sharply during the past few years, is projected to hold steady relative to the size of the economy through 2018. Beyond that point, however, the gap between spending and revenues is projected to grow, further increasing federal debt relative to the size of the economy which is already historically high. Those projections by the Congressional Budget Office, based on the assumption that current laws governing taxes and spending will generally remain unchanged, are built upon the agency s economic forecast. According to that forecast, the economy will expand at a solid pace in 2015 and for the next few years to the point that the gap between the nation s output and its potential (that is, maximum sustainable) output will be essentially eliminated by the end of 2017. As a result, the unemployment rate will fall a little further, and more people will be encouraged to enter or stay in the labor force. Beyond 2017, CBO projects, real (inflation-adjusted) gross domestic product (GDP) will grow at a rate that is notably less than the average growth during the 1980s and 1990s.

Nuclear weapons have been a cornerstone of U.S. national security since they were developed during World War II. During the Cold War, nuclear forces were central to U.S. defense policy, resulting in the buildup of a large arsenal. Since that time, they have figured less prominently than conventional forces, and the United States has not built any new nuclear weapons or delivery systems for many years. The current strategic nuclear forces consisting of submarines that launch ballistic missiles (SSBNs), land-based intercontinental ballistic missiles (ICBMs), long-range bombers, and the nuclear weapons they carry are reaching the end of their service lifetimes. Over the next two decades, the Congress will need to make decisions about the extent to which essentially all of the U.S. nuclear delivery systems and weapons will be modernized or replaced with new systems. To help the Congress make those decisions, the National Defense Authorization Act of 2013 (Public Law 112-239) required the Congressional Budget Office (CBO) to estimate the 10-year costs of the Administration s plans to operate, maintain, and modernize U.S. nuclear forces. In response, CBO published Projected Costs of U.S. Nuclear Forces, 2014 to 2023.1 The National Defense Authorization Act of 2015 (P.L. 113-291) requires CBO to periodically update its estimate of the cost of nuclear forces. This report constitutes the first such update. CBO estimates that over the 2015 2024 period, the Administration s plans for nuclear forces would cost $348 billion, an average of about $35 billion a year, and an amount that is close to CBO s December 2013 estimate of $355 billion for the 2014 2023 period. (Both estimates are given in nominal dollars; that is, they include the effects of inflation.) Although the two estimates of total costs are similar, projected costs for nuclear programs of both the Department of Defense (DoD) and the Department of Energy (DOE) have changed.

In Operation Iraqi Freedom, which ended on August 31, 2010, some 3,482 hostile deaths occurred among U.S. military personnel and 31,947 people were wounded in action (WIA). More than 1,800 hostile deaths occurred during Operation Enduring Freedom (in Afghanistan and surrounding countries) through November 2014; about 20,000 more people were wounded in action. In the Iraq conflict, a larger proportion of wounded personnel survived their wounds than was the case during the Vietnam War, but the increased survival rates are not as high as some studies have asserted. Prior to the surge in troop levels that began in early 2007, the survival rate was 90.4 percent in Iraq compared with 86.5 percent in Vietnam. Amputation rates are difficult to measure consistently, but I estimate that 2.6 percent of all WIA and 9.0 percent of medically-evacuated WIA from the Iraq and Afghanistan theaters combined resulted in the major loss of a limb. An elevated non-hostile death rate (including deaths from accidents, illnesses, or suicides) in Iraq before the surge resulted in about 220 more deaths during the first four years of that conflict (March 2003 March 2007) than would have been expected in peacetime among a population the size of the one that deployed to Iraq. Relative to such a peacetime benchmark, I find essentially no additional non-hostile deaths in Iraq after March 2007. For the conflict in Afghanistan, I estimate about 200 additional non-hostile deaths relative to a comparable benchmark through December 2013.

The Department of Defense (DoD) submitted the Navy s 2015 shipbuilding plan, which covers fiscal years 2015 to 2044, to the Congress in July 2014.1 The total costs of carrying out the 2015 plan an average of about $21 billion in 2014 dollars per year over the next 30 years would be one-third higher than the funding amounts that the Navy has received in recent decades, the Congressional Budget Office (CBO) estimates. The Navy s 2015 shipbuilding plan is very similar, but not identical, to its 2014 plan with respect to the Navy s total inventory goal for battle force ships, the number and types of ships the Navy would purchase, and the proposed funding to implement the plans.

The Department of Defense s (DoD s) base budget grew from $384 billion to $502 billion between fiscal years 2000 and 2014 in inflation-adjusted (real) terms an increase of 31 percent and an annual average growth rate of 1.9 percent. Several factors contributed to that growth. The largest rate of growth was in the costs for military personnel, which increased by 46 percent over the period. The costs for operation and maintenance (O&M) increased by 34 percent, and the costs for acquisition increased by 25 percent. About two-thirds of the $117 billion real increase in the budget went for the following activities: procurement; O&M costs for the Defense Health Program; research, development, test, and evaluation; the basic allowance for housing; fuel; and basic pay for active-duty military personnel. For this analysis, the Congressional Budget Office (CBO) examined DoD s base budget, which excludes supplemental and emergency funding for overseas contingency operations (those conducted in Afghanistan and Iraq and other countries). DoD s base budget includes both discretionary funding (controlled by annual appropriation acts) and mandatory funding (generally determined by eligibility rules, benefit formulas, and other parameters that are set in current law). All costs are expressed in 2014 dollars of budget authority, adjusted for the effects of inflation over the 15-year period using the gross domestic product price index; unless otherwise noted, all growth rates are measured in those real terms. CBO s analysis is based on data from DoD. In addition, CBO relied on analyses described in several of its publications.

The Department of Veterans Affairs (VA) oversees a disability program that makes payments through the Veterans Benefits Administration (VBA) to compensate U.S. veterans for medical conditions or injuries that are incurred or aggravated during active duty in the military, although not necessarily during the performance of military duties. Compensable service-connected disabilities range widely in severity and type, including the loss of one or more limbs, migraines, scars, and hypertension. Payments are meant to offset the average earnings lost as a result of those conditions, whether or not a particular veteran's condition has reduced his or her earnings or interfered with his or her daily functioning. Disability compensation is not means-tested; veterans who work are eligible for benefits, and, in fact, most working-age veterans who receive disability benefits are employed. Payments are in the form of monthly annuities and typically continue until death.

The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. However, later in the coming decade, if current laws governing federal taxes and spending generally remained unchanged, revenues would grow only slightly faster than the economy and spending would increase more rapidly, according to the Congressional Budget Office s (CBO s) projections. Consequently, relative to the size of the economy, deficits would grow and federal debt would climb. CBO s budget projections are built upon its economic forecast, which anticipates that the economy will grow slowly this year, on balance, and then at a faster but still moderate pace over the next few years. The gap between the nation s output and its potential (maximum sustainable) output will narrow to its historical average by the end of 2017, CBO expects, largely eliminating the underutilization of labor that currently exists. As the economy strengthens over the next few years, inflation is expected to remain below the Federal Reserve s goal, and interest rates on Treasury securities, which have been exceptionally low since the recession, are projected to rise considerably.

Each year, after the President releases his budget request, the Congressional Budget Office (CBO) analyzes the proposals in that request. Using its own economic projections and estimating procedures, CBO projects what the federal budget would look like over the next 10 years if the President s proposals were adopted. CBO usually provides that information in two reports: The first examines the proposals effects on the budget but generally does not incorporate their effects on the U.S. economy. However, this year s version of that budgetary analysis, which was published on April 17, included some of the macroeconomic effects of the proposals specifically, some of the effects of the President s proposal to alter laws related to immigration.1 The second report, which takes more time to prepare, shows the effects that all of the President s proposals would have on the economy and, in turn, the implications of those macroeconomic effects for the budget. CBO has now completed that analysis, and this report describes the results. With only some of the macroeconomic effects included, CBO estimated in its earlier report that the President s proposals would cause the federal budget deficit to equal about $500 billion in fiscal years 2014 and 2015 and larger amounts in later years, ranging between about $700 billion and $800 billion from 2020 to 2024 (the second half of the 10-year projection period). Starting in 2017, those projected deficits are smaller than the ones that would occur under current law, as estimated in CBO s baseline (a projection of the paths that federal revenues and spending would take over the next decade if current laws generally remained unchanged). Deficits would total $6.6 trillion between 2015 and 2024 under the President s proposals $1.0 trillion less than the cumulative deficit for that period in CBO s baseline., CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE

Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing its debt to soar. The total amount of federal debt held by the public is now equivalent to about 74 percent of the economy's annual output, or gross domestic product (GDP) a higher percentage than at any point in U.S. history except a brief period around World War II and almost twice the percentage at the end of 2008. If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years, the Congressional Budget Office (CBO) projects. After that, however, growing budget deficits would push debt back to and above its current high level. Twenty-five years from now, in 2039, federal debt held by the public would exceed 100 percent of GDP, CBO projects. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.

Chairman Ryan, Congressman Van Hollen, and Members of the Committee, thank you for the opportunity to testify on the Congressional Budget Office s (CBO s) most recent analysis of the outlook for the federal budget over the long term. My statement today summarizes The 2014 Long-Term Budget Outlook, which was released yesterday. Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing its debt to soar. The total amount of federal debt held by the public is now equivalent to about 74 percent of the economy s annual output, or gross domestic product (GDP) a higher percentage than at any point in U.S. history except a brief period around World War II and almost twice the percentage at the end of 2008. If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years, CBO projects. After that, however, growing budget deficits would push debt back to and above its current high level. Twenty-five years from now, in 2039, federal debt held by the public would exceed 100 percent of GDP, CBO projects. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely., Testimony before the Committee on the Budget, U.S. House of Representatives.

This report by the Congressional Budget Office (CBO) presents an analysis of the proposals in the President s budget request for fiscal year 2015, as submitted to the Congress on March 4, 2014. The analysis is based on CBO s economic projections and estimating models (rather than the Administration s), and it incorporates estimates of the effects of the President s tax proposals that were prepared by the staff of the Joint Committee on Taxation (JCT). In conjunction with analyzing the President s budget, CBO has updated its baseline budget projections, which were previously issued in February 2014. Unlike its estimates of the President s budget, CBO s baseline projections largely reflect the assumption that current tax and spending laws will remain unchanged, and therefore the projections provide a benchmark against which potential legislation can be measured. Under that assumption, CBO estimates that the federal deficit would total $492 billion in 2014 and that the cumulative deficit over the 2015 2024 period would amount to $7.6 trillion.

Chairman Murray, Senator Sessions, and Members of the Committee, thank you for inviting me to testify on the Congressional Budget Office s (CBO s) most recent analysis of the outlook for the budget and the economy. My statement summarizes CBO s new economic forecast and baseline budget projections, which cover 2014 to 2024. Those estimates were released last week in the report titled The Budget and Economic Outlook: 2014 to 2024. The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. The Congressional Budget Office (CBO) estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009. At that level, this year s deficit would equal 3.0 percent of the nation s economic output, or gross domestic product (GDP) close to the average percentage of GDP seen during the past 40 years.

After the end of a session of Congress, the Congressional Budget Office (CBO) is required by law to issue a report that provides estimates of the caps on discretionary budget authority in effect for each fiscal year through 2021.1 CBO is also required to report whether, according to its estimates, enacted legislation has exceeded those caps; if the caps were exceeded, a sequestration (a cancellation of budgetary resources) would be required. In CBO s estimation, such a sequestration will not be required for 2014. However, the Administration s Office of Management and Budget (OMB) has sole authority to determine whether such a sequestration is required and, if so, exactly how the proportional cuts are to be made. Those determinations are based on OMB s own estimates of federal spending.

Chairman Ryan, Congressman Van Hollen, and Members of the Committee, thank you for inviting me to testify on the Congressional Budget Office s (CBO s) most recent analysis of the outlook for the budget and the economy. My statement summarizes CBO s new economic forecast and baseline budget projections, which cover 2014 to 2024. Those estimates were released yesterday in the report titled The Budget and Economic Outlook: 2014 to 2024., Testimony before the Committee on the Budget, U.S. House of Representatives.

In 2012, the Department of Defense (DoD) spent $52 billion on health care for service members, retirees, and their families. The department offers health care to nearly 10 million people through its TRICARE program, an integrated system of military health care providers and regional networks of civilian providers. Established in 1993, TRICARE now consists of three major plans: TRICARE Prime, TRICARE Standard, and TRICARE Extra. The following groups of people are eligible to participate in TRICARE (with the respective populations in 2012 shown in parentheses): All members of the four military branches as well as members of the Coast Guard and the commissioned corps of the Public Health Service and of the National Oceanic and Atmospheric Administration (1.8 million); Families of current service members (2.6 million); and Retired service members and their families (5.2 million). The cost of providing that care has increased rapidly as a share of the defense budget over the past decade, outpacing growth in the economy, growth in per capita health care spending in the United States, and growth in funding for DoD s base budget (which finances the department s routine activities but has excluded funding for operations in Iraq and Afghanistan). Between 2000 and 2012, funding for military health care increased by 130 percent, over and above the effects of overall inflation in the economy. In 2000, funding for health care accounted for about 6 percent of DoD s base budget; by 2012, that share had reached nearly 10 percent. By 2028, health care would claim 11 percent of the cost of implementing DoD s plans, the Congressional Budget Office (CBO) estimates.

Testimony before the Subcommittee on Oversight, Committee on Science, Space, and Technology, House of Representatives.

In its most recent review of U.S. nuclear policy, the Administration resolved to maintain all three types of systems that can deliver nuclear weapons over long ranges -- submarines that launch ballistic missiles (SSBNs), land-based intercontinental ballistic missiles (ICBMs), and long-range bombers -- known collectively as the strategic nuclear triad. The Administration also resolved to preserve the ability to deploy U.S. tactical nuclear weapons carried by fighter aircraft overseas in support of allies. Nearly all of those delivery systems and the nuclear weapons they carry are nearing the end of their planned operational lives and will need to be modernized or replaced by new systems over the next two decades. In addition, the Administration's review called for more investment to restore and modernize the national laboratories and the complex of supporting facilities that maintain the nation's stockpile of nuclear weapons. The costs of these modernization activities will add significantly to the overall cost of the nation's nuclear forces, which also includes the cost of operating and maintaining the current forces. As directed by the Congress in the National Defense Authorization Act for Fiscal Year 2013 (Public Law 112-239), the Congressional Budget Office (CBO) has estimated the costs over the next 10 years of the Administration's plans for operating, maintaining, and modernizing nuclear weapons and the military systems capable of delivering those weapons. However, CBO's estimates should not be used directly to calculate the savings that might be realized if these forces were reduced. Because the nuclear enterprise has large fixed costs for infrastructure and other factors, a partial reduction in the size of any segment of these forces would likely result in savings that were proportionally smaller than the relative reduction in force.

In most years, the Department of Defense (DoD) provides a five-year plan, called the Future Years Defense Program (FYDP), associated with the budget that it submits to the Congress. Because decisions made in the near term can have consequences for the defense budget well beyond that period, the Congressional Budget Office (CBO) regularly examines DoD's FYDP and projects its budgetary impact roughly a decade beyond the period covered by the FYDP. For this analysis, CBO used the FYDP that was provided to the Congress in April 2013; that FYDP spans fiscal years 2014 to 2018, and CBO's projections span the years 2014 to 2028. For fiscal year 2014, DoD requested appropriations totaling $607 billion. Of that amount, $527 billion was to fund the base programs that constitute the department s normal activities, such as the development and procurement of weapon systems and the day-to-day operations of the military and civilian workforce. The remaining $79 billion was requested to pay for what are termed overseas contingency operations (OCO) the war in Afghanistan and other nonroutine military activities elsewhere. The FYDP describes DoD's plans for its normal activities and therefore generally corresponds to the base budget. DoD's 2014 plans are similar to its 2013 plans. CBO produced two projections of the base-budget costs of DoD's plans (expressed in terms of total obligational authority for each fiscal year) as reflected in the FYDP and other long-term planning documents released by DoD.1 The CBO projection uses CBO's estimates of the costs of military activities and the extent to which those costs will change over time; those estimates reflect DoD's experience in recent years. For comparison, the extension of the FYDP starts with DoD's estimates of the costs of its plans through 2018 and extends them beyond 2018 using DoD's estimates if available and CBO's projections of price and compensation trends for the overall economy if DoD's estimates are not available.

This report by the Congressional Budget Office (CBO) presents an analysis of the proposals contained in the President's budget request for fiscal year 2014. The analysis is based on CBO's economic projections and estimating assumptions and models, rather than the Administration's, and incorporates estimates by the staff of the Joint Committee on Taxation (JCT) for the President's tax proposals. In conjunction with analyzing the President's budget, CBO has updated its baseline budget projections, which were previously issued in February 2013. Unlike its estimates of the President's budget, CBO's baseline projections largely reflect the assumption that current tax and spending laws will remain unchanged, so as to provide a benchmark against which potential legislation can be measured. Under that assumption, CBO estimates that the deficit would total $642 billion in 2013 and that the cumulative deficit over the 2014-2023 period would amount to $6.3 trillion. The President's budget request specifies spending and revenue policies for the 2014-2023 period and includes initiatives that would have budgetary effects in fiscal year 2013 as well. According to CBO's and JCT s estimates, enactment of the President's proposals would, relative to CBO's baseline, boost deficits between 2013 and 2015 but reduce them by increasing amounts from 2016 through 2023.

The Congress faces an array of policy choices as it confronts the dramatic increase in the federal government s debt over the past several years and the prospect of large annual budget deficits and further increases in that debt that are projected to occur in coming decades under current law (see Figure 1-1). To help inform lawmakers about the budgetary implications of various approaches to changing federal policies, the Congressional Budget Office (CBO) periodically issues a compendium of policy options that would affect the federal budget as well as separate reports that include policy options in particular areas.1 This volume presents 103 options that would decrease federal spending or increase federal revenues over the next decade (see Table 1-1 on page 5). Those options cover many areas ranging from defense to energy, Social Security, and provisions of the tax code. The budgetary effects identified for most of the options span the 10 years from 2014 to 2023 (the period covered by CBO s May 2013 baseline budget projections), although many of the options would have longer-term effects as well.

At the direction of the Congress, the Department of Defense (DoD) generally issues annual reports that describe its plan for building new ships over the next 30 years. DoD submitted its 2014 shipbuilding plan to the Congress in May 2013, covering fiscal years 2014 to 2043.1 The 2014 plan reflects the Navy s most recent goals for battle force ships goals that were developed in 2012 and outlined in a report to the Congress in January 2013; that analysis is hereafter referred to as the 2012 force structure assessment.2 The goals developed in 2012 were slightly different from the ones that were outlined in the 2005 force structure assessment and were reflected in the Navy s shipbuilding plans up through last year.3 The 2013 and 2014 shipbuilding plans are very similar, but not identical, with respect to the Navy s total inventory goal (in military parlance, its requirement) for battle force ships, the number and types of ships the Navy would purchase over 30 years, and the proposed funding to implement the plans. The Congressional Budget Office (CBO) examined the 2014 plan in detail and estimated the costs of the proposed ship purchases using its own estimating methods and assumptions. CBO also analyzed how those ship purchases would affect the Navy s inventories of various types of ships over the next three decades.

Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing federal debt to soar. Federal debt held by the public is now about 73 percent of the economy s annual output, or gross domestic product (GDP). That percentage is higher than at any point in U.S. history except a brief period around World War II, and it is twice the percentage at the end of 2007. If current laws generally remained in place, federal debt held by the public would decline slightly relative to GDP over the next several years, the Congressional Budget Office (CBO) projects. After that, however, growing deficits would ultimately push debt back above its current high level. CBO projects that federal debt held by the public would reach 100 percent of GDP in 2038, 25 years from now, even without accounting for the harmful effects that growing debt would have on the economy (see Summary Figure 1). Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.

Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing federal debt to soar. Federal debt held by the public is now about 73 percent of the economy s annual output, or gross domestic product (GDP). That percentage is higher than at any point in U.S. history except a brief period around World War II, and it is twice the percentage at the end of 2007. If current laws generally remained in place, federal debt held by the public would decline slightly relative to GDP over the next several years, CBO projects. After that, however, growing deficits would ultimately push debt back above its current high level. CBO projects that federal debt held by the public would reach 100 percent of GDP in 2038, 25 years from now, even without accounting for the harmful effects that growing debt would have on the economy (see Figure 1). Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely., Testimony

The Department of Defense (DoD) is developing the DoD Readiness Reporting System (DRRS) to improve on readiness reporting relative to what occurs under the older Status of Resources and Training System (SORTS). The additions and improvements to SORTS are substantial, including the ways in which commanders assess units readiness for individual missions, automation of resource and training calculations, and the enhanced ability of associated units to report their combined or separate readiness. DoD s current plans call for DRRS to be fully implemented by 2014. At present, very little of the improved readiness information contained in DRRS is carried over to the Quarterly Readiness Report to Congress a report that Congressional oversight committees rely on to assess the readiness of U.S. armed forces. CBO examined potential changes to the Quarterly Readiness Report, including displaying SORTS scores and mission assessments by unit type and deployment status, linking levels of readiness to the amount of available resources, creating readiness summaries for aircraft carrier strike groups, and improving the ways in which unit and personnel rotation are displayed.

By law, the Congressional Budget Office (CBO) is required to issue a report within 10 days of the end of a session of Congress that provides estimates of the caps on discretionary budget authority in effect for each fiscal year through 2021, although legislation enacted in January provided for a later release date this year. CBO is also required to report whether, by its estimates, enacted legislation has exceeded those caps; if that occurs, a sequestration (a cancellation of budgetary resources) is required. In CBO s estimation, such a sequestration will not be required for 2013. However, the Administration s Office of Management and Budget (OMB) has sole authority to determine whether such a sequestration is required and, if so, exactly how the proportional cuts are to be made. Those determinations are based on OMB s own estimates of federal spending. The potential sequestration discussed in this report that is, one that would occur if appropriations exceeded one of the caps on discretionary funding is different from the sequestration that has been implemented in 2013 as a result of the automatic procedures to restrain discretionary and mandatory spending. Those across-the-board budget reductions remain in effect for 2013 and will also result in a lowering of the discretionary caps and a sequestration of mandatory spending in the years 2014 through 2021.

The Army is planning to develop and purchase a new Ground Combat Vehicle (GCV) that will serve the dual purposes of operating as a combat vehicle and transporting soldiers to, from, and around the battlefield. The GCV is intended to replace the current fleet of Bradley Infantry Fighting Vehicles (IFVs), which operate with the service s armored combat brigades. The Congressional Budget Office (CBO) estimates that implementing the GCV program on the most recent schedule would cost $29 billion (in 2013 dollars) over the 2014 2030 period. This report compares the Army s plan for the GCV with four other options the service could pursue instead. Although none of those alternatives would meet all of the Army s goals for the GCV program, all are likely to be less costly and less risky (in terms of unanticipated cost increases and schedule delays) than CBO anticipates will be the case under the Army s plan. Some of the options also would offer advantages relative to the GCV in meeting the Army s mission.

In 2013, the Department of Defense (DoD) faces an 11 percent reduction (after adjusting for inflation) in its base budget from the amount it received in 2012. (The base budget funds the department s normal activities but excludes overseas military operations like those in Afghanistan.) Under current law, the department s budgets will increase by a cumulative total of 2 percent more than inflation between 2013 and 2021, still well below its funding in 2012 in real (inflation-adjusted) terms.1 Those limits are mandated by the Budget Control Act of 2011 (BCA), which capped annual funding for defense and nondefense agencies during that period. The reduction in 2013, however, follows a period of generally increasing real resources for DoD; from 2001 to 2010, funding for the department s base budget rose by more than 40 percent, after adjusting for inflation. In real terms, after the reduction in 2013, DoD s base budget is about what it was in 2007 and is still 7 percent above the average funding since 1980., Report to the Senate Committee on the Budget.

During recessions, federal tax liabilities and, therefore, revenues decline automatically with the reduction in output and income. In addition, some federal outlays to pay unemployment insurance benefits, for example automatically increase. Such reductions in revenues and increases in outlays known as automatic stabilizers help bolster economic activity during downturns, but they also temporarily increase the federal budget deficit. Conversely, when real (inflation-adjusted) gross domestic product (GDP) moves up closer to the maximum sustainable output of the economy (termed potential GDP), revenues automatically rise and outlays automatically fall. Under those circumstances, automatic stabilizers offer a smaller boost to economic activity and thereby slow its growth. (Those effects of automatic stabilizers are in addition to the effects of any legislative changes in tax and spending policies.) The Congressional Budget Office (CBO) uses statistical techniques to estimate the effects of the business cycle on federal revenues and outlays and, thus, on federal budget deficits. According to CBO s estimates, automatic stabilizers added significantly to the budget deficit and thereby helped to strengthen economic activity in fiscal years 2009 through 2012. Given CBO s economic and budgetary projections under current law, the agency expects that automatic stabilizers will continue to add significantly to the budget deficit and to support economic activity in 2013 and 2014 but that their effects on the budget and the economy will decline significantly from 2015 through 2018 in response to improving economic conditions.

Chairman Murray, Senator Sessions, and Members of the Committee, thank you for inviting me to testify on the Congressional Budget Office s (CBO s) most recent analysis of the outlook for the budget and the economy. My statement summarizes CBO s new economic forecast and baseline budget projections, which cover fiscal years 2013 to 2023. Those estimates were released last week in the report titled The Budget and Economic Outlook: Fiscal Years 2013 to 2023. Economic growth will remain slow this year, CBO anticipates, as gradual improvement in many of the forces that drive the economy is offset by the effects of budgetary changes that are scheduled to occur under current law. After this year, economic growth will speed up, CBO projects, causing the unemployment rate to decline and inflation and interest rates to eventually rise from their current low levels. Nevertheless, the unemployment rate is expected to remain above 7 percent through next year; if that happens, 2014 will be the sixth consecutive year with unemployment exceeding 7 percent of the labor force the longest such period in the past 70 years. If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $845 billion, or 5.3 percent of gross domestic product (GDP), its smallest size since 2008. In CBO s baseline projections, deficits continue to shrink over the next few years, falling to 2.4 percent of GDP by 2015. Deficits are projected to increase later in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. As a result, federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade. By 2023, if current laws remain in place, debt will equal 77 percent of GDP and be on an upward path, CBO projects (see Figure 1)., Testimony before the Committee on the Budget, United States Senate.

In February 2009, in response to significant weakness in the economy, lawmakers enacted the American Recovery and Reinvestment Act (ARRA). The legislation s numerous spending and revenue provisions can be grouped into several categories according to their focus: Providing funds to states and localities for example, by raising federal matching rates under Medicaid, providing aid for education, and increasing financial support for some transportation projects; Supporting people in need such as by extending and expanding unemployment benefits and increasing benefits under the Supplemental Nutrition Assistance Program (formerly the Food Stamp program); Purchasing goods and services for instance, by funding construction and other investment activities that could take several years to complete; and Providing temporary tax relief for individuals and businesses such as by raising exemption amounts for the alternative minimum tax, adding a new Making Work Pay tax credit, and creating enhanced deductions for depreciation of business equipment.

Chairman Baucus, Senator Hatch, and Members of the Committee, thank you for inviting me to testify on the Congressional Budget Office s (CBO s) most recent analysis of the outlook for the budget and the economy. My statement summarizes CBO s new economic forecast and baseline budget projections, which cover fiscal years 2013 to 2023. Those estimates were released earlier in the month in the report titled The Budget and Economic Outlook: Fiscal Years 2013 to 2023. Economic growth will remain slow this year, CBO anticipates, as gradual improvement in many of the forces that drive the economy is offset by the effects of budgetary changes that are scheduled to occur under current law. After this year, economic growth will speed up, CBO projects, causing the unemployment rate to decline and inflation and interest rates to eventually rise from their current low levels. Nevertheless, the unemployment rate is expected to remain above 7 percent through next year; if that happens, 2014 will be the sixth consecutive year with unemployment exceeding 7 percent of the labor force the longest such period in the past 70 years. If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $845 billion, or 5.3 percent of gross domestic product (GDP), its smallest size since 2008. In CBO s baseline projections, deficits continue to shrink over the next few years, falling to 2.4 percent of GDP by 2015. Deficits are projected to increase later in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. As a result, federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade. By 2023, if current laws remain in place, debt will equal 77 percent of GDP and be on an upward path, CBO projects., Testimony before the Committee on Finance, United States Senate.

Federal debt held by the public now exceeds 70 percent of the nation s annual output (gross domestic product, or GDP) and stands at a higher percentage than in any year since 1950. Under an assumption whereby current laws generally remain unchanged, federal debt will be 77 percent of GDP in 2023, the Congressional Budget Office (CBO) projects.1 Such a large amount of federal debt will reduce the nation s output and income below what would occur if the debt was smaller, and it raises the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates). Moreover, the aging of the population and rising health care costs will tend to push debt even higher in the following decades. In addition, those projections of debt under current law incorporate scheduled changes in policies that will serve to restrain the growth of debt. For example, under current law, some significant tax provisions will expire at the end of this year or in later years, increasing revenues; automatic spending cuts included in the Budget Control Act of 2011 and modified in the American Taxpayer Relief Act of 2012 will go into effect on March 1, 2013; and Medicare s payment rates for physicians services will fall in January 2014. If future legislation prevented those changes from taking effect and did not make other policy changes with offsetting budgetary effects, federal debt would be considerably higher than the amount projected under current law.

In February 2009, in response to significant weakness in the economy, lawmakers enacted the American Recovery and Reinvestment Act (ARRA). The legislation s numerous spending and revenue provisions can be grouped into several categories according to their focus: Providing funds to states and localities for example, by raising federal matching rates under Medicaid, providing aid for education, and increasing financial support for some transportation projects; Supporting people in need such as by extending and expanding unemployment benefits and increasing benefits under the Supplemental Nutrition Assistance Program (formerly the Food Stamp program); Purchasing goods and services for instance, by funding construction and other investment activities that could take several years to complete; and Providing temporary tax relief for individuals and businesses such as by raising exemption amounts for the alternative minimum tax, adding a new Making Work Pay tax credit, and creating enhanced deductions for depreciation of business equipment.

The American Recovery and Reinvestment Act of 2009 (ARRA) contains provisions that are intended to boost economic activity and employment in the United States. Section 1512(e) of the law requires the Congressional Budget Office (CBO) to comment on reports filed by recipients of ARRA funding that detail the number of jobs funded through their activities. This CBO report fulfills that requirement. It also provides CBO s estimates of ARRA s overall impact on employment and economic output in the fourth quarter of calendar year 2011, as well as over the entire period since February 2009. Those estimates which CBO considers more comprehensive than the recipients reports are based on evidence from similar policies enacted in the past and on the results of various economic models.

The U.S. Army plans to spend about an additional $34 billion in 2013 dollars to develop and purchase a new armored vehicle for its infantry, the Ground Combat Vehicle (GCV). The GCV is supposed to operate across the full range of potential conflict types while providing unprecedented levels of protection for the full squad of soldiers it will carry. To achieve the Army's goals, the GCV would weigh from 64 to 84 tons, making it the biggest and heaviest infantry fighting vehicle that the Army has ever fielded--as big as the M1 Abrams tank and twice as heavy as the Bradley, the Army's current infantry fighting vehicle. Designing such a vehicle presents important technical challenges. To aid the Congress in its oversight of the GCV program, the Congressional Budget Office (CBO) has prepared two reports. This CBO working paper provides background information for understanding the technical challenges that the program faces. It presents the Army's technical goals for the GCV program, examines the threats that the vehicle could face in combat, and explores the variety of approaches that vehicle designers can take to protect the vehicle and its passengers and to meet the Army's other requirements. A companion report, The Army's Ground Combat Vehicle Program and Alternatives, examines the GCV program (including the number of vehicles, the production schedule, and the cost) and alternative approaches that the Army could take that would cost less but still provide substantial improvements over today's fleet of combat vehicles.

The Homeland Security Act of 2002, which established the Department of Homeland Security (DHS), requires the Administration to identify and report on homeland security funding and activities of all federal agencies. For that purpose, the law defines homeland security as those activities that detect, deter, protect against, and respond to terrorist acts occurring within the United States and its territories. Those activities include counterterrorism efforts, the protection of civilians and critical infrastructure and assets, and emergency preparedness and response. They are carried out by numerous federal agencies and include many, but not all, of DHS s responsibilities. Since the terrorist attacks of September 11, 2001, the federal government has spent more than half a trillion dollars on homeland security.

The federal budget deficit for fiscal year 2012 (which ends on September 30) will total $1.1 trillion, the Congressional Budget Office (CBO) estimates, marking the fourth year in a row with a deficit of more than $1 trillion. That projection is down slightly from the $1.2 trillion deficit that CBO projected in March.1 At 7.3 percent of gross domestic product (GDP), this year s deficit will be three-quarters as large as the deficit in 2009 when measured relative to the size of the economy. Federal debt held by the public will reach 73 percent of GDP by the end of this fiscal year the highest level since 1950 and about twice the 36 percent of GDP that it measured at the end of 2007, before the financial crisis and recent recession.

Over the next several years, the Department of Defense (DoD) will launch the last of its weather satellites, which it uses to plan military operations and generate weather forecasts. Long-running efforts to develop replacements for those satellites encountered schedule and cost difficulties, and in December 2011, the Congress directed DoD to cancel its latest program and to prepare for a follow-on program. DoD's plans now call for a new development effort, but it has not yet determined the capabilities it wants in that satellite. In this paper, the Congressional Budget Office (CBO) examines three different satellite design concepts that DoD might consider and compares the cost and capability of those designs. The paper also discusses alternative approaches that DoD might take, such as fielding single instruments on several small satellites instead of several instruments on a single satellite, and foregoing a new generation of military weather satellites altogether and instead relying on other sources for weather data., Working Paper Series. Working Paper 2012-11.

At the direction of the Congress, the Department of Defense generally issues annual reports that describe its plan for building new ships over the next 30 years. The latest plan submitted to the Congress in late March 2012 and covering fiscal years 2013 to 2042 contains some significant changes in the Navy s long-term goals for shipbuilding. In particular, the Navy s latest plan would: Reduce the goal for the inventory of ships, Reduce the number of ships to be purchased, and Alter the composition of ships to be purchased, buying fewer less-expensive support ships and more high-end combat ships. The total costs of carrying out the 2013 plan an average of about $22 billion per year in 2012 dollars over the next 30 years would be much higher than the funding amounts that the Navy has received in recent years and higher than the costs for the 2012 plan, the Congressional Budget Office (CBO) estimates.

In most years, the Department of Defense (DoD) provides a five-year plan, called the Future Years Defense Program (FYDP), associated with the budget that it submits to the Congress. Because decisions made in the near term can have consequences for the defense budget well beyond that period, the Congressional Budget Office (CBO) regularly examines DoD s FYDP and projects its budgetary impact over several decades. For this analysis, CBO used the FYDP provided to the Congress in March 2012, which covers fiscal years 2013 to 2017; CBO s projections span the years 2013 to 2030. In February 2012, DoD requested appropriations for 2013 totaling almost $615 billion. Of that amount, about $526 billion was to fund the base programs that constitute the department s normal activities, such as the development and procurement of weapon systems and the day-to-day operations of the military and civilian workforce. The remaining roughly $88 billion was requested to pay for what are termed overseas contingency operations the war in Afghanistan and other nonroutine military activities elsewhere.1 The FYDP describes the department s plan for its normal activities and therefore generally corresponds to the base budget.

Energy use is pervasive throughout the U.S. economy. Households and businesses use energy from oil, natural gas, coal, nuclear power, and renewable sources (such as wind and the sun) to generate electricity, provide transportation, and heat and cool buildings. In 2010, energy consumption represented 8.4 percent of U.S. gross domestic product. Disruptions in the supply of commodities used to produce energy tend to raise energy prices, imposing an increased burden on U.S. households and businesses. Disruptions can also reduce the nation s economic output and thus people s income. This paper examines energy security in the United States that is, the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets and actions that the government could take to reduce the effects of such disruptions.

In the past few years, the federal government has been recording the largest budget deficits since 1945, both in dollar terms and as a share of the economy. Consequently, the amount of federal debt held by the public has surged. At the end of 2008, that debt equaled 40 percent of the nation s annual economic output (gross domestic product, or GDP) a little above the 40-year average of 38 percent. Since then, the figure has shot upward: By the end of this year, the Congressional Budget Office (CBO) projects, federal debt will exceed 70 percent of GDP the highest percentage since shortly after World War II. The sharp rise in debt stems partly from lower tax revenues and higher federal spending caused by the severe economic downturn and from policies enacted during the past few years. However, the growing debt also reflects an imbalance between spending and revenues that predated the recession.

Changes in federal fiscal policies can have both short-term and long-term effects on output. The Congressional Budget Office s analysis of the short-term effects focuses on the impact on the demand for goods and services. That impact can be decomposed into direct effects and indirect effects: Direct effects consist of changes in purchases of goods and services by federal agencies and by the people and organizations who are recipients of federal payments or payers of federal taxes; indirect effects enhance or offset the direct effects. The indirect effects can be summarized by a demand multiplier, defined as the total change in gross domestic product per dollar of direct effect on demand. This paper presents the ranges of demand multipliers that CBO uses in its analyses and reviews evidence on the size of those multipliers.

When developing their annual budgets, the military services (the Army, Navy, Air Force, and Marine Corps) use models to estimate the quantities and costs of resources needed to carry out their missions.1 As directed by the Congress in the 2011 National Defense Authorization Act (Public Law 111-383, sec. 356), the Congressional Budget Office (CBO) has examined the modeling techniques the military services use to inform parts of their annual budget requests, specifically, the models used to determine funding levels for operational readiness requirements. Operational readiness refers to the services ability to conduct military operations and meet the demands of the National Military Strategy an annual report by the Chairman of the Joint Chiefs of Staff that outlines how the military will meet the strategic goals of the President and the Congress (and required under 10 U.S.C. section 153).