APPENDIX C: CALCULATING THE REDUCTIONS IN DISCRETIONARY SPENDING REQUIRED TO MEET CBO PROJECTIONS FOR

APPENDIX C: CALCULATING THE REDUCTIONS IN DISCRETIONARY SPENDING REQUIRED TO MEET CBO PROJECTIONS FOR FY 2001 AND 2002

AAAS's May analysis was based on a specific footnote contained in the President's budget. Found in several places in the President's March 1996 budget for FY 1997, including Table S-5 in the Budget Supplement volume, the footnote states:

Note: The President is committed to producing a balanced budget by 2002 under the economic and technical assumptions of the Congressional Budget Office (CBO). If under CBO's revised economic and technical assumptions, which will be released later this spring, there would be a deficit in 2002, the discretionary proposals will be reduced by the amount necessary to eliminate that deficit.

In its Economic and Budget Outlook: Fiscal Years 1997-2006 , published in May, the Congressional Budget Office estimates that "under the President's basic policies," the deficit would be $81 billion in FY 2002 (p. 62). The AAAS calculation used a literal interpretation of these two statements by OMB and CBO, reducing the President's estimate of discretionary outlays for FY 2001 by $40 billion and discretionary outlays for FY 2002 by $81 billion, and reduces budget authority by the same amounts.

However, there was some ambiguity in the way the President's outyear plans were presented in his March budget, and this allows for a different interpretation which results in somewhat smaller adjustments to discretionary spending, including R&D, after FY 2000. This alternative interpretation is based upon a provision described on p. 14 of the Budget Supplement volume of the President's FY 1997 budget and spelled out in Table S-5 in that document:

The budget also includes a "trigger" to ensure that the budget reaches balance under either CBO or OMB assumptions. Under the trigger, most of the tax cuts end after 2000 if the deficit is not at least $20 billion below CBO's initial estimate for that year. If, however, the deficit is at least $20 billion below the estimate, then the budget distributes the additional savings in the following order:

first, it maintains the tax cut after the year 2000;

second, it reduces the cuts in discretionary spending; and

third, it splits any additional savings evenly among more tax cuts, more reductions in the discretionary cuts, and more deficit reduction.

If one goes by the provisions of this "trigger," the President's tax cut would be sunset at the end of calendar year 2000 and other adjustments would be made. The reduction in discretionary spending in FY 2002 required to make the President's budget conform to the CBO conditions would therefore be about $46 billion instead of $81 billion, resulting in smaller reductions in R&D projections, depending once again on how these reductions are distributed.

It should be noted that in the spring CBO report, CBO indicates that if the trigger is "pulled," then the President's budget would indeed balance in FY 2002. The difficulty that AAAS saw in using the trigger for current planning, however, was that (as stated in the quote above) it would not be "pulled" until the end of FY 2000 (September 30, 2000), which is the earliest the Administration could actually know whether the deficit "is at least $20 billion below the[CBO] estimate." For this reason, in the absence of any statements from the Administration clarifying the issue, AAAS chose to use the literal ($81 billion) interpretation of the required reductions. OMB's Mid-Session Review, however, resolves this ambiguity by stating in Tables 15 and 16 (page 31) that the Administration would exclude the "fiscal dividend" -- i.e., "pull the trigger" -- in order to balance the budget under the CBO economic assumptions. AAAS has therefore revised its analysis, applying the smaller reductions to its estimates of R&D in the President's outyear projections for FY 2001 and 2002.