Budget Trends

Concerns still abound about levels of federal and domestically-financed investment and national saving. Reductions in the federal deficit or increases in the surplus help boost national saving and expand the domestic capital available for private investment. At the same time, however, reducing the deficit places constraints on the government's discretionary spending, which finances most federal investment. The constraints on discretionary spending have again tightened with the enactment of the Balanced Budget Act of 1997. Recent congressional initiatives have sought to promote long-term private sector economic growth by increasing federal investment. This report updates an earlier report (GAO/AIMD-97-88, May 1997) on investment trends. It includes new estimates for 1998 through 2003 that are contained in the President's 1999 budget and recalculates the investment component for Defense Department research and development.

GAO noted that: (1) the annual levels of investment spending for the period 1998 through 2002 in the President's 1999 budget is estimated to range from slightly more than $2 billion to almost $11 billion higher each year than the levels estimated in the President's 1998 budget for the same period; (2) only one budget function--energy--has lower estimates for 1998 through 2002 than in the 1998 budget; (3) the share of total federal budget outlays and of gross domestic product (GDP) devoted to investment declined slightly from the early 1980s through 1997; (4) according to the administration's policy estimates contained in the President's 1999 budget, investment's share of both outlays and GDP will increase slightly from 1998 through 2000 and then fall slightly through 2003; (5) these new estimates represent a change from the 1998 budget estimates which showed a continuing gradual decline from 1998 through 2002; (6) when investment outlays are converted to constant 1992 dollars, roughly the same picture emerges over this time period; (7) investment spending in estimated constant dollar outlays generally increased from the mid-1980s through 1995 before dropping in 1996 and 1997; (8) in the 1999 budget, investment spending is projected to increase from 1998 through 2000 and then gradually decrease through 2003; (9) after dropping from 1981 to 1983, physical capital remained relatively stable through 1995, with slight declines in 1996 and 1997; (10) the 1999 budget estimates for fiscal years 1998 through 2003 show a relatively stable level--around $33 billion to $34 billion each year; (11) this is a higher level than the 1998 budget estimates, which showed a steady decline from 1998 through 2002; (12) the research and development category had relatively steady increases from the mid-1980s through 1997 and estimates for 1998 through 2003 continue to increase; (13) this is a change from the estimates for 1998 through 2002 made in the 1998 budget which had shown modest decreases after 1998; (14) the pattern of investment from 1981 through 2003 in constant dollars varies across budget functions; (15) seven functions contain about 95 percent of investment outlays; (16) four of those functions, Education and Training, Transportation, Health, and General Science, Space, and Technology show general increases over this period; (17) the National Defense function shows several fluctuations but remains relatively flat overall; and (18) the Natural Resources and Environment and Energy functions shows a continued downward trend from the 1980s through 2003.