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B. Long-run social security issues: Decoupling and financing 108

C. Protection against catastrophic health care costs.-

109

D. Federal service retirement and disability.

111

E. Other pending legislation...

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Tables:

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CBO path B projections of current services outlays for retirement and

disability programs, 1975–81.-

Caseloads and costs of Federal income assistance programs---

Projections of the receipts and disbursements of OASDI trust funds,

1975-81.

Savings under military retirement options.

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116

Charts and graphs:

Overlaps in beneficiary groups, fiscal year 1975.

Overlaps in beneficiaries age 65 and over..

U.S. AND U.S.S.R. MILITARY SPENDING

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Preface.---

1. Introduction and summary -

II. Soviet foreign/military policy.

A. External security situation.--

B. Internal security considerations--

III. Usefulness of U.S./U.S.S.R. military spending comparisons--

A. Criticism of budget comparisons..

B. Costing methodologies

C. Are the estimates useful?.

IV. U.S./U.S.S.R. quantitative force comparisons: Cost implications for

FY 1977 budget-----

A. Strategic offensive forces--

B. Strategic defense forces..

C. Theater nuclear forces.

D. General purpose forces..--

E. Western Pacific/Asia deployment..

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LETTER OF TRANSMITTAL

To BUDGET COMMITTEE MEMBERS:

The papers published herewith were prepared, as you know, by the Budget Committee staff in connection with the Committee's consideration of the First Concurrent Resolution for Fiscal 1977. Each deals with one of the major underlying decisions we confronted in connection with the fiscal 77 resolution. I believe they should be available for further use by our Committee, and for use by other committees and Members as the Senate considers specific fiscal 77 spending legislation.

Government Policies To Reduce Inflation identifies policy decisions such as proposed changes in payroll taxes and certain subsidies that will directly affect prices. These decisions will have a more important influence on the rate of inflation in fiscal 1977, while physical and human resources are under-utilized, than will the rate of economic expansion.

The relationship among overall fiscal policy, spending for employment and education, and income maintenance programs is investigated in the paper entitled Employment.

Approximately 45 percent of the Federal programmatic response to unemployment is in the form of financial assistance for the unemployed, primarily unemployment compensation. Another 43 percent is spent on education and training programs that increase employability. Only 12 percent is for programs such as public employment, public works, and countercyclical revenue sharing that directly increase employment.

The paper describes a public employment program, targeted on lowincome families who are receiving unemployment compensation and/or welfare, providing relatively low salaries for only 12 months. The analysis shows that the net budget cost (i.e., net addition to the deficit) would be between $2,100 and $2,500 per job per year.

Federal Assistance to State and Local Governments is an effort to place key fiscal 1977 spending decisions on Federal grants-in-aid in the context of broad Federal-State-local fiscal relations. State and local government are a significant sector of the economy, accounting for over 15 percent of GNP. A substantial portion of their revenue-on the order of 22 percent-comes from Federal grants, which are found in 12 of the 17 budget functions. Thus Federal grants affect a wide range of State and local government activities. They also affect the response of State and local budgets to economic cycles, and consequently, the effectiveness of Federal stabilization policy.

(VU)

Trends and Issues in Federal Retirement and Disability Programs describes the major fiscal issues Congress faces in the provision of cash and health-care benefits to the aged, retired, disabled, and survivors. These programs—which include social security, medicare, civil service and military retirement systems, supplemental security income (SSI), and veterans' compensation and pension benefits-account for 36 percent of all Federal outlays ($150 billion in fiscal 1977 out of $413 billion total). The revenues collected for social insurance trust funds from which most of these benefits are paid will amount to $107 billion in fiscal 1977, or 30 percent of the total $362 billion.

The most pressing issue concerns the possibility of a short-term deficit in the social security trust funds. The paper indicates that the chance of such a deficit materializing is far from certain and there are many ways to deal with such an eventuality. The paper also describes the long-term financing problem and how it relates to various shortterm approaches.

U.S.-U.S.S.R. Military Spending explores some of the major policy pressures behind the substantial growth in strategic and general purpose forces provided in the fiscal 1977 budget. These pressures include the security perceptions of the Soviet Union and the comparative force strengths of NATO and the Warsaw Pact as well as that of the two super powers themselves. The report also analyzes the usefulness of comparing U.S. and U.S.S.R. military spending in evaluating the adequacy of the U.S. defense budget.

These studies have been prepared by the Senate Budget Committee staff with the assistance of the Congressional Budget Office. The studies were undertaken to aid the Budget Committee in the decisions it must make in these areas with respect to fiscal policy and budget priorities.

Nothing in these studies should be interpreted as representing the views or recommendations of the Budget Committee or any individual Member thereof. Sincerely,

EDMUND S. MUSKIE,

Chairman.

GOVERNMENT POLICIES TO REDUCE INFLATION

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