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TitleBudget Options
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Table of Contents
	Using This Volume
	Exclusions and Limitations
Spending Options
National Defense
	Delay the Fielding Date of the Future Combat System from 2011 to 2015
	Cancel the Future Combat System
	Add Two New Active Army Divisions
	Increase the Army’s End Strength by 40,000
	Reduce the Army’s Short-Range Air-Defense and Field Artillery Force Structure and Use the Personnel Savings to Create New Army Divisions
	Cancel the Army’s Tactical Command and Control System
	Reduce Procurement of Virginia Class Attack Submarines
	Cancel the DDX Destroyer and the Littoral Combat Ship and Build New Frigates Instead
	Reduce the Number of DDX Destroyers to Six
	Cut the Number of Aircraft Carriers to 11 and the Number of Navy Air Wings to 10
	Gradually Reduce the Number of Expeditionary Strike Groups to Eight
	Reduce the Trident Submarine Force to 12 and Buy 48 Fewer D5 Missiles
	Simplify and Speed the Disposal of Excess Naval Vessels
	Cancel Production of the V-22 Aircraft
	Cancel Purchases of the Air Force’s F/A-22 Fighter
	Slow the Schedule of the F-35 Joint Strike Fighter Program
	Substitute Unmanned Combat Air Vehicles for Manned Aircraft
	Terminate the Airborne Laser Program
	Terminate Future Satellites of the Space Tracking and Surveillance System Program
	Cancel Development of the Ground-Based Midcourse Defense System After Fielding the Testbed/Initial Defensive Capability
	Cancel the Space-Based Radar Program
	Consolidate Military Personnel Costs in a Single Appropriation
	Substitute Reenlistment Bonuses for Part of Planned Future Pay Raises
	Reduce Military Personnel in Overseas Headquarters Positions
	Replace Military Personnel in Some Support Positions with Civilian Employees of the Department of Defense
	Increase the Use of Warrant Officers and Limit Military Pay Raises
	Introduce a “Cafeteria Plan” for the Health Benefits of Family Members of Active-Duty Military Personnel
	Introduce More Copayments into TRICARE For Life
	Consolidate and Encourage Efficiencies in Military Exchanges
	Consolidate the Department of Defense’s Retail Activities and Provide a Grocery Allowance to Service Members
	Eliminate the Department of Defense’s Elementary and Secondary Schools
	Change Depots’ Pricing Structure for Repairs
	Substitute Sponsored Reservists for Active-Duty Military
	Create a Defense Base Act Insurance Pool for Department of Defense Contractors Deployed Overseas
International Affairs
	Eliminate the Export-Import Bank and the Overseas Private Investment Corporation
	End the United States’ Capital Subscriptions to the European Bank for Reconstruction and Development
	Reduce Assistance to Israel and Egypt
General Science, Space, and Technology
	Cut the National Science Foundation’s Spending on Elementary and Secondary Education
	Cancel the Crew Exploration Vehicle and Lunar and Mars Exploration Programs in 2006 and Retire the Shuttle After Completion of the International Space Station in 2010
	Cancel Research on the Next Generation of Nuclear Reactors for Powering and Propelling Spacecraft
	Cancel the Shuttle Program and Additional Assembly of the International Space Station
	Eliminate the Department of Energy’s Applied Research for Fossil Fuels
	Eliminate the Department of Energy’s Applied Research for Energy Conservation
	Eliminate the Department of Energy’s Applied Research for Renewable Energy Sources
	Eliminate the Department of Energy’s State and Community Grants for Energy Conservation
	Eliminate Funding for the FreedomCAR Partnership
	Restructure the Power Marketing Administrations to Charge Higher Rates
	Sell the Southeastern Power Administration and Related Power-Generating Assets
	Sell Most of the Tennessee Valley Authority’s Electric Power Assets
	Require the Tennessee Valley Authority to Impose a Transmission Surcharge on Future Electricity Sales
	Eliminate the Department of Energy’s Clean-Coal Technology Programs
	Index the Fee for the Nuclear Waste Fund to Inflation
	Reduce the Size of the Strategic Petroleum Reserve
Natural Resources and Environment
	Increase Fees for Permits Issued by the Army Corps of Engineers
	Impose Fees on Users of the Inland Waterway System
	Impose a New Harbor-Maintenance Fee
	Eliminate Federal Funding for Beach-Replenishment Projects
	Eliminate Subsidies When Renewing Water Service Contracts for Agricultural Users of the Central Valley Project
	Eliminate Money-Losing Timber Sales
	Reauthorize Holding and Location Fees and Charge Royalties for Hardrock Mining on Federal Lands
	Use State Formulas to Set Grazing Fees for Federal Lands
	Open the Coastal Plain of the Arctic National Wildlife Refuge to Leasing
	Scale Back the Department of Agriculture’s Conservation Security Program
	Limit Future Enrollment of Land in the Department of Agriculture’s Conservation Reserve Program
	Eliminate the National Park Service’s Local Funding for Heritage Area Grants and Statutory Aid
	Eliminate Federal Grants for Wastewater and Drinking Water Infrastructure
	Eliminate the Environmental Protection Agency’s Energy Star Program
	Eliminate the Environmental Protection Agency’s Science to Achieve Results Grant Program
	Eliminate the Research Initiative for Future Agriculture and Food Systems
	Impose New Limits on Payments to Producers of Certain Agricultural Commodities
	Reduce Payment Acreage by One Percentage Point
	Eliminate the Foreign Market Development Program
	Freeze Funding for the Market Access Program
	Limit the Repayment Period for Export Credit Guarantees
Commerce and Housing Credit
	Charge All Banks and Savings Associations a Premium for Deposit Insurance
	Require Government-Sponsored Enterprises to Register with the Securities and Exchange Commission
	Eliminate the International Trade Administration’s Trade Promotion Activities or Charge the Beneficiaries
	Eliminate the Advanced Technology Program
	Eliminate the Hollings Manufacturing Extension Partnership and the Baldrige National Quality Program
	Repeal the Continued Dumping and Subsidy Offset Act of 2000
	Permanently Extend the FCC’s Authority to Auction Licenses to Use the Radio Spectrum
	Restrict the FCC’s Use of Auction Receipts to Cover Its Operating Costs
	Reduce Federal Subsidies for Amtrak
	Eliminate the Next Generation High-Speed Rail Program
	Impose a User Fee to Help Fund the Federal Railroad Administration’s Rail-Safety Activities
	Eliminate the “New Starts” Transit Program
	Reduce Federal Aid for Highways
	Eliminate the Essential Air Service Program
	Eliminate Grants to Large and Medium-Sized Hub Airports
	Increase Fees for Certificates and Registrations Issued by the Federal Aviation Administration
	Establish Cost-Based Fees for Air Traffic Control Services
	Increase Fees for Aviation Security
Community and Regional Development
	Drop Wealthier Communities from the Community Development Block Grant Program
	Convert the Rural Community Advancement Program to State Revolving Funds
	Eliminate Region-Specific Development Agencies
	Eliminate the Neighborhood Reinvestment Corporation
	Eliminate the Community Development Financial Institutions Fund
	Eliminate Grant Funding for Empowerment Zones
	Phase Out the Flood Insurance Subsidy on Pre-FIRM Structures Other Than Primary Residences
	Restrict First-Responder Grants to Larger, At-Risk Communities
Education, Training, Employment, and Social Services
	Reduce Funding to School Districts for Impact Aid
	Eliminate State Grants for Safe and Drug-Free Schools and Communities
	Fund the Federal Goal of Paying 40 Percent of the Added Cost of Educating a Disabled Child
	Increase Funding for the Education of Disadvantaged Children
	Eliminate the Even Start Program and Redirect Some Funds to Other Education Programs
	Eliminate the 9.5 Percent Guaranteed Yield on Certain Student Loans
	Eliminate Subsidized Loans to Graduate Students
	Raise Interest Rates on Federal Student Loans
	Eliminate the Floor on Lenders’ Yield from Federally Guaranteed Student Loans
	Eliminate Administrative Fees Paid to Schools in the Campus-Based Student Aid and Pell Grant Programs
	Eliminate the Leveraging Educational Assistance Partnership Program
	Reduce Funding for the Arts and Humanities
	Eliminate the Senior Community Service Employment Program
	Eliminate Funding for the National and Community Service Act
	Equalize Federal Matching Rates for Administrative Functions in Medicaid
	Restrict the Allocation of Common Administrative Costs to Medicaid
	Reduce Spending for Medicaid’s Administrative Costs
	Increase the Flat Rebate Paid by Drug Manufacturers for Medicaid Prescription Drugs
	Expand Medicaid Eligibility to Low-Income Parents
	Increase Allowable Copayments for Some Medicaid Services
	Convert Medicaid Payments for Acute Care Services into a Block Grant
	Convert Medicaid Disproportionate Share Hospital Payments into a Block Grant
	Require States to Comply with New Rules About Medicaid’s Upper Payment Limit by 2006
	End the Redistribution of Unused Federal Funds from the State Children’s Health Insurance Program
	Adjust Funding for the State Children’s Health Insurance Program for Increases in Health Care Spending and Population Growth
	Create a Voucher Program to Expand Health Insurance Coverage
	Adopt a Voucher Plan for the Federal Employees Health Benefits Program
	Base Federal Retirees’ Health Benefits on Length of Service
	Reduce Subsidies for the Education of Health Professionals
	Finance the Food Safety and Inspection Service Through User Fees
	Accelerate the Availability of Generic Drugs by Changing the 180-Day Exclusivity Provision
	Raise the Eligibility Age for Medicare
	Set the Benchmark for Private Plans in Medicare Equal to Local Per Capita Fee-for-Service Spending
	Remove Medicare’s Payments for Indirect Medical Education from the Benchmarks for Private Plans
	Reduce Medicare’s Direct Payments for Medical Education
	Reduce Medicare’s Payments for the Indirect Costs of Patient Care Related to Hospitals’ Teaching Programs
	Equalize Medicare’s Capital-Related Payments for Teaching and Nonteaching Hospitals
	Convert Medicare’s Payments for Graduate Medical Education into a Block Grant and Slow Their Growth
	Convert Medicare’s Disproportionate Share Hospital Payments into a Block Grant
	Reduce the Update Factor for Hospital Inpatient Operating Costs Under Medicare
	Reduce Medicare’s Payments for Hospital Inpatient Capital-Related Costs
	Change the Payment System for Physicians in Medicare
	Eliminate the “Doughnut Hole” in Medicare’s Drug Benefit Design
	Increase Medicare’s Premium for Supplementary Medical Insurance to 30 Percent of Benefit Costs
	Apply a “Hold-Harmless” Provision to Increases in Medicare’s Part D Premium
	Restructure Medicare’s Cost-Sharing Requirements
	Restrict Medigap Coverage of Medicare’s Cost Sharing
	Combine Changes to Medicare’s Cost Sharing with Medigap Restrictions
	Reduce Medicare’s Payments for Home Health Care
	Impose a Copayment Requirement on Home Health Episodes Covered by Medicare
	Impose Cost Sharing for the First 20 Days of a Skilled Nursing Facility Stay Under Medicare
	Impose A Deductible and Coinsurance Amounts for Clinical Laboratory Services Under Medicare
Income Security
	Increase the Federal Insurance Premium on Private Pension Plans
	Modify the Formula Used to Set Federal Pensions
	Limit Cost-of-Living Adjustments for Federal Pensions
	Restructure the Government’s Matching Contributions to the Thrift Savings Plan
	Reduce Benefits Under the Federal Employees’ Compensation Act
	End the Trade Adjustment Assistance Program
	Increase Payments by Tenants in Federally Assisted Housing
	Reduce Rent Subsidies for Certain One-Person Households
	Eliminate Small Food Stamp Benefits
	Target the Subsidy for Certain Meals in Child Nutrition Programs
	Reduce the Exclusion for Unearned Income Under the Supplemental Security Income Program
	Create a Sliding Scale for Children’s SSI Benefits Based on the Number of Recipients in a Family
	Remove the Ceiling on the Collection of Overpayments from Supplemental Security Income
	Increase Funding for Child Care
Social Security
	Reduce Cost-of-Living Adjustments in Social Security
	Lengthen the Computation Period for Social Security Benefits by Three Years
	Eliminate Social Security Benefits for Children of Early Retirees
	Reduce the Spousal Benefit in Social Security to 33 Percent
	Raise the Retirement Age in Social Security
	Constrain the Increase in Initial Social Security Benefits
	Increase the Survivor Benefit in Social Security
	Increase Social Security Benefits for Workers with Low Earnings Over a Long Working Lifetime
Veterans Benefits and Services
	Narrow the Eligibility for Veterans’ Disability Compensation to Include Only Veterans with High-Rated Disabilities
	Narrow the Eligibility for Veterans’ Disability Compensation to Veterans Whose Disabilities Are Related to Their Military Duties
	Increase Beneficiaries’ Cost Sharing for Care at Nursing Facilities Operated by the Department of Veterans Affairs
	Reduce Veterans’ Disability Compensation to Account for Social Security Disability Insurance Payments
General Government
	Eliminate General Fiscal Assistance to the District of Columbia
	Require the IRS to Deposit Fees for Its Services in the Treasury as Miscellaneous Receipts
	Eliminate the Presidential Election Campaign Fund
	Eliminate Federal Antidrug Advertising
	Raise the Threshold for Coverage Under the Davis-Bacon Act
	Impose a Fee on the Investment Portfolios of Government-Sponsored Enterprises
	Eliminate Cargo Preference
Revenue Options
	Raise Marginal Tax Rates for Individuals
	Permanently Extend EGTRRA’s Provisions for Tax Brackets and Married Filers
	Permanently Extend the 5 Percent and 15 Percent Tax Rates for Capital Gains and Dividends
	Return Tax Rates to Their Level in 2002 or Freeze Rates at Their Current Level
	Accelerate the Repeal of the Personal Exemption Phaseout and the Limit on Itemized Deductions
	Replace Multiple Tax Rates on Long-Term Capital Gains with a Deduction of 42 Percent
	Permanently Extend the Individual Income Tax Provisions of EGTRRA and JGTRRA
	Provide Relief from the Individual Alternative Minimum Tax
	Limit the Tax Benefit of Itemized Deductions to 15 Percent
	Limit the Mortgage Principal on Which Interest Can Be Deducted to $500,000
	Limit Deductions of State and Local Taxes to the Amount Exceeding 2 Percent of Adjusted Gross Income
	Limit Deductions for Charitable Giving to the Amount Exceeding 2 Percent of Adjusted Gross Income
	Eliminate the Exclusion for Employer-Sponsored Dependent Care and the Child and Dependent Care Credit
	Include Employer-Paid Life Insurance in Taxable Income
	Limit the Tax Exclusion of Employer-Paid Health Insurance Premiums
	Include Investment Income from Life Insurance and Annuities in Taxable Income
	Include in Adjusted Gross Income All Income Earned Abroad by U.S. Citizens
	Include Social Security Benefits in Calculating the Phaseout of the Earned Income Tax Credit
	Substitute a Tax Credit for the Exclusion of Interest Income on State and Local Debt
	Tax Social Security and Railroad Retirement Benefits Like Private Pensions
	End the Preferential Treatment of Dividends Paid on Stock Held in Employee Stock Ownership Plans
	Disallow Further Deductible Contributions to Traditional IRAs, But Allow Contributions of $5,000 to Roth IRAs Regardless of Income
	Consolidate Tax Credits and Tax Deductions for Education Expenses
	Integrate Corporate and Individual Income Taxes Using the Dividend Exclusion Method
	Set the Corporate Tax Rate at 35 Percent for All Corporations
	Repeal the “Lower of Cost or Market” Inventory Valuation Method
	Tax Large Credit Unions the Way Other Thrift Institutions Are Taxed
	Repeal the Expensing of Exploration and Development Costs for Extractive Industries
	Repeal the Tax Credit Against Motor Fuel Excise Taxes Now Given to Alcohol Fuels
	Tax the Income Earned by Public Electric Power Utilities
	Repeal Tax-Free Conversions of Large C Corporations to S Corporations
	Apply the Limited Depreciation Schedule to All Business-Use Sport Utility Vehicles and Automobiles
	Eliminate Private-Activity Tax-Exempt Bonds
	Repeal the Low-Income Housing Credit
	Permanently Extend 50 Percent Partial Expensing Under JGTRRA and Increased Limits Under Section 179 of the Internal Revenue Code
	Extend the Period for Recovering the Cost of Equipment Purchases
	Expand the Medicare Payroll Tax to Include All State and Local Government Employees
	Calculate Taxable Wages in the Same Way for Both Self-Employed People and Employees
	Increase the Upper Limit for Earnings Subject to the Social Security Payroll Tax
	Increase Federal Employees’ Contributions to Pension Plans
	Extend or Freeze the Estate and Gift Tax Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
	Eliminate the Gift Tax Annual Exclusion for Life Insurance Premiums
	Eliminate Nonbusiness Valuation Discounts Under the Estate Tax
	Eliminate the Source Rules Exception for Inventory Sales
	Make Foreign Subnational Taxes Deductible Rather than Creditable
	Increase the Excise Tax on Cigarettes by 50 Cents per Pack
	Increase All Alcoholic Beverage Taxes to $16 per Proof Gallon
	Increase Excise Taxes on Motor Fuel by 12 Cents per Gallon
	Eliminate the Federal Communications Excise Tax
	Impose a Tax on Sulfur Dioxide Emissions
	Impose a Tax on Nitrogen Oxide Emissions
	Reinstate the Superfund Taxes
	Impose an “Upstream” Tax on Carbon Emissions
Contributors to This Volume
	Chapter 2
	Chapter 3
	Editing and Production
Document Text Contents
Page 1


Budget Options



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500-09—Mandatory (An update reflecting CBO’s March 2005 baseline is available from within the
electronic version of this document on CBO’s web site.)

Eliminate the Floor on Lenders’ Yield from Federally Guaranteed Student Loans

Under the Federal Family Education Loan (FFEL) Pro-
gram, which guarantees loans made by lenders to eligible
students, borrowers pay lenders an interest rate (called the
student rate) that is determined once a year according to
a formula set in law. The interest rate that lenders receive
is based on a target rate that is calculated quarterly using
another legislated formula. If that calculated rate is
greater than the student rate, the federal government pays
lenders an additional amount in that quarter. If that rate
is less than the student rate, the government does not
make any additional payments. In effect, the student rate
is a floor below which a lender’s return cannot fall.

This option would eliminate the floor on the interest rate
that lenders receive. If the calculated interest rate ex-
ceeded the student rate, the government would pay lend-
ers as it does now. But if the calculated rate was less than
the student rate, lenders would be required to rebate the
difference to the government. That change would reduce
federal outlays for the FFEL program by $820 million
next year and by a total of $7.8 billion over the
2006-2010 period. The President’s 2006 budget proposes

an alternative method of reducing payments to lenders:
each year, lenders would rebate to the government 0.25
percent of the outstanding volume of FFEL loans they
held (excluding consolidation loans).

An argument for this option is that the lender-rate for-
mula is designed to approximate a fair market return to
lenders. From that perspective, lenders now earn an
above-market return during quarters when the calculated
interest rate is below the student rate. Moreover, com-
pared with other ways of lowering lenders’ returns, this
option might be preferable to many lenders because it
would continue to closely tie their interest income to
their interest expenses.

An argument against this option is that the lender-rate
formula has been adjusted downward several times in the
past decade, which has squeezed the profit that lenders
can make from participating in the FFEL program. Fur-
ther reductions might induce some lenders to leave the

(Millions of dollars) 2006 2007 2008 2009 2010 2006-2010 2006-2015

Change in Spending

Budget authority -1,390 -1,855 -1,990 -2,115 -2,220 -9,570 -22,180

Outlays -820 -1,510 -1,725 -1,840 -1,940 -7,835 -18,900


RELATED CBO PUBLICATIONS: Estimating the Value of Subsidies for Federal Loans and Loan Guarantees, August 2004; and How CBO Analyzes
the Sources of Lenders’ Interest Income on Guaranteed Student Loans, June 2004

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Eliminate Administrative Fees Paid to Schools in the Campus-Based
Student Aid and Pell Grant Programs

In several federal student aid programs, the government
pays schools to administer the programs, distribute the
funds, or both. One type of program, campus-based aid,
includes the Federal Supplemental Educational Op-
portunity Grant Program, the Federal Perkins Loan
Program, and the Federal Work-Study Program. The gov-
ernment distributes funds for those programs to institu-
tions, which in turn award grants, loans, and jobs to qual-
ified students. Under a statutory formula, institutions are
allowed to use up to 5 percent of those program funds for
administrative costs. In another program, the Federal Pell
Grant Program, schools also distribute federal funds, but
eligibility is determined by federal law rather than by the
institutions. The law provides for a federal payment of $5
per Pell grant to reimburse schools for some of their costs
of administering that program.

Budget authority would be reduced by $117 million in
2006 if schools were not allowed to use federal funds
from the campus-based aid programs to pay administra-
tive costs. It would be reduced by another $27 million if

the $5 payment per grant to schools in the Pell Grant
program was eliminated. Together, those changes would
save a total of $604 million over the 2006-2010 period.
The President’s 2006 budget proposes to stop disburse-
ments of new Perkins loans and, consequently, the pay-
ment of related administrative fees to schools.

Arguments can be made both for eliminating those ad-
ministrative payments and for retaining them. On the
one hand, schools benefit significantly from participating
in federal student aid programs even without the pay-
ments because the aid makes attendance at those schools
more affordable. In 2005, students at participating insti-
tutions will receive an estimated $15 billion in funds un-
der the Pell Grant and campus-based aid programs. On
the other hand, institutions incur costs to administer the
programs. If the federal government did not pay those ex-
penses, schools might simply pass along the costs to stu-
dents in the form of higher tuition or lower institutional
student aid.

(Millions of dollars) 2006 2007 2008 2009 2010 2006-2010 2006-2015

Change in Spending

Budget authority -144 -146 -149 -151 -154 -744 -1,557

Outlays -17 -140 -146 -149 -152 -604 -1,404

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Chapter 3 Contributors (Continued)

Pamela Greene

Laura Hanlon

Ed Harris

Robert McClelland

Larry Ozanne

Kurt Seibert

David Torregrosa

David Weiner

Dennis Zimmerman

Editing and Production

Christine Bogusz, Janey Cohen, Loretta Lettner, Leah Mazade, John Skeen, and Christian Spoor edited the report.
Maureen Costantino designed the cover and prepared the report for publication. Annette Kalicki and Simone Thomas
produced the electronic versions for CBO’s Web site.

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