Economic Report of the President

year, 23 percent lower than in 1979. Net cash income, the cash availableto farmers for capital expenditures and operator income, wasless affected and fell about 6 percent. The deceleration in cash receiptsfor livestock and continued inflation in farm production expenseswere the principal factors in the decline.ECONOMIC POLICYAs in 1979, economic policy in 1980 aimed at stemming an accelerationin prices and wages. Both fiscal and monetary policy soughtto restrain aggregate demand. As noted above, these policies weresupplemented by a program of voluntary standards for wage andprice behavior.Fiscal PolicyChanges in the high-employment surplus (HES) are a useful measureof discretionary fiscal policy. The actual Federal budget deficit isaffected not only by changes in discretionary policy, such as changesin tax rates or more rapid spending on defense programs, but also bythe state of the economy. In particular, cyclical swings in incomesand employment affect tax receipts. Outlays for such programs as unemploymentcompensation and food stamps are similarly affected.These changes in receipts and outlays alter the budget deficit withoutany action by the Congress or the President. Thus, the actual surplusor deficit is a poor measure of discretionary fiscal policy. The HESmeasures what the surplus would be if the economy were at high employment.By evaluating the budget at a standard level of GNP, themeasure abstracts from those changes in budget receipts and outlaysthat result from cyclical changes in GNP.The High-Employment Budget. When judged by this measure, discretionaryfiscal policy remained tight in 1979. The high-employmentsurplus increased $13.5 billion in 1979 (Table 23). The chief factorsin the tightening were the sluggish pace of outlay growth during1979 (particularly for grants-in-aid), the inflation-induced increases inpersonal income taxes, and legislated increases in social insurancetaxes. Over the 4 quarters of 1980, however, the HES fell by $6.8billion. Two unusual factors were responsible for the apparent movetoward expansion during 1980. First, the delayed effect on individualtax refunds and final settlements from the Revenue Act of 1978 loweredthe HES by roughly $8 billion, starting in the first quarter of1980. Second, due to large increases in interest outlays caused by156