PUBLIC DEBT REDUCTION FUND HAS DRAWN IN $38.6 MILLION, CRS REPORT SAYS.

                       CRS REPORT FOR CONGRESS

Reducing the Federal budget deficit is regarded as an important goal by many. The Public Debt Reduction Fund provides for the acceptance of gifts to be used for reducing the public debt by the Secretary of the Treasury and the Administrator of General Services. Contributions may be taken as a charitable contribution deduction by taxpayers who itemize their deductions. Since the fund's inception in 1961, more than $38.6 million dollars has been donated.

CURRENT LAW

For those who see Federal budget deficit reduction as a laudable goal, current law provides a method whereby gifts may be made voluntarily to reduce the Federal debt. The law authorizes:

. . . . the U.S. Government to accept gifts of money or other property which are to be used for the reduction of the public debt. It provides for the deposit of cash gifts, or proceeds from the sale of other gifts, in a special account on the books of the Treasury, and money in this account is to be utilized to retire obligations of the United States which are a part of the public debt.

Contributions so donated to the Public Debt Reduction Fund qualify as a charitable donation and may be taken as a charitable contribution deduction by those who itemize their deductions on tax returns the following tax year.

Each quarter amounts that have been donated to the Public Debt Reduction Fund are transferred to the Public Debt Redemption Account. Thus, the Federal Government borrows less than it would have absent the donations and the potential size of future Federal debt is reduced. Because of the large size of current deficits, donations slow the growth of current debt rather than reduce the current amount of debt from its previous level.

BRIEF HISTORICAL OVERVIEW

The program was introduced as AN ACT TO AUTHORIZE THE ACCEPTANCE BY THE GOVERNMENT OF GIFTS TO BE USED TO REDUCE THE PUBLIC DEBT. Thus, Public Law 87-58, approved June 27, 1961, provides that the Secretary of the Treasury and the Administrator of General Services may accept gifts to be used for reducing the public debt. The law was enacted to provide specific statutory authority for acceptance of such gifts and designed to forestall possible questions concerning the Government's acceptance, treatment, and allocation of gifts made to reduce the debt.

PUBLIC PROMOTION

In recent years, most contributors have become aware of the Public Debt Reduction Fund through information provided with Federal tax form instructions. The 1993 booklet for 1040 forms and instructions issued by the Department of the Treasury, Internal Revenue Service, included an invitation to help reduce America's debt. The following has been taken from page 35 of this booklet:

How Do I Make a Gift To Reduce the Public Debt?

If you wish to do so, enclose a separate check with your income tax return. Make it payable to "Bureau of the Public Debt." You may be able to deduct this gift on your 1994 tax return if you itemize your deductions. Do not add your gift to any tax you may owe. If you owe tax, include a separate check for that amount payable to "Internal Revenue Service."

Other contributors who might wish to make a voluntary contribution may do so by sending the donation to the mailing address given below. Additional information concerning this fund can be obtained from the Commissioner's Office of the Bureau of Public Debt (202-219-3302).

               The Bureau of the Public Debt

Two proposals that further encourage contributions when taxpayers file their tax returns have been introduced by Representative Bereuter (H.R. 61) and Representative Duncan (H.R. 171). Representative Bereuter's proposal would allow taxpayers to designate tax overpayments to the Public Debt Reduction Fund. Representative Duncan's proposal also allows taxpayers with overpayments of income tax to designate their refund (or a portion of the refund) for debt reduction purposes. The bill additionally provides that a cash contribution may be included when the tax return is filed. In addition, H.R. 171 provides that tax forms include the address for additional public debt reduction contributions. Further, this bill provides that individuals who do not itemize their tax deductions will be allowed to deduct contributions made for public debt reduction. The bill terminates the Presidential Election Campaign Fund Check-Off so that those funds could be used for deficit reduction.

Implementation of either proposal would affect general Treasury fund receipts indirectly; since monies contributed would qualify as a charitable donation, they could be taken as a charitable contribution deduction by those who itemize the following tax year. In the case of passage of H.R. 171 the amount contributed could be deducted by all taxpayers regardless of whether they itemize tax deductions. In other words, the actual amount available to the Government for deficit reduction is less than the face value of the contributions because they also reduce tax receipts.

Generally, the Department of the Treasury opposes the addition of such non-tax-related components to the tax forms. The Department's opposition is based upon the fact that additional requested information makes the tax forms appear more difficult. It is possible that adding non-tax components could confuse many taxpayers and, thus, cause procedural problems for the Internal Revenue Service.

REVENUES

Amounts contributed to the Public Debt Reduction Fund have varied widely over the years and have not been significant in terms of dollar amounts especially when compared with the size of the Federal budget deficit. During the last fifteen years, a low of $240,107 was contributed in FY 1981. A single gift of more than $12 million was made in fiscal year 1994. This is the largest gift ever made to the fund since inception of the fund in 1961. Since 1961 more than $38.6 million has been collected.

Table 1, which appears on the following page, shows actual contributions made for fiscal years 1961-1994.

      TABLE 1. GIFTS TO THE U.S. FOR REDUCTION OF THE PUBLIC DEBT