Federal Budget Deficits & Debt
Federal Budget Deficits & Debt
Prepared for Jefferson Action Project
Kay E. Strong, Ph.D.
Baldwin Wallace University
23 September 2012
ISSUE: Federal Budget Deficits & Debt
ISSUE: Federal Budget Deficits & Debt
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Key concepts/ definitions
Key
concepts/ definitions
Trends Potential consequences (troubling trends)
Current environment
Connecting issues to federal budget
Reliable sources
Reliable sources
Household Budget ~ Federal Budget
Household Budget Federal Budget
Revenue (as average HH income): $50,054 (median Census Bureau)
‐ Expenses (as average HH consumption): $48,109 (average Bureau of Labor Statistics, 2010) does not include “Investment: home purchases, autos, student loans,…)
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p
p
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Difference financed by 1) cutting back expenses—not all expenses are the same!), 2) bringing in more income, 3) borrowing (accumulation of debt):
HH Debt (as average HH): $75,600 (median Federal Reserve)
Debt‐to HH Income ratio: $75,600 / 50,054 = 150%
Household Budget ~ Federal Budget FY2013
Household Budget Federal Budget FY2013
Revenue (Tax Receipts): $2,902 billion ‐ Expenses (Outlays): ‐ $3,803 billion $ 901 billion = Budget Deficit
$ 901 billion Budget Deficit
DEFINITION: Government “outlays” are total disbursements by the government for p
purchases, transfer payments, and interest on the national debt vs. “expenses”(purchases)
,
p y
,
p
(p
)
Difference financed by 1) cutting back expenses—not all expenses are the same!, 2) bringing in more income, 3) borrowing (accumulation of debt):
Federal Debt: $16,027 billion (accumulated)
http://www.brillig.com/debt_clock/
Debt‐to GDP ratio: 16,027 b. / 16,335 b. (est. 2013) = 98%
Outlays
http://www.stateoftheusa.org/content/take‐the‐federal‐budget‐tour.php
Outlays in Federal Budget:
Outlays in Federal Budget:
13 Annual Appropriation Bills (discretionary programs):
Security (~1 appropriation bill)
Non‐security (~12 appropriation bills)
Legislated programs (mandatory programs ):
Social Security (1939)
Medicare (1965)
Medicaid (1965)
TARP (2008)
Other h
Net Interest on Federal Debt
Outlays in Federal Budget
DEFINITIONS
Discretionary spending: funding over which we have control in distribution
Security (~1 appropriation bill)
Non security (~12
Non‐security (
12 appropriation bills)
appropriation bills)
Mandatory spending: funding that has already been committed
Social Security (1939)
Medicare (1965)
Medicaid (1965)
TARP (2008)
Other Net Interest owed on Federal Debt
Transfer Payments: one‐way payment of money for which no
Transfer
Payments: one way payment of money for which no money, good, or service is received in exchange; money good or service is received in exchange;
government‐to‐state, business, citizen or citizen‐to‐citizen Trust Fund: A fund consisting of assets belonging to a trust, held by the trustees for the beneficiaries.
Entitlement: a guarantee of access to benefits based on established rights or by legislation
Public Assistance: government benefits provided to the needy [individual citizen, business], usually in the form of cash or vouchers [individual citizen] or tax relief or subsidy [business].
http://www.census.gov/compendia/statab/2012/tables/12s0539.pdf (Individuals)
A new study from the Cato Institute estimates that the federal government will spend almost $100 billion on corporate [assistance] this year.
(http://www.cato.org/publications/commentary/cut‐big‐businesss‐corporate‐welfare )
The 2012 Congressional Pig Book Summary: http://www.cagw.org/
Source: A Citizens’ Solution Guide http://www.publicagenda.org/pages/the‐federal‐budget
Receipts in Federal Budget FY2013
Receipts in Federal Budget FY2013
1. Individual Income Tax
$1,359 billion (47%)
2.
2. Corporation Income Tax
Corporation Income Tax
$ 348 billion (11%)
$ 348 billion (11%)
3. Social Insurance & retirement receipts
SS payroll taxes
$ 677 billion (23%)
Medicare payroll taxes
$ 214 billion ( 7%)
Unemployment insurance
Unemployment insurance $ 58 billion
$ 58 billion
Other retirement
$ 10 billion
4. Excise (~federal sales) taxes
$ 88 billion 5. Estate & gift taxes $ 13 billion
6. Customs duties
6. Customs duties $ 33 billion
$ 33 billion
7. Deposits of earnings, Federal Reserve System $ 80 billion
8. Other miscellaneous receipts $ 21 billion
____________ ____________
$ 959 billion +
$ 1942 billion
Total Receipts: $2902 billion
Historical Trends in Tax Receipts
Historical Trends in Tax Receipts
General trends:
• Rise in tax receipts collected from Private Individuals
• Decline in tax receipts collected from Corporations
Decline in tax receipts collected from Corporations
• Social Insurance as a shared burden between Employees & Employer OASI=5.30% (SS)
DI =0.90% (Disability)
HI = 1.45% (Medicare)
Tax Shares Comparison among peer countries
Tax Shares Comparison among peer countries
State of the Federal Budget
State of the Federal Budget
Definitions:
Receipts = Outlays = “balanced”
Receipts = Outlays = balanced budget
budget
Receipts > Outlays = budget surplus (1998, 1999, 2000, 2001)
Receipts < Outlays = budget “deficit”
Receipts < Outlays = budget deficit Off‐budget: Spending or revenues excluded from the budget totals by law. The revenues and outlays of the two Social Security trust funds (the Old‐Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund = OASDI) and the transactions of the Postal Service are off‐budget. = $ 959 billion receipts Trends in the condition of the Federal Budget
Trends in the condition of the Federal Budget
FY 2013 Budget “truth”
FY 2013 Budget truth
Revenue $2902 billion
$
$1,942 billion (remove $959 “off‐budget”)
Expenditures ‐ $3,803 billion $ 901 billion 1,860 billion = Budget Deficit
Federal Outlays & Receipts
Table B‐82 ERP
4,000.0
3 500 0
3,500.0
3,000.0
Billions $
2,500.0
2,000.0
1,500.0
1,000.0
500.0
0.0
1963.1965.1967.1969.1971.1973.1975.1977.1979.1981.1983.1985.1987.1989.1991.1993.1995.1997.1999.2001.2003.2005.2007.2009.
Axis Title
Axis Title
Current expenditures
Current receipts
War / Disaster /Crisis…………….Since 2001 $1.3 T.: http://costofwar.com/
2005 Hurricane (Katrina, Rita, Wilma) Emergency ~ 122 B
(
,
,
)
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Macro stability………………………2008 TARP = $750 B. 2009 Stimulus = $787 B.
Causes of Current Deficits
Causes of Current Deficits
1.
Cost of War since 2001 = $1.3 T http://costofwar.com/Tax Cuts
2.
Rewriting the Tax Code + “temporary tax relief”
2001 – Bush “tax give‐back” of budget surpluses; sunset provisions 2010
2003 – Bush tax code adjustment beneficial for investments; sunset provisions 2010
2009 – Obama “temporary tax reductions” as economic stimulus 3.
Health care (Medicaid)
Over all, 31.5 percent of Medicaid’s $400 billion in shared federal and state spending goes to long‐term care for the elderly and the disabled. That ranges from less than 8 percent in Hawaii, where nursing home use is low, to more than 60 percent in North Dakota.
Many people assume that Medicare will cover long‐term care, but at most it covers 100 days of rehabilitation, not so‐
called custodial care — the help with activities of daily life, like eating and bathing, that the aged can need for years. Long‐Term Care Looms as Rising Medicaid Cost ‐ NYTimes.pdf
National Debt Trends
http://www.heritage.org/federalbudget/increases‐us‐debt‐limit
National Debt Definitions
Federal debt: total $ amount of accumulated borrowing by the federal government $15,222.8
15 222 8 billion (2011)
Intergovernmental debt: the amount of federal debt held by governmental entities $ 6,439.6 billion (2011) 42%
Debt held by the public: the amount of federal debt held by non‐
g
governmental entities
$ 8,783.3 billion (2011) 58%
Source: ERP 2012‐ Table B‐89 National Debt Clock: http://www.brillig.com/debt_clock/
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g
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Ownership of Federal Debt (Treasury Securities)
Source: http://www.gao.gov/special.pubs/longterm/debt/ownership.html
Major Foreign holders of Treasury Securities:
http://www.treasury.gov/resource‐center/data‐chart‐center/tic/Documents/mfh.txt
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/
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http://www.heritage.org/federalbudget/increases‐us‐debt‐limit
Troubling trends in the Federal Budget
Troubling trends in the Federal Budget
1. Denial of the “true size” of the Federal Budget deficits 2 Th t b M d ’ t d
2. Threat by Moody’s to downgrade the creditworthiness of US Government 
d th
dit
thi
f US G
t rising borrowing costs
3. Net Interest Creep on Federal Debt: $ 248 (2013)
$ 309 (2014)
$ 390 (2015)
$ 390 (2015)
$ 483 (2016) 2nd largest expenditure in Federal Budget
4. Need of trust funds to cash in holding of US Treasury Securities:
$ ,
$2,429 Billion = SS Trustees estimate the Year 2035 as ZERO assets in SS trust fund
5. US Demographics/ baby boomers + Medicaid/ long‐term care for the elderly and the disabled = a deadly combination for future budgets
6 US Infrastructural decay/ American Society of Civil Engineers estimate the cost at $2.2 Trillion 6. US Infrastructural decay/ f
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h
$
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http://www.infrastructurereportcard.org/
7. Tax Compliance Issue: “IRS Estimates $450 billion not paid” Resolution begins with the Federal Budget
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Federal Budget = Tax Receipts – Expenditures
Option A: Attack income side through ↑Tax Receipts Option B: A
B: A ack the expenditure side by ↓Expenditure ack the expenditure side by ↓Expenditure
Option C: Do both: ↑ taxes & ↓ expenditures
Option D: Business‐as‐usual…do nothing, wait for it to go away
Current Environment: Option D – business‐as‐usual
E t bli h C ili
Establish a Ceiling on Federal Debt (1917): be sure to adjust it upward annually
F d l D bt (1917) b
t dj t it
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Pass a Gramm‐Rudman‐Hollings (Budget) Deficit Reduction Act 1985: ignore it
Pass Statutory Pay‐As‐You‐Go Act 2010: be sure to exempt direct spending or revenue legislation (mandatory) already passed; apply only to NEW direct spending and revenue legislation
Pass a Budget Control Act 2011: have bi‐partisan “super committee” conclude:
“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s tb
ibl t
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bi ti
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il bl t th
bli b f
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itt ’
deadline."
Race at full speed to the nearest “fiscal cliff”—a steep, dramatic change in the f d lb d
federal budget
‐‐Expiration of tax cuts (2001, 2003, 2009) + $109 B. expenditure cuts over TEN years {50% Defense Appropriation bill + 50% Non‐Defense appropriation Bills (12)}
Pass habitual “stop gap” spending measures rather than one legitimate Federal Budget: go home to campaign
Option B: Attack Expenditures
A budget represent a nation’s priorities. What are our spending priorities? Are these your priorities?
Choices have consequences…TANSTAAFL! The federal budget has a fixed $ size in any one fiscal year.
Trade‐offs in Present: Spending more on program “A” means spending less on program “B” Discretionary Expenditure
Security Appropriation bill = 851 b. / 1261 b. = 67% Non‐security 12 Appropriation bills = 410 b. / 1261 b. = 32%
Inter‐temporal trade‐offs: Present vs. Future
Spending in the present for Consumption in the present vs. Investment in future economic growth/ increase productive capacity
Spending in the present for Consumption in the present
vs. Investment in future economic growth/ increase productive capacity
Defense vs. Investment in Physical Infrastructure/ Investment in American Tax Receipts < Expenditures) means taxing more in the future OR reduced spending in the future OR redirecting spending away from future programs to pay for growing Net Interest obligation
Inter‐generational trade‐offs: a question of equity (fairness)
How much financial support for retired workers vs. investment in tomorrow’s workers?
Citizen‐to‐Citizen transfer programs (SS, Medicare) are supported by today’s workers’ paychecks
Health Demographics: Boomers (babies: 1946‐1964) to (retirees: 2011‐2029) and aging!
Medicare (shortfalls funded through General Tax Revenue)
Medicare (shortfalls funded through General Tax Revenue)
Disability Insurance (shortfalls funded through General Tax Revenue)
Medicaid as stealth threat (will require financing though General Tax Revenue)
Retirement Programs (underfunded)
Federal Social Security: peak year for receipts = 2011; Year trust fund assets exhausted = 2035
State & Local Retirement Plans
Pension Benefit Guaranty Corp [government insurance program of last resort for private retirement plans of bankrupt companies]
State level spending= Medicaid #1 (aging) vs. Public K‐12 education spending (#2) vs. Prisons (#3)
Connection: budgets & short‐run economic fl t ti
fluctuation
When the economy is in an expansion, then tax receipts rise because more workers (employed) have income.
When the economy is in an contraction, then tax t ti
th t
receipts fall because fewer workers (unemployed) have income. And automatic federal stabilizers kick in (↑spending on food stamps Medicaid
stamps, Medicaid, unemployment comp, …)
Connection: budgets & long‐run economic growth
th
Consumption
Consumption Investment in America(ns) grows the economic potential (resource base) of the nation which f th
ti
hi h
increases tax receipts.
Investment
hum,….
ISSUE: Federal Budget Deficits & Debt
ISSUE: Federal Budget Deficits & Debt
US Census Bureau: Income, Poverty and Health Insurance in US: 2011
Federal Reserve: Surveying the Aftermath of the Storm: 2011
Bureau of Labor Statistics, Consumer Expenditure Survey: 2010
Real time National Debt Clock: http://www.brillig.com/debt_clock/
GAO: Budget of the United States
GAO:
Budget of the United States
Economic Report of the President: 2013 for historical time series B‐78
US Treasury: Federal Debt Ownership
http://publicagenda.org/files/pdf/PublicAgenda_CitizensSolutionsGuides_Fed
eralBudget.pdf (Offer discussion on solutions; arguments for/ against)