Transcript National Debt Debate

The Federal Budget
Two Key Terms needed for
understanding the Budget:
Contrast Deficit versus Debt (how related?)
Budget Deficits
The amount by which
government spending
exceeds government
revenues in a single
year.
National Debt
The total amount of
money the federal
government owes to
pay for accumulated
deficits.
Over $9,500,000,000,000
(Almost 70% of GDP)
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The Ideal Budget?
Receipts ($$$ in) = $pent (Outlays)
Balanced Budget
Budget Surplus
OR
A federal budget in
which spending and
revenues are equal.
A federal budget in
which revenues
exceed spending.
How has Federal Government faired in meeting this “ideal” criteria?*
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Budget Deficits & Surplus Over Time
2005 2006 2007 2008 2009 2010 2011 2012
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239B
248B
$427B
410B
377B
407B
415B
457B
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Key Terms Review:
Two Key Terms needed for
understanding the Budget:
Contrast Deficit versus Debt
?________________
?_________________
The amount by which
government spending
exceeds government
revenues in a single
year.
The total amount of
money the federal
government owes to
pay for accumulated
deficits.
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Growth in National Debt (in $$ Billions)
$9.5 Trillion
Your share: $31,000
DEBT
Accumulation of Deficits/year =
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Consequences of a Large National Debt
• Is debt always bad? (investment vs. consumption)
– Depends: Tuition for College versus Spring Break Vacation
• When Government barrows $$$ => from whom?
– Pays Interest on $$=> US & Foreign investors, Fed. Pensions
• The trade offs:
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–
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Lost opportunities (discretionary spending)
Impact on interest rates?
($$ too expensive)
Impact on private sector growth?
Impact on jobs? => consumer spending?
Impact on economic growth=>
Impact on the National Economy (GDP)?
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Government Revenue Sources- 2000
10%
5%
50%
32%
Income Taxes
Excise Taxes
Payroll Taxes
Estate, Customs
Corporate Taxes
3%
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Government Revenue Sources- 2005
What tax source has increased the most in a relatively short time?
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Federal Spending (Priorities for 2007)
What has triggered this increase in Federal spending on individuals?
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Entitlement Expenditures
Discretionary vs.
Non-discretionary
_______________________
$1.481 Trillion
$857 Billion*
19%
9%
*How has Discretionary spending changed over time?
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The Growth of Entitlement Programs
• Entitlement programs
– Who qualifies?
• Social Security =>
– Pay as you go system?
– Generational Pyramid scheme
– Trend & impact?
• 1950: (15 workers to 1 retiree)
• 1990: (3.5 to 1)
• Post Baby Boom retires: (3:1)
• COLA & the CPI (Box 16-1)
– Impact?
• Proposed adjustments?
– Increase taxes
– Cut benefits
– Tighten eligibility
• Making hard choices=>
– The 3rd Rail & who votes?
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Other Entitlement Programs
• Medicare (40M elders)=>
– $221Billion & growing
• Medicaid (35M poor)
– Food Stamps (17M poor)
• Federal retirement & VA
disability benefits
• All Entitlement programs
are “non-discretionary” *
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The Debt Ceiling Deal
Agreement to Increase the Debt Limit
• $900 Billion Initial Increase in the Debt Limit
– Increased in two tranches: $400 billion and $500 billion
– $500 billion occurs if Congress doesn’t block it
• $917 Billion in Spending Cuts tied to Initial
Increase
• Bill created a “Congressional Joint Select
Committee on Deficit Reduction” (a.k.a.
“Super Committee”) to locate up to $1.5
trillion in additional deficit reduction
Some Perspective on the Debt Limit Deal
• The Debt Agreement Must Reduce the Deficit by
at least $2.1 trillion over the next ten years
• The Federal Government is Slated to Spend
more than $46 trillion over the next ten years
• Bottom Line: The Debt Agreement cuts 4% from
Federal Spending over the next ten years
• Put Another Way: Cuts in Debt Agreement do
not cover half of Federal Interest payments of