Tips 4 Teachers


A. Budget Quantities

1. In Fiscal Year 2010 the federal government expects to collect $2,713 billion in taxes from individuals and businesses. Individuals will contribute 64% of the funds and businesses 30%. The trend has shown a steady rise in individuals' share of total taxes and decline in the share of business taxes. Social Insurance and retirement receipts [$949 billions/2009] accounted for almost a third of total revenue increase from 2003 through 2007. A Citizen's Guide Chart 2 [Attachment below for Federal Budget Totals - Source: http://www.gpoaccess.gov/usbudget/fy10/browse.html scroll down to Supplemental Tables]



Federal Tax Revenue since 1980



2. In Fiscal Year 2010 the federal government will spend $3,625 billions. This spending is divided between discretionary spending at 39%, mandatory spending at 53% and net national interest at 8% [Attachment bottom of page ]. In 2007, Department of Defense, the Department of Health and Human Services (HHS), and Social Security Administration, plus interest on debt held by the public, accounted for approximately three-fourths of the government’s total net cost. Medicare cost of $371 billion and Medicaid cost of $197 billion accounted for more than 80 percent of HHS’ total net cost in 2007. More spending in one area of the budget usually entail less spending in other areas. See the Trade-Offs and Quick Reports at National Priorities Project.

3. In the Fiscal Year 2010 federal budget the difference between tax revenues and spending is estimated at a negative $1.4 billion. [Article: Congressional Budget Office "Monthly Budget Review" ]. To finance this budget deficit, the government will debt finance, that is, borrow funds from creditors. The government has also borrowed excess annual cash flows from the Social Security and Medicare Trust Funds and similar funds to finance other government cost. Including interest, the government owes $4 trillion to these funds, which is backed by the full faith and credit of the government. This borrowing will add to our total National Debt of $11.6 trillion. The National Debt has continued to increase an average of $3.9 billion per day since September 28, 2007! Since the National Debt is owned by the nation, each citizen's share of this debt is $38,406.83 [National Debt Clock].



UPDATE: How Big is too Big? This year, the Treasury may have to raise more than $1.4 trillion in debt, according to Morgan Stanley, to finance not just the deficit but the $700 billion Troubled Asset Relief Programme (TARP) and the Federal Deposit Insurance Corporation. “It’s going to be painful to be faced with humungous auction after humungous auction especially when competing against Europe,” which is funding its own bail-outs, says one Wall Street analyst. The Treasury got a warning of this earlier this month, when yields on its bonds briefly spiked. [Yields rise when demand falls in order to make the bond more attractive to buyers.]

But much of the deficit is still financed by foreigners, ... —and with the inexorable climb in Medicare and Social Security costs as the baby-boomers retire now under way—investors may need to be compensated much more than they are now to keep on buying America’s debt.

4. Surpluses last appeared in the federal budget between 1998 to 2001.


5. The size of the budget deficit widens when the government reduces taxes without adjusting spending. In June 2001 President Bush signed into law the Economic Growth and Tax Reform Reconciliation Act of 2001 (EGTRRA) involving a $1.35 trillion tax cut over ten years. In March 2002 President Bush signed into law the Job Creation and Workers Assistance Act of 2002 (JCWA) reducing taxes for depreciation and capital gains. In May 2003 President Bush signed into law The Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA) which included a $350 billion tax cut. In February of 2008 the US Congress approved a $168 billion economic stimulus plan involving tax rebates. Nearly all of the tax cuts enacted since 2001 expire at the end of 2010. In October 2008 the US Congress approved the $700 billion Troubled Asset Relief Programme (TARP) and the Federal Deposit Insurance Corporation.

Making the tax cuts permanent would generate large revenue losses over the next 10 years. The Brookings Institute estimates making the tax cuts permanent would reduce federal revenues by almost $1.8 trillion over 10 years. By 2014, the annual revenue loss would amount to $400 billion, or 2 percent of gross domestic product — almost the size of this year's federal budget deficit. Paying for the tax cuts would require monumental reductions in spending or increases in other taxes. To offset the revenue losses in 2014 would require, for example, a 48 percent reduction in Social Security benefits, a 57 percent cut in Medicare benefits, or a 117 percent increase in corporate taxes. The Brookings Institute

6. The size of the budget deficit widens when the government increases overall spending without adjusting taxes. Spending on "Security," the largest budget item, has risen steadily from $290 billion in 2001 to $695 billion in 2010. "Interest" payment on the national debt, the second largest budget item, has risen from $206 billion in 2001 to $260 billion in 2008. In 2003 the Prescription Drug Benefit plan, an added benefit to Medicare, was enacted. The cost of the Drug Benefit plan will increase as the number of persons 65 years and older rises during the next 20 years.

7. Supplemental spending widens the size of the budget deficit because it is not accounted for in the "official" federal budget passed by Congress but must be paid for. For 2008 President Bush signed a $162 billion supplemental spending bill that will fund the wars in Iraq and Afghanistan beyond the end of his presidency into next year and also includes a new GI Bill, an expansion of unemployment benefits that Bush called “measured” and $2.7 billion for an emergency fund to help states hit by disasters[6/30/08]. The Emergency Economic Stabilization Act of 2008 (enacted October 3, 2008) authorizes the US Treasury to spend up to $700 billion to purchase distressed assets, especially mortgage-backed securities from the nation's banks. This "bailout" package of $700 billion will add to the national debt! See how large the $700 billion bailout is compared to Bailouts in US history. Pan over the Names column: How much is $700 billion? [http://www.usatoday.com/money/economy/2008-09-25-bailout-comparison_N.htm?POE=click-refer] Article: How Much is $700 Billion (2)

8. The size of the budget deficit widens when more citizens qualify for entitlement programs such as Social Security, Medicare, Medicaid and SCHIP (Supplemental Children's Health Insurance Program). Citizens qualify for Social Security and Medicare based on age, the earliest is 62.5 years for Social Security and 65 for Medicare. The pending retirement of 80 million "Baby Boomer Generation (1946 to 1964)" between 2008 and 2030 will increase spending on both programs significantly. More citizens qualify for Medicaid and SCHIP when their family incomes fall below a set cut-off. When the economy weakens the government spends more on Medicaid and SCHIP to assist families. [ Trustee Report of Social Security & Medicare }

Old Age Survivors (SS) and Disabilty Insurance (DI)

Health Insurance (HI): Medicare
2009 Annual Trustee Report

Chart C—Income and Cost Rates
(Percentage of taxable payroll)


9. The question of who owns our National Debt is an interesting one[National Debt & Savings Clocks ]. Of the nation's $11.6 trillion dollar debt, government agencies own 43% and the public owns 57%. Total Privately Held ownership is divided between both domestic (49%) and foreign (51%) ownership. [Source: Ownership of Federal Securities Table OSF-2 ] China is the largest foreign holder of US national debt at $801.5 billion followed by Japan at $677.2 billion. [Source:Foreign Ownership of US Debt ] Article: US Debt and how it got so large



Source:Who owns the National Debt FAQ The Social Security trust fund owns $2.2 trillion of these assets earning $105.3 billions in interest for the trust fund in 2008.


10. Non-partisan view from the BBC Special Reports. Select "ECONOMY." Article: Economic battle is joined in race

B. Budget Structures

The framework used by Congress to formulating the budget was established by the Budget and Accounting Act of 1921, the Congressional Budget and Impoundment Control Act of 1974, and by other budget legislation. In general, after the President delivers his State of the Economy speech in February his budget proposal is submitted to Congress. Both houses of Congress deliberate on the proposed budget before approval. The federal government's fiscal year currently begins on October 1st and ends on September 30th of the next calendar year.

C. Budget Stakeholders

Taxpayers now and in the future: "Pay now or Pay later"
Because taxes are taken out of current earnings and redistributed to the Government, both private individuals and businesses care about "how much" their earnings are reduced.

• More earnings sent to the Government now means less income available to spend on items of private interest.
• By debt financing the budget deficit in the present, tax obligations are shifted forward becoming a responsibility for future taxpayers.

Beneficaries now and in the future: "Help me! No, help me!"
Beneficiaries of government spending are many including government agencies, employees, subcontractors to the government and program beneficiaries.

• If a government agency or program does not receive sufficient funding, then the program or agency must shrink which reduces its ability to serve the public and may require job cuts for both subcontractors and program employees.
• Program beneficiaries are those who receive direct services or benefits from the government program or agency. For example, cutting funds to SCHIP reduces the number of uninsured children who can receive medical care services.
• Or the inability of the government to meet its future financial obligation, for example, to the elderly on Social Security may increase the number of elderly living in poverty in the future.