This booklet describes the federal budget of the USA which highlights the economic education delegation, government spending, and its revenues, social security, mandatory spending.
1. The US Federal Budget Month, # 2018 1
2. National Economic Education Delegation • Vision - One day, the public discussion of policy issues will be grounded in an accurate perception of the underlying economic principles and data. • Mission - NEED unites the skills and knowledge of a vast network of professional economists to promote understanding of the economics of policy issues in the United States. • NEED Presentations - Are nonpartisan and intended to reflect the consensus of the economics profession. 2
3. Who Are We? • Honorary Board: 48 members - 2 Fed Chairs: Janet Yellen, Ben Bernanke - 6 Chairs Council of Economic Advisers o Furman (D), Rosen (R), Bernanke (R), Yellen (D), Tyson (D), Goolsbee (D) - 3 Nobel Prize Winners o Akerlof, Smith, Maskin • Delegates: 500+ members - At all levels of academia and some in government service - All have a Ph.D. in economics - Crowdsource slide decks - Give presentations • Global Partners: 45 Ph.D. Economists - Aid in slide deck development 3
4. Where Are We? 4
5. Credits and Disclaimer • This slide deck was authored by: - Jon Haveman, NEED • This slide deck was reviewed by: - , - , • Disclaimer - NEED presentations are designed to be nonpartisan. - It is, however, inevitable that the presenter will be asked for and will provide their own views. - Such views are those of the presenter and not necessarily those of the National Economic Education Delegation (NEED). 5
6. What Does the U.S. Gov’t Budget Look Like? 2019 Budget Summary Revenue Billions Expenditures Billions Income Taxes $1,718 Mandatory $2,735 Payroll Taxes $1,243 Discretionary $1,336 Corporate Taxes $230 Interest $376 Other $271 Total $3,462 Total $4,447 Budget Deficit: $984 Billion 6 Source: Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030
7. • Government Spending • Government Revenues 7
8. U.S. Government Spending 8
9. Gov’t Expenditures and the US Economy 9
10. Recent Amounts 10
11. Where Does the Money Go? 11 Source: https://www.nationalpriorities.org/budget-basics/federal-budget-101/
12. On What is the Money Spent? Complicated 12
13. What is Mandatory Spending? Medicare 14% Social Security 24% 13
14. Mandatory Spending: Social Security (24%) • Retirement - Covers 96% of US workers. - Retirement age is increasing from 65-67. • Survivors - A worker's spouse and dependents may be eligible for survivors' benefits if the worker dies. • Disability - A medical condition expected to last at least one year or to be fatal. 14
15. Where Do Social Security Funds Come From? • Payroll taxes - Tax rates: o Employee: 6.2% Key Question: o Employer: 6.2% Who pays? o Self Employed: 12.4% - Cap in 2019: $132,900 • Taxes on OASDI benefits - Not all benefits are taxed. • Interest earnings 15
16. Social Security Trust Fund • Spending in 2018 - OASI: $854 billion - DI: $147 billion • Income in 2018 - OASI: $831 - DI: $172 • Surplus in 2018 - OASI: $-22 - DI: $25 • Total Surplus: $3 Billion 16 Source: https://www.ssa.gov/OACT/TRSUM/index.html
17. In 2018: Deficits As Far As the Eye Can See Deficits Begin in 2020: Percent of Taxable Payroll • Trust Fund Solvency - Annual deficits after 2019 - Fund insolvent after 2036 17 SOURCE: 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Table IV.B1
18. Options for Eliminating the Soc Sec Deficits Problem is 1-1.5% of GDP • Raise the retirement age. • Increase the tax rate. - 4 percentage pt. increase raises 0.6% of GDP. • Raise the amount of income subject to tax. - Tax all wages raises 1.1% of GDP. • Reduce benefits. - 21% cut in benefits by 2034 would be necessary. 18
19. Mandatory Spending: Medicare (14%) • Part A: Hospital Insurance • Part B: Physician, outpatient, home health, and other services. • Part D: Subsidized access to pharmaceuticals. • Part C: Medicare Advantage Plans – offered by private companies approved by Medicare. - Medicare Advantage Plans may offer extra coverage, such as vision, hearing, dental, and/or health and wellness programs. 19
20. Where Do Medicare Funds Come From? • Payroll taxes - Tax rates: o Employee: 1.45% o Employer: 1.45% o Self Employed: 2.9% - No Cap • Interest earnings • General revenues • Beneficiary premiums 20
21. Medicare Finances in 2018 • Part A: - Income in 2018: $299 billion - Expenses in 2018: $297 billion - Surplus: $2.8 billion • Part B and Part D: - Income in 2018: $406 billion - Expenses in 2018: $414 billion - Surplus: $-7.9 billion • Long term sustainability: - Deficits began in 2016 - For as far as the eye can see - Insolvent in 2026 with current parameters. 21
22. Mandatory Spending: Medicaid (9%) • Medicaid provides medical insurance for those whose income and resources are insufficient to pay for health care. • It is a program with costs shared with the states. • Amount spent in 2017: $576.6 Billion - Federal: 61.5% or $354.6 Billion - States: 38.5% $222.0 Billion • People served in 2017: 72 million (22% of Americans) 22
23. Mandatory Spending: Income Security (7%) • EITC • Housing • SNAP • WIC • SSI • School Lunches • TANF • Head Start 23
24. U.S. Safety Net Expenditures ($ Billions) and Caseload (Millions) – No Medicaid, 2014 or 2015 24
25. Income Security Spending Over Time 25
26. Mandatory Spending: Interest (8%) • Interest costs in 2019: $376 Billion - 1.6% of GDP, or 8% of the Federal Budget • Forecast to increase to $1,323 Billion in 2050 - 6% of GDP, or 21% of the Federal budget 26 Source: CBO, January 2019 Budget Projections
27. Mandatory Spending: Other (7%) • Food and agriculture • Veterans’ Benefits • Transportation • Other 27
28. What is Discretionary Spending? Int’l Affairs 1% 28
29. Discretionary Spending: Other (6%) Category Amount (Millions) Energy 4,412 Agriculture 5,800 Medicare 5,906 General government 17,403 General science, space and tech 30,289 Natural resources and environment 36,766 Housing Assistance 45,711 Health 60,326 29
30. Mandatory Spending Dominates Forecasts 30 Source: Congressional Budget Office, The Budget and Economic Outlook: 2019 to 2029
31. Forecast Spending Interest Other What trends Health do you see? Social Security 31
32. Aging and Health Care Costs 32 Source: Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030
33. Another Category of Spending: Tax Expenditures • Description - Social policies that are implemented and paid for through the tax code. • List of the largest tax breaks: - Mortgage interest deduction - Low tax rates for Capital Gains - Retirement contributions - Child related tax credits - State and local taxes - Charitable gifts - Health insurance - Lifetime Learning • Evidence of who they benefit - Regressive 33
34. Tax Expenditures are Significant $1.6 Trillion 200 different categories 7.8% of GDP and more than Discretionary Spending 34 Source: Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030
35. Tax Expenditures Tend to be Regressive Income Group Benefits Bottom 20% 7.0% Top 20% 12.8% 35
36. Important things that people get from gov’t • Roads and highways • Improved public health - Sanitation • Public education • Investments in communications • Defense • Energy • Research and development • Many, many, inventions - Microchips- Touch screens • Space exploration - GPS - Internet - Wind turbines - Bar Codes • Income Security - Tang - Wii 36
37. US Government Revenues 37
38. Federal Government Revenues in 2018 U.S. GDP: $20.6 Trillion In 2018 38 Source: CBO – Revenues in 2018: An Infographic
39. Comparison 39
40. Where Do Government Revenues Come From? 40
41. Where Do Government Revenues Come From? Billions of dollars in 2018 Budget Year 41 Source: CBO – Revenues in 2018: An Infographic
42. Individual Income Taxes • Marginal tax rates • Not all income is subject to the same tax rates - capital gains • Deductions - Talked about as Tax Expenditures 42
43. Marginal Tax Rates: Married Filing Jointly Income Above Tax Rate • Income is taxed differently at 0 10% different levels 19,400 12% 78,590 22% • Individuals are taxed the same 168,400 24% way, regardless of overall 321,450 32% income: - First dollar is taxed at 10% 408,200 35% - 19,401st dollar is taxed at 12% 612,350 37% - Millionth dollar is taxed at 37% 43
44. Marginal and Average Tax Rates 44
45. Top Income Tax Rates 45
46. Income at Which Top Rate Kicks In 46
47. Average Tax Rates Across Income Categories 47
48. Bottom Tax Rates 48
49. Tax Rates Over Time 49
50. Tax Deductions and Exemptions • Exemptions and Deductions - Standard deduction - Personal exemption - Child Tax Credit • Other tax expenditures - E.g., charitable giving, mortgage interest, state and local taxes, and many more. • Refundable Tax Credits - EITC: Earned Income Tax Credit 50
51. We have a Progressive Tax System • Our options are: - Progressive: increasing average tax with income - Neutral or flat: same share of income at all income levels - Regressive: decreasing average tax of income • Additional income is of greater consequence to those with lower incomes. • Other parts of the tax system are regressive. 51
52. Capital Gains Taxes (2020) • Capital gains taxes can apply on investments, such as stocks or bonds, real estate (though usually not your home), cars, boats and other tangible items. • Short term - Held for more or less than a year – taxed as regular income. • Graduated rate – for long term capital gains - 0% < $38,600 - 15% $38,601 - $425,800 - 20% $425,801+ 52
53. Capital Gains vs Income Taxes: Maximum Rates 53
54. Revenues: Other (8%) • Federal Reserve Remittances • Excise Taxes - Motor fuel • Miscellaneous Fees and Fines - Airline tickets • Customs Duties - Tobacco - Alcohol • Estate and Gift Taxes - Health-related goods 54
55. Estate Taxes • $23B in revenues in 2018 • Exemption: $11.2 million for singles $22.4 million for couples • Tax rate: 40% • Top 10% pay more than 90%, Top 1% pays nearly 40% • 1,900 estates (0.1% of all estates) • Businesses and farms: 140 subject to tax - No Small businesses or farms because of the $11.2 million exemption 55
56. Excise Taxes are Regressive 56
57. Revenue Sources: Share of GDP over Time 57 Source: Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030
58. What’s with the Bump up in Income Taxes? 58 Source: CBO – The Budget and Economic Outlook, 2019 to 2029
59. Revenue Source by Share of Total Revenues 59
60. Who Pays? 60
61. The Bottom 40% Don’t Pay Income Taxes • There is a common narrative that the bottom 40% don’t pay income taxes. • But they pay other taxes and they also pay state and local taxes - Payroll - State and local taxes - Excise taxes – see the slide 4 slides ago • Does it matter from what tax revenues are derived? • Should the income tax be used to make the system progressive? 61
62. The Bottom 40% Does Pay Other Taxes Q: Are we sure who pays the Corporate Income Tax? 62
63. Regressivity in Federal Taxes? 63
64. State and Local Taxes are Regressive 64
65. Overall, Taxes are (mostly) Progressive 65
66. What Does the U.S. Gov’t Budget Look Like? 2019 Budget Summary Revenue Billions Expenditures Billions Income Taxes $1,718 Mandatory $2,735 Payroll Taxes $1,243 Discretionary $1,336 Corporate Taxes $230 Interest $376 Other $271 Total $3,462 Total $4,447 Budget Deficit: $984 Billion 66 Source: Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030
67. How has the Size of Government Changed? 67
68. How Does the U.S. Government Borrow? • It issues debt - Treasury marketable securities: o Treasury bills, notes, and bonds o TIPS: Treasury inflation-protected securities • Who buys the debt? - Other federal government agencies - Individuals and businesses - State and local governments - People, businesses, and governments from other countries. 68
69. Debt vs. Deficit 69
70. Debt vs. Deficit: Share of GDP 70
71. A Future of Deficits 71 Source: Congressional Budget Office, The Budget and Economic Outlook: 2019 to 2029
72. Record Levels of Debt are Forecast 180 72 Source: Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030
73. Mandatory Spending Dominates Forecasts 73 Source: Congressional Budget Office, The Budget and Economic Outlook: 2019 to 2029
74. Summary: Slide 1 • Total Spending: $4.4 Trillion in 2019 • There is remarkably little discretion in each budget: - Mandatory: 69% - Discretionary 31% • Fastest growing parts of the budget: Health Care and Interest • By 2050: - Debt is forecast to grow to 180% of GDP, from 80% today - Interest payments are forecast to grow from 8% to 22% of budget 74
75. Summary: Slide 2 • Categories that get a lot of attention are relatively small - Foreign Aid: 1% of the budget - Income support/welfare: 8.7% • Or are not forecast to grow significantly - Social security - Most other categories of spending 75
76. Summary Slide: Tax Expenditures… • …Are policy enacted through the tax code. • …Are not explicitly on the books. • …Add > 25% to actual government expenditures. • …Reduce the progressive nature of the tax code. • …Are larger than all of “Discretionary Spending”. 76
77. Thank you! Any Questions? www.NEEDelegation.org Contact NEED: [email protected] Submit a testimonial: www.NEEDelegation.org/testimonials.php 77
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