Total Revenues and Outlays

Transcription

1 CHAPTER 1: THE BUDGET OUTLOOK THE BUDGET AND ECONOMIC OUTLOOK: 217 TO 227 Figure 1-2. Total Revenues and Outlays Percentage of Gross Domestic Product 28 2 Outlays Average Outlays, 1967 to 216 (2.3%) Projected Revenues Average Revenues, 1967 to 216 (17.%) Source: Congressional Budget Office.

2 CHAPTER 1: THE BUDGET OUTLOOK THE BUDGET AND ECONOMIC OUTLOOK: 217 TO Figure 1-8. Federal Debt Held by the Public Percentage of Gross Domestic Product Civil War Great Depression World War I World War II Extended Baseline Projection High and rising federal debt would reduce national saving and income in the long term; increase the government s interest payments, thereby putting more pressure on the rest of the budget; limit lawmakers ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis Source: Congressional Budget Office. For details about the sources of data used for past debt held by the public, see Congressional Budget Office, Historical Data on Federal Debt Held by the Public (July 21), The extended baseline generally reflects current law, following CBO s 1-year baseline budget projections through 227 and then extending most of the concepts underlying those baseline projections for the rest of the long-term projection period (in this case, through 27).

3 .1 Application: Efforts to Control the Deficit C H A P T E R B U D G E T A N A L Y S I S A N D D E F I C I T F I N A N C I N G Controlling the budget is a difficult process. The Balanced Budget and Emergency Control Act (also known as the Gramm-Rudman-Hollings Deficit Reduction Act, or GRH). o Passed in 1985 in an attempt to control the budget. o Initiated automatic spending cuts once the budget deficit started missing specified targets. o The cuts were avoided by gimmicks, such as changing the targets. Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 212 Worth Publishers 7 of 3

4 .1 C H A P T E R B U D G E T A N A L Y S I S A N D D E F I C I T F I N A N C I N G Application: Efforts to Control the Deficit Failure to meet GRH deficit targets led to the 199 adoption of the Budget Enforcement Act (BEA): Rather than trying to target a deficit level, the BEA aimed to restrain government growth. It created the pay-as-you-go process (PAYGO), which prohibited any policy from increasing the estimated deficit in the next six-year period. If deficits increase, the President must issue a sequestration requirement, which reduces direct spending by a fixed percentage. Apparently successful in reducing spending. Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 212 Worth Publishers 8 of 3

5 .1 C H A P T E R B U D G E T A N A L Y S I S A N D D E F I C I T F I N A N C I N G Application: Efforts to Control the Deficit PAYGO expired on September 3, 22, and has not been renewed. President Bush proposed renewing PAYGO in 2 o but not before passing a budget that cut taxes and increased spending. President Obama has publicly supported PAYGO legislation o but his proposed budget would increase deficits to almost $2 trillion in the near term. Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 212 Worth Publishers 9 of 3

6 .3 Projected versus Surplus/Deficit C H A P T E R B U D G E T A N A L Y S I S A N D D E F I C I T F I N A N C I N G Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 212 Worth Publishers 28 of 3

7 .3 C H A P T E R B U D G E T A N A L Y S I S A N D D E F I C I T F I N A N C I N G APPLICATION: The Financial Shenanigans of 21 The bill itself contained numerous tax cuts operating on erratic schedules. Many of the cuts would phase in over periods longer than in any prior American legislation, backloading most of the fiscal impact toward 21. Convoluted scheduling allowed legislators to claim action had been taken on a wide range of issues, while delaying the fiscal consequences associated with these actions. Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 212 Worth Publishers 3 of 3

8 . C H A P T E R B U D G E T A N A L Y S I S A N D D E F I C I T F I N A N C I N G Capital Market Equilibrium Price of capital (Interest rate), r r 2 B S 2 Supply of savings, S 1 r 1 A Demand for capital, D 1 K 2 K 1 Quantity of capital, K Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 212 Worth Publishers 35 of 3

9 25% Figure.7. Public wealth in the United States, Public ass sets and debt (% national income) 2% 15% 1% 5% Public assets Public debt % Public debt is worth 1 year of national income in the U.S. in 195 (almost as much as assets) Sources and series: see piketty.pse.ens.fr/capital21c Source: Piketty (21)

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11 SUMMARY THE BUDGET AND ECONOMIC OUTLOOK: 217 TO 227 Summary Figure 1. Federal Debt Held by the Public Percentage of Gross Domestic Product 12 Projected Source: Congressional Budget Office.

12 Summary Figure 2. Values and CBO s Projections of Key Economic Indicators CBO projects that economic activity will expand at a pace this year and next that will lower the unemployment rate and place upward pressure on inflation and interest rates. Percent Growth of Real GDP Projected Unemployment Rate Percent 1 Projected Percentage Change in Prices Inflation Projected Percent 6 Interest Rates Projected 3 Overall 5 1-Year Treasury Notes Month Treasury Bills 1 Core Source: Congressional Budget Office, using data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, and the Federal Reserve.

13 Figure 1-1. Total Deficits and Surpluses Percentage of Gross Domestic Product Deficits Surpluses Average Deficit, 1967 to 216 ( 2.8%) Projected Deficits as a percentage of gross domestic product are projected to exceed their 5-year average for most of the period as spending for Social Security, Medicare, and interest on the federal debt rises faster than revenues. Source: Congressional Budget Office.

14 Table 1-1. CBO s Baseline Budget Projections, by Category Revenues Individual income taxes Payroll taxes Corporate income taxes Other Total Total, In Billions of Dollars 1,56 1,651 1,781 1,871 1,957 2,52 2,18 2,29 2,355 2,7 2,59 2,71 9,89 22,187 1,115 1,15 1,19 1,23 1,265 1,312 1,36 1,17 1,68 1,525 1,583 1,6 6,361 13, ,832 3, ,8 3,16 3,267 3, 3,6 3,733 3,878,19,176,36,527,72,931 5,1 19,1 3,78 On-budget 2,57 2,566 2,73 2,83 2,951 3,6 3,183 3,318 3,62 3,622 3,789 3,958 1,76 32,911 Off-budget a ,28 1,6 1,12 1,12 1,182,69 1,168 Outlays Mandatory 2,29 2,8 2,585 2,76 2,925 3,97 3,329 3,55 3,583 3,827,76,35 1,7 33,96 Discretionary 1,18 1,29 1,21 1,238 1,257 1,28 1,315 1,3 1,367 1,5 1,39 1,75 6,3 13,33 Net interest ,93 5,228 Total 3,85 3,963,91,33,562,816 5,135 5,36 5,55 5,89 6,228 6,58 22,938 52,5 On-budget 3,78 3,157 3,227 3,9 3,575 3,761,8,13,271,52,77 5, 17,98,692 Off-budget a ,55 1,127 1,2 1,283 1,366 1,5 1,58,958 11,812 Deficit (-) or Surplus On-budget Off-budget a Debt Held by the Public Memorandum: Gross Domestic Product , -1,27-1,165-1,297-1,8-3,528-9, ,2-3,219-7, ,65 1,168 1,838 15,16 16,92 16,85 17,7 18,721 19,776 2,858 22,78 23,3 2,893 n.a. n.a. 18,3 19,157 19,926 2,661 21,378 22,168 23,37 23,98 2,899 25,889 26,917 27,985 17, ,89

15 6 THE BUDGET AND ECONOMIC OUTLOOK: 217 TO 227 JANUARY 217 Figure 1-6. Population, by Age Group Millions of People Source: Congressional Budget Office. Age 65 or Older Ages 2 to 6 This figure shows actual data through calendar year 21, the most recent year for which such data are available. Projected The number of people age 65 or older in the United States now more than twice what it was 5 years ago is expected to grow by more than one-third over the next 1 years. Thus, enrollment in Social Security s Old-Age and Survivors Insurance program and Medicare will continue to rise.