Hospitals & Asylums  

 

Welcome

Atlas

Statute

 

Economic Stimulus Package HA-20-1-08

 

By Tony Sanders

 

Introduction / Economic Growth Overview / Balance of Payments / Balanced Budget / Conclusion / Bibliography

 

III. Balanced Budget

 

32. The White House predicts that the deficit this year drop to $205 billion. But the nonpartisan Congressional Budget Office predicts the government deficit will be "toward the lower end" of a $150 billion to $200 billion range. Democrats and the Bush administration have been at odds over the nation's fiscal situation. President Bush, has called on the Democratic-controlled Congress to show some restraint in its spending.  In FY 2007, the biggest spending categories are programs from the Health and Human Services Department, including Medicare and Medicaid, $560.2 billion; Social Security, $516.1 billion; military, $437.7 billion, and interest on the public debt, $385.1 billion.

Federal Savings 1998-2007

 

graphic

Source: CBO

 

33. Federal Government spending turned up, increasing 5.9 percent after a 6.3-percent decrease in the first quarter. The upturn in Federal Government spending reflected an upturn in national defense spending, which increased 8.6 percent after a 10.8-percent decrease in the first quarter.  Non-defense spending slowed, increasing 0.5 percent after a 3.8-percent increase in the first quarter.  Current receipts for the federal government are estimated by the BEA at $2,685.5 billion and expenditures at $2,876.9 billion yielding what they term a savings of - $191.4 billion.  CBO expects the 2007 deficit to total $158 billion, a $90 billion decline from the $250 billion deficit recorded for 2006.  For 2007, CBO anticipates a deficit of $158 billion, $47 billion less than OMB’s estimate of $205 billion.  Both agencies expect about the same amount of revenues to come in this year, but CBO anticipates $44 billion less in outlays than OMB does. 

 

Total Tax Receipts, 1929-200234. After four years of record deficits, -$317 billion in 2002, -$375 billion in 2003, -$412 billion in 2004 and -$400 billion in 2005, the budget deficit declined to -$248 billion in 2006 to an estimated -$170 billion in 2007. Relative to the size of the economy, the deficit this year is expected to equal 1.2 percent of gross domestic product (GDP), down from 1.9 percent in 2006. CBO expects revenues in 2007 to exceed its March estimate by $35 billion, or 1.4 percent. At the same time, outlays this year are expected to be $16 billion, or about 0.6 percent, higher than CBO’s March estimate, primarily because of $117 billion supplemental appropriations for military operations in Iraq and Afghanistan in May. 

 

35. Federal, state, and local tax receipts have nearly tripled as a percentage of GDP over the last 70 years - rising from 9.5 percent in 1929 to 26.2 percent by 2002.  As a percentage of income the average US taxpayers pay 34% of their income. From the late 1960s through the late 1990s, the level of total government receipts largely stabilized, remaining between 25 and 27% of GDP.  Since 1929, the federal government has significantly increased rates and expanded the base of the individual income tax and created contribution-based entitlement programs in Social Security and Medicare (the receipts of which together measure 6.5% of GDP in 2002, 13.5% of income). Social insurance receipts ballooned after the introduction of Medicare in 1965. By contrast, the individual income tax, after explosive growth in World War II, grew very slowly in the post-war era until the late 1990s, when it eclipsed state and local taxation in 1998 and peaked at 10.2% of GDP or 18% of income in 2002. 

 

36. The IRS reports that the Treasury received receipts totaling $2,537 billion in 2006.  $1,236 billion were from individual income tax, $107.3 billion were from corporate income tax, $815 billion were from employment taxes, $58 billion from excise taxes collected by the IRS, $18 billion from the taxation of sales of alcohol, tobacco and firearms and $18 billion from estate and gift taxes.  Tax returns are to be filed today and net revenues remain a mystery.  The BEA reported that gross receipts of federal, state and local governments totaled $4,024.1 billion and expenditures $4,173.7 billion in 2006, before the return.  The federal government had receipts of $2,581.5 billion and expenditures of $2,712.7 billion. Federal tax receipts not including contributions for social insurance totaled $1,590.6 billion, $1,086.2 billion from personal income, $97.9 billion from taxes on production and imports, $388.5 from taxes on corporate income and $18 billion from taxes from the rest of the world.  $932.4 billion were contributed to social insurance programs and another $27 billion from income on assets.  State and local governments had receipts of $1,800.8 billion and expenditures of $1,819.2 billion.  State tax receipts totaled $1,243.7 billion, $300.2 billion from personal taxes, $875 billion from taxes on production and imports, $68.5 billion from taxes on corporate income.  States also received $24.8 billion in contributions to government social insurance, $78.2 billion in receipts on assets, $463.3 in current transfer receipts, $358.2 billion in federal aid grants that are excluded from revenue calculations and $105.2 billion in other receipts. 

 

37. Government saving, the difference between current receipts and current expenditures of the Federal Government and state and local governments, was –$183.4 billion in the second quarter of 2007, increasing $40.9 billion from –$224.3 billion in the first quarter. Net Federal Government saving was –$191.4 billion in the second quarter, increasing $27.1 billion from –$218.5 billion in the first quarter. Current receipts accelerated, and current expenditures decelerated. Net state and local government saving was $8.0 billion in the second quarter, increasing $13.8 billion from –$5.8 billion in the first quarter. Current receipts and current expenditures decelerated. Net borrowing was $363.1 billion in the second quarter, decreasing $41.4 billion from $404.5 billion in the first quarter. Federal Government net borrowing was $249.2 billion in the second quarter, decreasing $26.4 billion from $275.6 billion in the first quarter. State and local government net borrowing was $113.9 billion in the second quarter, decreasing $15.0 billion from $128.9 billion in the first quarter.  The states have recovered from a budget crisis of 2003-2004.  The federal government must follow suit.

 

38. The general fiscal outlook for the coming decade remains about the same as what CBO projected in March. If the laws and policies currently in place did not change, the deficit for 2008 would fall slightly, to 1.1 percent of GDP, and then rise to about 1.5 percent of GDP for 2009 and 2010, CBO projects. In the years that follow, deficits would give way to small surpluses as a result of higher revenues associated with the scheduled expiration of tax provisions originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). Total outlays are projected to remain steady at roughly 20 percent of GDP over the next 10 years. Total revenues are projected to remain close to 19 percent of GDP through 2010 about their level in 2007 and then rise to more than 20 percent following the scheduled expiration of EGTRRA and JGTRRA.

 

39. Over the long term, the federal budget remains on an unsustainable path. Even with more tax revenues expected in 2010, unless changes are made to current policies, growing demand for resources caused by rising health care costs and the nation’s expanding elderly population will put increasing pressure on the budget.  The modern rise in health care costs and retirement interests of the baby boomers is compounded by the classical issue of war debt.  Liberal democratic theory hypothesizes that governments that go to war tend to get into debt rather than tax the people who would quickly tire of such a poor game and end the war.  The major purchaser of military bonds is the Social Security Administration (SSA).  It would be politically expedient to prohibit SSA from purchasing debts incurred by the US military and exact a tax on half of SSA surplus revenues to encourage equitable administration.  No strategy to balance the budget would succeed unless spending limits for the Military under 2USC(20)I§903(c) and a  pay-as-you go policy instituted for Medicare and Social Security under 2USC(20)I§902.  The military must cease to request supplemental budget appropriations and pay for all operations from the regular military budget that must be limited to not more than $400 billion annually until 2012.   Medicare must ensure an adequate waiting period of several months for claims, until after the patient has approved it.  Social Security must promote the administration of benefits, to stimulate the consumer confidence in the economy.  Congress must grant low-income workers tax relief to help them compete with inflation.

 

40. Over the next few decades, the U.S. population will grow significantly older, a development that will affect our society and our economy in many ways.  In particular, the coming demographic transition will create severe fiscal challenges, as the cost of entitlement programs rises sharply.  From a broader economic perspective, the question is how the burden of an aging population is to be shared between our generation and the generations that will follow us.  A failure on our part to prepare for demographic change will have substantial adverse effects on the economic welfare of our children and grandchildren and on the long-run productive potential of the U.S. economy.  In coming decades, many forces will shape our economy and our society, but in all likelihood no single factor will have as pervasive an effect as the aging of our population.  In 2008, as the first members of the baby-boom generation reach the minimum age for receiving Social Security benefits, there will be about five working-age people (between the ages of twenty and sixty-four) in the United States for each person aged sixty-five and older, and those sixty-five and older will make up about 12 percent of the U.S. population.  Those statistics are set to change rapidly, at least relative to the speed with which one thinks of demographic changes as usually taking place.  For example, according to the intermediate projections of the Social Security Trustees, by 2030--by which time most of the baby boomers will have retired--the ratio of those of working age to those sixty-five and older will have fallen from five to about three.  By that time, older Americans will constitute about 19 percent of the U.S. population, a greater share than of the population of Florida today.  Longer, healthier lives will provide many benefits for individuals, families, and society as a whole. 

41. As the population ages, the nation will have to choose among higher taxes, less non-entitlement spending, a reduction in outlays for entitlement programs, a sharply higher budget deficit, or some combination thereof.  To get a sense of the magnitudes involved, suppose that we tried to finance projected entitlement spending entirely by revenue increases.  In that case, the taxes collected by the federal government would have to rise from about 18 percent of GDP today to about 24 percent of GDP in 2030, an increase of one-third in the tax burden over the next twenty-five years, with more increases to follow. Alternatively, financing the projected increase in entitlement spending entirely by reducing outlays in other areas would require that spending for programs other than Medicare and Social Security be cut by about half, relative to GDP, from its current value of 12 percent of GDP today to about 6 percent of GDP by 2030.  In today’s terms, this action would be equivalent to a budget cut of approximately $700 billion in non-entitlement spending.  The most straightforward way to raise national saving--although not a politically easy one--is to reduce the government’s current and projected budget deficits.  The intergenerational perspective provides a few insights that might be helpful to policymakers as they undertake the needed reforms.  First, restructuring the finances of our entitlement programs to minimize their reliance on deficit spending will enhance national saving and reduce the burden on future generations.  Second, changes in the structure of entitlement programs should preserve or enhance the incentives to work and to save; for example, we should take care that benefits rules do not penalize those who may wish to work part-time after retirement.   Finally, the imperative to undertake reform earlier rather than later is great (Bernanke 2006). 

 

42. Social Security benefits are the major retirement resource (wealth and income) for U.S. retirees. In 2004, 66 percent of aged beneficiary units (those aged 65 or older) received at least half of their income from these benefits, while for 34 percent, these benefits accounted for at least 90 percent of their income. These benefits were especially important for low earners and for certain population subgroups such as blacks, Hispanics, and widows. Moreover, benefits are now almost universal. The proportion of the aged units receiving Social Security benefits rose from 69 percent in 1962 to 89 percent in 2004 (Bridges 2007).  Federal spending on Medicare and Medicaid is expected to total 4.6 percent of GDP in 2007, and, without changes in law, such spending will rise to 5.9 percent of GDP in 2017- an increase of nearly 30 percent in just 10 years. Over the same period, spending on Social Security will rise from 4.2 percent of GDP to 4.8 percent.  Medicare and Medicaid have increased about 2.5 percentage points faster per year than has per capita GDP.  If those costs continue to increase at that rate, federal spending on those two programs alone would rise from 4.6 percent of GDP this year to about 20 percent by 2050. Demographic changes in the programs can explain only about 2.5 percentage points of that increase, underscoring that the rate at which health care costs grow, not the aging of the population, is the key determinant of the nation’s long-term fiscal outlook.  A 3 percent cap on annual inflation in health care costs has been proposed to sustain ably keep the health sector in sync with the economy and eliminate the corruption driving this disproportionate inflation that was limited to 6% in 2007. 

 

                          SSA Role in Balancing the Budget 2007-2012

 

43. Social security revenues represent 6.34% and expenditures 5.77% of the $13.85 trillion gross domestic product.  162 million workers, 54% of the 300 million population, had earnings covered by 13.85% in social security taxation.  Workers and employers each paid 6.2% OASDI tax on the first $94,200 of earnings and 1.45% Medicare tax on all wages. Self-employed individuals paid 12.4% on OASDI and 2.9% on Hospital Insurance.  There is an enormous backlog of disability insurance petitions of 700,000 with the Administrative Law Judges and 1.6 million with the administrative staff of petitioners unhappy with their level of benefits in the face of record inflation in food and gasoline prices and instability in the housing sector.  

 

44. CBO recognizes that there is no danger of insolvency in the trust funds until 2017 when the tax rates will probably need to be adjusted upwards.  In fact it is the enormous solvency of the trust funds that is disturbing.  As of 31 December 2006 OASDI had $2,048.1 billion in savings, $1,844.4 billion in OASI and $203.9 billion in DI.  Having accumulated the largest savings account in the world at a time when citizens have ceased to save any money and the federal government is running a deficit SSA has a responsibility to both the alleviation of poverty and to balance the federal budget.  Having failed to alleviate poverty as they promise SSA has no excuse to withhold surplus funds from the cause of eliminating the budget deficit.  SSA should make returns to the Treasury equivalent to two thirds the amount needed to balance the budget not to exceed one half of their interest earnings so that SSA would still show a profit and the trust funds would grow, albeit at a slower rate.  The accumulation of the OASDI balance is actually more reasonable after making contributions to balance the budget and the fund crosses the $3 trillion threshold in 2012 rather than 2011 as it would under current intermediate projections.  Social security needs to take a leading role in both balancing the budget and stimulating the economy with timely relief, as the only fiscally solvent agency in the federal government.

 

45. The United States has the largest, best-trained and most effective military in the world.  The military is an all-volunteer force of dedicated, patriotic men and women who reflect the best values and spirit of our Nation.  The Department employs an estimated 2.8 million people, 1.1 million active duty troops, 700,000 civilian employees and 1.1 million in the Reserve and National Guard  In FY 2007 they received a 2.7% pay raise. The Department’s financial management environment includes $1.4 trillion in assets and nearly $2 trillion in liabilities that remain on the Government Accountability Office’s high risk list. The federal government has a record budget deficit. In January 2001, the Congress and budget office predicted that the federal budget would run a surplus of in excess of $5.6 trillion between 2002 and 2011.  After tax cuts, a terror attack, a recession and a war in Iraq the budget office predicted deficits for five years Oct. 2001-2006 totaling $2.2 trillion.  It is logical, if $300 billion was the limit in the 1990s, when we balanced the budget, $400 billion should be the limit in the first decade of the 21st century.  Any movement in the direction of less spending will be rewarded with an exponential relief from the budget deficit but to decisively balance the budget a $400 billion limit is needed.  By reducing defense spending in FY 2006 to $470 billion from $501 billion the deficit was miraculously reduced from $320 billion to $250 billion.  A considerable amount of this savings, $30-$50 billion can be attributed to the return of surplus funds allocated the military, the rest is probably the result of the improved functioning of the real economy as the result of the flight of military capital.  To achieve a Department capable of functioning on $400 billion a year there are two reforms that need to be accomplished.  First, the US must withdraw from Iraq at an estimated cost of $10 billion, saving $55 billion from the +/- $65 billion cost of war, in 2008.  Second, Cold War weapon systems and nuclear warheads need to be disarmed to save $60 billion in savings from maintenance costs. 

                           

                                        Defense Budget and Federal Budget Deficit 1990-2006

46. By reducing total defense spending in FY 2006 to $470 billion from $501 billion the deficit was miraculously reduced from $320 billion to $250 billion.  In 2004 military spending reached $437 billion and the deficit $412 billion.  In 2005 defense-spending rose to $502 billion and the deficit increased to $427.  In 2006 military spending went down to $470 billion and the deficit to $250 billion.  This $175 billion reduction in deficit from the year before was attributed to increases in revenues however the low growth rate inclines one to attribute the fiscal success entirely to the $34 billion decrease in defense spending and presumed return of surplus funds from the war reserve that were concealed as tax revenues. In the fourth quarter 2006 National defense spending decreased 6.6 percent.  A considerable amount of this savings, $30-$50 billion can be attributed to the return of surplus funds allocated the military, the rest is probably the result of the improved functioning of the real economy.  Throughout the 1990s military spending was kept below the cap of $300 billion, that most people considered too high.  In the first decade of the 21st century however the levy for the Global War on Terror and more recently the troop surge have strained fiscal discipline.  It is not too late to restore limits to military spending.   In fact, military spending limits are the priority for any strategy to balance the budget. 

 

47. Since September 2001, the Congress and the President have provided a total of $602 billion in budget authority for military and diplomatic operations in Iraq, Afghanistan, and other regions in support of the war on terrorism and for related veterans benefits and services.  Specific appropriations, which averaged about $93 billion a year from 2003 through 2005, have risen to $120 billion in 2006 and $170 billion in 2007. According to estimates by the Congressional Budget Office (CBO), about $533 billion of the appropriated sums has been allocated for U.S. military operations and other activities carried out by the Department of Defense (DoD). Lawmakers have also provided approximately $30 billion to train and equip indigenous security forces in Iraq and Afghanistan. In addition, $39 billion has been provided for reconstruction and relief efforts, diplomatic and consular operations, embassy construction, economic support, and foreign aid.  DoD reports that it has obligated almost $11 billion per month thus far in 2007 for operations in Iraq and Afghanistan and for other activities related to the war on terrorism, an increase of nearly $3 billion compared with average monthly obligations in 2006. Operation Iraqi Freedom accounted for approximately 85 percent of all reported obligations; Operation Enduring Freedom accounted for another 15 percent. CBO projects outlays of roughly $115 billion for war-related defense activities in 2007, an average of between $9 billion and $10 billion a month. Of the funds appropriated for international affairs activities related to the war close to $25 billion has been spent through 2006 and that another $5 billion will be spent in 2007.  Supplemental appropriations for operations must cease.  All operations should be paid from regular appropriations that would be limited to $400 billion annum’s 2009-2010.

 

48. The want of parsimony in time of peace imposes the necessity of contracting debt in time of war. When war comes, there is no money in the treasury but what is necessary for carrying on the ordinary expense of the peace establishment.  When war begins, the military must be furnished with arms, ammunition, and provisions. The ordinary expense of modern governments in time of peace being equal or nearly equal to their ordinary revenue, when war comes they are both unwilling and unable to increase their revenue in proportion to the increase of their expense. They are unwilling for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war.  By means of borrowing they are enabled, to raise, from year to year, money sufficient for carrying on the war. In this exigency government can have no other resource but in borrowing although it would be wiser to increase taxes to pay for the cost of war because the people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humor them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for (Smith 1776).

 

49. Congress is responsible for establishing spending limits to reduce the deficit.  If waste, fraud and abuse in Defense programs can be reigned in for a gross aggregate military expenditure of not more than $400 billion it might be possible to balance the budget.  Congress took the reigns and agreed to Revising the congressional budget for the United States Government for fiscal year 2007, establishing the congressional budget for the United States Government for fiscal year 2008, and setting forth appropriate budgetary levels for fiscal years 2009 through 2012. H. CON. RES. 99 that passed 216 to 210 on 29 March 2007, that was Resolved by the Senate with the House of Representatives concurring in S.CON.RES.21.ES that passed 52 to 47 on 23 March 2007.  In their first attempt to draft their own budget Congress has done even worse than the President, neither of whom have the resolve to approach a balanced budget before 2010.  

 

50. CBO estimates that federal debt reached the limit of $8.965 trillion sometime during the last calendar quarter of 2007.  At the end of 2007, CBO expects, debt held by the public will total $5.0 trillion and debt held by government accounts will equal $3.9 trillion. Under the assumptions governing the baseline, net interest costs are projected to rise from $253 billion in 2008 to a peak of $292 billion in 2012 an average annual increase of 3.7 percent.  After 2012, net interest slowly falls by an average rate of 1.0 percent a year to $278 billion in 2017. Relative to GDP, net interest is projected to remain steady at 1.8 percent through 2010 and then slowly fall to 1.3 percent by 2017.  Federal debt is unsustainable and threatens future generations.  Congress must pass a budget a balanced budget.  

 

51. At the end of the first session of the 110th Congress, Sen. Voinovich voted against the irresponsible “omnibus” appropriations package, calling for fundamental tax reform and biennial budgeting as the proper way for Congresses to fund the government. In 25 of the past 30 years, Congress has failed to enact all the appropriations bills by the start of the fiscal year, preferring emergency spending.  In May 2007, Sen. Voinovich also introduced landmark legislation aimed at converting the annual budget cycle into a biennial – or two-year – cycle. Under biennial budgeting, the annual budget, appropriations and authorizing processes would be converted into a two-year cycle.  This would leave Congress more time to examine programs and estimate growth in program costs and benefits (Voinovich 2008). 

Federal Budget 2000-2010

 

Year

Rev.

Exp.

 Fed. Sav.

Acct. Def.

Debt

Military

SSA

OASI
Int’l

GDP

2000

2,025

1,788

87

-365

5,628

295

412

12

9,719

2001

1,991

1,860

-33

-460

5,770

306

434

14

10,022

2002

1,853

2,011

-317

-800

6,198

350

441

15

10,339

2003

1,782

2,157

-375

-922

6,780

389

448

35

10,828

2004

1,880

2,292

-412

-1077

7,355

437

457

15

11,552

2005

2,052

2,479

-400

-1183

8,058

444

480

17

12,227

2006

2,407

2,655

-248

-1007

8,451

470

507

25

13,065

2007

2,577

2,771

-170

-964

8,899

463

538

30

13,721

2008

2,771

2,925

-155

 

9,364

485

568

35

14,401

2009

2,855

3,071

-215

 

9,905

505

600

40

15,120

2010

2,950

3,071

-255

 

10,501

515

635

50

15,881

HA

 

 

 

 

 

 

 

 

 

2007

2,577

2,550

27

-769

8,890

450

423

50

13,500

2008

2,771

2,663

87

-613

8,700

400

475

65

13,700

2009

2,855

2,710

111

-514

8,650

400

525

75

13,974

2010

2,950

2,825

50

-450

8,500

400

600

90

14,253

 

52. Congress is responsible for balancing the budget under Art. 1 Section 7 and Art. 1 Section 9 Clause 7 of the US Constitution that states, “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time”.  Strong revenues, together with spending restraint, are critical to reducing the deficit, the task of which is given to the legislature.  The budget process of the federal government is led by the President who is responsible for presenting a balanced budget at the time of the State of the Union address under Art. 2 Section 3 of the US Constitution.  The President must submit his/her budget to Congress after the first week of January and before the first week of February every year under 31USC(11)§1105.  The President must submit and supplemental or additional budgeting changes and re-appraisements to Congress before July 16th of every year under §1106 and 30 September appropriations occur for the next fiscal year beginning 1 October under 1USC(2)§105.  With this blueprint it will not be difficult for the Presidential candidates to produce for the American people, a balanced budget for the 111th Congress.

 

Introduction / Economic Growth Overview / Balance of Payments / Balanced Budget / Conclusion / Bibliography

 

Next