The Budget of the United States Government often begins as the President’s proposal to the U. S. Congress, which recommends funding levels for the next fiscal year, beginning October first. Congress is the body required by law to pass a budget annually and to submit the budget passed by both houses to the President for signature. Congressional decisions are governed by rules and legislation regarding the federal budget process. Budget committees set spending limits for the House and Senate committees and for appropriations subcommittees, which then approve individual appropriations bills to allocate funding to various federal programs.
Several government agencies provide budget data and analysis. These include the Government Accountability Office (GAO), Congressional Budget Office, the Office of Management and Budget (OMB) and the U. S. Treasury Department. These agencies have reported that the federal government is facing a series of important financing challenges. In this paper we will discuss the deficits and debts of the United States. LITERATURE REVIEW The federal budget is calculated largely on a cash basis which means revenues and expenses are recognized when transactions are made.
Therefore, the long-term costs of entitlement programs such as Medicare, Social Security, and the federal portion of Medicaid are not reflected in the federal budget. In contrast, many businesses and some other national governments have adopted forms of accrual accounting, which recognizes debts and revenues when they are incurred. The costs of some federal credit and loan programs, according to provisions of the Federal Credit Reform Act of 1990, are calculated on a net present value basis. The difference between the present value of cash inflows and the present value of cash outflows.
NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. Current budget We now face a make-or-break moment for the middle class and those trying to reach it. After decades of eroding middle-class security as those at the very top saw their incomes rise as never before and after a historic recession that plunged our economy into a crisis from which we are still fighting to recover, it is time to construct an economy that is built to last.
The President’s 2013 Budget is built around the idea that our country does best when everyone gets a fair shot, does their fair share, and plays by the same rules. We must transform our economy from one focused on speculating, spending, and borrowing to one constructed on the solid foundation of educating, innovating, and building. That begins with putting the Nation on a path to living within our means – by cutting wasteful spending, asking all Americans to shoulder their fair share, and making tough choices on some things we cannot afford, while keeping the investments we need to grow the economy and create jobs.
The Budget targets scarce federal resources to the areas critical to growing the economy and restoring middle-class security: education and skills for American workers, innovation and research and development, clean energy, and infrastructure. The budget is a blueprint for how we can rebuild an economy where hard work pays off and responsibility is rewarded. Mandatory spending Social Security, Medicare, and Medicaid expenditures are funded by more permanent Congressional appropriations and so are considered mandatory spending.
Social Security and Medicare are sometimes called “entitlements,” because people meeting relevant eligibility requirements are legally entitled to benefits, although most pay taxes into these programs throughout their working lives. Some programs, such as Food Stamps, are appropriated entitlements. Some mandatory spending, such as Congressional salaries, is not part of any entitlement program. Mandatory spending is expected to increase as a share of GDP. (The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis.
It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. ) This is due in part to demographic trends, as the number of workers continues declining relative to those receiving benefits. These programs are also affected by per-person costs, which are also expected to increase at a rate significantly higher than the economy. This unfavorable combination of demographics and per-capita rate increases is expected to drive both Social Security and Medicare into large deficits during the 21st century.
Unless these long-term fiscal imbalances are addressed by reforms to these programs, raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations without significant risk to the value of the dollar (inflation). Mandatory spending also largely includes military spending and non-defense discretionary spending. STUDY RESULTS The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30. Since 1970, the U. S.
federal government has run deficits for all but four years (1998–2001) contributing to a total debt of $16. 1 trillion as of September 2012. The national debt increase during a given year is not the same as the “total budget” deficit commonly reported, due to a variety of accounting complexities involved. These differences can make it more challenging to determine how much the government actually spends relative to tax revenues. The increase in the national debt during a given year is a helpful measure to determine this amount. From FY 2003-2007, the national debt increased approximately $550 billion per year on average.
For the first time in FY 2008, the U. S. added $1 trillion to the national debt as the effects of a severe global financial crisis became apparent. The total federal debt is divided into “debt held by the public” and “intra-governmental debt. ” The debt held by the public refers to U. S. government securities or other obligations held by investors (e. g. , bonds, bills and notes), while Social Security and other federal trust funds are part of the intra-governmental debt. Social Security is a social insurance program officially called “Old-Age, Survivors, and Disability Insurance” (OASDI), in reference to its three components.
It is primarily funded through a dedicated payroll tax of 12. 4%. During 2010, total benefits of $713 billion were paid out versus income (taxes and interest) of $781 billion, a $68 billion surplus. An estimated 157 million people paid into the program and 54 million received benefits, roughly 2. 91 workers per beneficiary. Since the early 1980s, Social Security has cumulatively collected far more in payroll taxes dedicated to the program than it has paid out to recipients—nearly $2. 6 trillion in 2010. This annual surplus is credited to Social Security trust funds that hold special non-marketable Treasury securities.
This surplus amount is commonly referred to as the “Social Security Trust Fund”. The proceeds are paid into the U. S. Treasury where they may be used for other government purposes. Social Security spending will increase sharply over the next decades, largely due to the retirement of the baby boom generation. Because of the mandatory nature of the program and large accumulated surplus in the Social Security Trust Fund, the Social Security system has the legal authority to compel the government to borrow to pay all promised benefits through 2036, when the Trust Fund is expected to be exhausted.
Thereafter, the program under current law will pay approximately 75%–78% of promised benefits for the remainder of the century. Medicare was established in 1965 and expanded thereafter. In 2009, the program covered an estimated 45 million persons (38 million aged and 7 million disabled). It consists of four distinct parts which are funded differently: hospital Insurance, mainly funded by a dedicated payroll tax of 2.
9% of earnings, shared equally between employers and workers; supplementary Medical Insurance, funded through beneficiary premiums (set at 25% of estimated program costs for the aged) and general revenues (the remaining amount, approximately 75%); Medicare Advantage, a private plan option for beneficiaries, funded through the Hospital Insurance and Supplementary Medical Insurance trust funds; and the “Part D” prescription drug benefits, for which funding is included in the Supplementary Medical Insurance trust fund and is financed through beneficiary premiums (about 25%) and general revenues (about 75%).
Spending on Medicare and Medicaid is projected to grow dramatically in coming decades. The number of persons enrolled in Medicare is expected to increase from 47 million in 2010 to 80 million by 2030. While the same demographic trends that affect Social Security also affect Medicare, rapidly rising medical prices appear to be a more important cause of projected spending increases.
The military budget of the United States during FY 2011 was approximately $740 billion in expenses for the Department of Defense (DOD), $141 billion for veteran expenses, and $48 billion in expenses for the Department of Homeland Security, for a total of $929 billion. The U. S. defense budget (excluding spending for the wars in Iraq and Afghanistan, Homeland Security, and Veteran’s Affairs) is around 5% of GDP. Adding these other costs places defense spending between 6% and 7% of GDP.
The DOD baseline budget, excluding supplemental funding for the wars, has grown from $297 billion in the fiscal year of 2011 to a budgeted $534 billion for FY 2010, an 81% increase. Much of the costs for the wars in Iraq and Afghanistan have not been funded through regular appropriations bills, but through emergency supplemental appropriations bills. As such, most of these expenses were not included in the budget deficit calculation prior to FY2010. Some budget experts argue that emergency supplemental appropriations bills do not receive the same level of legislative care as regular appropriations bills.
Non-defense discretionary spending is used to fund the executive departments (e. g. , the Department of Education) and independent agencies (e. g. , the Environmental Protection Agency), although these do receive a smaller amount of mandatory funding as well. Discretionary budget authority is established annually by Congress, as opposed to mandatory spending that is required by laws that span multiple years, such as Social Security or Medicare. President Obama proposed freezing discretionary spending representing approximately 12% of the budget in his 2011 State of the Union address. DISCUSSION
There are a variety of strategies for addressing the deficit problem. These may include policy choices regarding taxation and spending, along with policies designed to increase economic growth and reduce unemployment. For example, a fast-growing economy offers the win-win outcome of a larger reputed economic pie to divide, with higher employment and tax revenues, lower safety net spending and a lower debt-to-GDP ratio. However, most other tradeoffs represent a win-lose scenario in which money or benefits are taken from some and given to others. Therefore, tradeoffs should be unbiased.
Spending can be reduced from current levels, frozen, or the rate of future spending increases reduced. Budgetary rules can also be implemented to manage spending. Some changes can take place today, while others can phase in over time. Although a still-weak economy limits the scope for large adjustments immediately, addressing the long-term imbalance soon will allow for more reasonable and gradual adjustments. Tax revenues can be raised in a variety of ways, by raising tax rates, the scope of what are taxed or eliminating deductions and exemptions (“tax expenditures”).
Regulatory uncertainty or barriers can be reduced, as these may cause businesses to postpone investment and hiring decisions. FIGURES ? (Figure 1 U. S. Defense Spending Trends from 2000–2011) ? (Figure 2. U. S. Spending for fiscal year of 2013) ? (Figure 3 U. S. Total Deficits vs. National Debt Increases 2001-2010) REFERENCES CITED Gross Domestic Product (GDP) Definition | Investopedia. (n. d. ). Investopedia “Educating the world about finance. Retrieved December 4, 2012, from http://www. investopedia. com/terms/g/gdp. asp#axzz2EHgIS9KS Net Present Value (NPV) Definition | Investopedia.
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