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THE CONCORD COALITION www.concordcoalition.org
Generational Outlook: The Federal Budget Now and in the Future
presented byJoshua Gordon, Policy Director
www.concordcoalition.org
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$719
$851 $566
$235 $669 $214
$620
220
Composition of Projected FY 2012 Federal Government Revenues and Outlays
(Deficit: $1.128 Trillion)
*Includes all appropriated domestic spending such as education, transportation, homeland security, housing assistance and foreign aid.
Source: Congressional Budget Office, August 2012.
Outlays: $3.56 trillion Revenues: $2.44 trillion
Interest
Domestic*
SocialSecurity
Medicare & Medicaid
Other Mandatory
Defense
Estate & Gift Taxes ($11
billion)
IndividualIncome Taxes
Social InsuranceTaxes
Corporate Taxes
Other Taxes
$769 $1,159
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Current Policy Trends Lead to Large Sustained DeficitsFiscal Years 2013-2022
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022-$2,500
-$2,000
-$1,500
-$1,000
-$500
$0
$500
Fiscal YearCBO August 2012 Baseline
The Concord Coalition Plausible Baseline assumes that the $1.2 trillion “Super Committee” trigger does not go into effect, that discretionary spending grows at the rate of inflation, that war costs slow gradually, that Medicare physician payment cuts are postponed, and that all expiring tax provisions are extended with AMT relief, other than the payroll tax holiday.
Source: Congressional Budget Office, August 2012 and Concord Coalition analysis.
Bill
ions
of D
olla
rs
-$9.7 Trillion Deficit
-$2.3 Trillion Deficit
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Debt Held by the Public as a Percentage of GDP 1940-2040
Source: GAO Analysis, Spring 2012 and OMB Historical Tables 2012.
As a
Per
cent
age
of G
DP
1940194319461949195219551958196119641967197019731976197919821984198719901993199619992002200520082011201420172020202320262029203220352038
0
50
100
150
200
250
300
Actual Projected
World War II109% 2012
72.6%
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56%37%
7%
39%
14%
47% 36%11%
58%
Mandatory DiscretionaryNet Interest
*ProjectedSource: Congressional Budget Office, March 2012.
Automatic expenditures are consuming a growing share of the budget
1972 1992 2012*
25%64%
6%
2022*
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Tax Expenditures: A Comparative AnalysisFiscal Year 2011
Source: Congressional Budget Office, Budget and Economic Outlook: Update, August 2011, Joint Committee on Taxation, JCX-15-11, February 28, 2011, and Tax Policy Center, Trends in Tax Expenditures, Rogers and Toder, September 16, 2011.
Individual Corporate0%
3%
6%
9%
Individual Income Taxes Tax Expenditures
As a
Per
cent
age
of G
DP
Revenues collected from Individual Income and Corporate Taxes
Costs of Individual and Corporate Tax Expenditures
www.concordcoalition.orgExclu
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$0
$100
$200
$300
$400
$500
$600
$700
Largest Tax ExpendituresFiscal Years 2010-2014
Source: Joint Committee on Taxation, JCX-15-11, February 28, 2011.
Tax expenditures are any reduction in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers. These special income tax provisions are referred to as tax expenditures because they may be considered analogous to direct outlay programs.
Bill
ions
of D
olla
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*Includes outlays for CHIP and exchange subsides..
-2%
0%
2%
4%
6%
8%
Sources of Growth in the Federal Budget Fiscal Years 2012-2035
Source: Congressional Budget Office. Long-Term Budget Outlook, Alternative Fiscal Scenario, June 2012.
Current Individual Income Taxes = 7.2%
Current Defense Spending = 4.4%
Social Security
Medicaid*
Medicare Interest
All Other NoninterestSpending
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Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security
Source: Congressional Budget Office, June 2010 & 2011.
0.0
5.0
10.0
15.0
20.0
25.0
As
a Pe
rcen
tage
of
GD
P
Effect of Aging
Effect of Health Care Cost Growth
Spending Without Aging and Health Care Cost Growth
Percent of Growth Attributed to: 2035 2080
Health Care Cost Growth 36% 56%
Aging 64% 44%
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Looking at the Commission Report
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CBO’s Estimate of the Economic Impact of FY2013 Deficit Reduction if Done Permanently
• Between FY 2012 and FY 2013, deficit reduced by $560 billion (3.7% GDP); $65 billion (13% of policy change) from the sequester
• For the full calendar year 2013, deficit reduction = 4.7% of GDP
• Economic growth would contract by 1.3% in first half of 2013 entering the US into a recession (compared to 5.3% growth with no deficit reduction)
• Full year growth would be 0.5% of GDP (compared to 4.4% of GDP)
• Over the longer-term, GDP growth would be higher under the deficit reduction scenario.
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Items Reducing Deficit in FY 2013
ProvisionReduction in Deficit (billions)
Percent of Reduction (policies)
Immediate Economic Effects?
Expiration of 2001 & 2003 Tax Cuts w/ AMT $221 46%
AMT = NoTax Cuts =
Maybe (Depends on Withholding)
Expiration of 2% Payroll Tax Cut $95 20% Yes
Other expiring tax provisions $65 13% No
Automatic “Sequestered” Spending Cuts $65 13% Yes
Reduced Unemployment Benefits $26 5% Yes
Medicare Dr. Payment “Fix” $11 2% YesOther Changes in Revenues
& Spending − Economic Feedback
$77 - -
Total $560
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Overview of the Budget Control Act of 2011
• Increased the debt ceiling• Ten year discretionary spending caps (saves $900 billion)• Creation of Joint Select Committee on Deficit Reduction --
the Super Committee• Committee failed -- triggers sequestration of $1.2 Trillion
over 10 years.• Sequestration split about 50-50 between defense and non-
defense.• $109 billion total in 2013
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The Trigger: What Gets Cut?
Discretionary Spending
Mandatory Spend-ing
Interest Savings0%
25%
50%
75%
71%
13% 16%
Source: Congressional Budget Office, 2011.
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1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
0
1
2
3
4
5
6
7
8
9
10
Defense Discretionary Spending as a Percentage of GDP
Source: Congressional Budget Office, August 2012.
As a
Per
cent
age
of G
DP Projected
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Historical Average (1972-2011)
Lowest Level Since 1970
CBO Base-line Jan 2011
After BCA Discre-tionary Caps
BCA Caps + Sequester
Domestic Discretionary Projected to be Cut DramaticallyFiscal Years 2013-2022
Source: Congressional Budget Office, January 2011, August 2012 and Concord Coalition analysis.
Perc
ent o
f GD
P
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CBO on the ‘Fiscal Cliff’:
“If policymakers wanted to minimize the short-run costs of
narrowing the deficit very quickly while also minimizing the
longer-run costs of allowing large deficits to persist, they
could enact a combination of policies: changes in taxes and
spending that would widen the deficit in 2013 relative to what
would occur under current law but that would reduce deficits
later in the decade relative to what would occur if current
policies were extended for a prolonged period.”