Deficit reduction in the United States

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Deficit reduction in the United States refers to taxation, spending, and economic policy debates and proposals designed to reduce the Federal budget deficit. Government agencies including the Government Accountability Office (GAO), the Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the US Treasury Department have reported that the federal government faces a series of important long-term financial challenges, driven mainly by an aging population, rising health costs per person, and increased interest payments on national debt.

CBO reported in July 2014 that the continuation of the current long-term tax policy and spending (to the 2030s) resulted in a budget trajectory that caused debt to grow faster than GDP, which was "unsustainable." Furthermore, the CBO reported that high debt levels relative to GDP could pose a significant risk to economic growth and the ability of MPs to respond to the crisis. These risks can be overcome by higher taxes, reduced expenses, or a combination of both.

The CBO estimates in April 2018 that national debt will increase between $ 11.6 trillion and $ 13.6 trillion over the 2018-2027 period. This estimate is significantly higher than the January 2017 estimate of $ 9.4 trillion or June 2017 estimate of $ 10.1 trillion, representing an initial budget scenario inherited by President Trump. The difference is driven by the Tax Cuts and Employment Act and the Bipartisan Budget Act of 2018. This amount is above the national debt of $ 21 trillion as of April 2018. Publicly held debt, part of the overall debt, is expected to increase from 77% GDP in 2017 to more than 100% of GDP by 2028. Debt to GDP by 2017 is ranked 43rd highest from 207 countries.

Video Deficit reduction in the United States

Understanding the main term

The budget deficit refers to expenditures that exceed the collection of taxes over a certain period and requires the loan to fund the difference. The US federal government has experienced an annual deficit in 36 of the last 40 fiscal years, with a surplus from 1998-2001. Debt represents the accumulated deficit over time. Publicly held debt, part of the US national debt represents securities held by investors, rising in dollars every year except during the 1998-2001 surplus period. Total national debt rises in dollars every year from 1972-2014.

Budget deficits and debt challenges can be explained using a variety of steps:

• Dollar: The 2014 deficit is around $ 486 billion, with tax revenues of $ 3.0 trillion and expenditures or expenditures of $ 3.5 trillion. The CBO projected in February 2013 that publicly held debt will increase from $ 11.3 trillion in 2012 to $ 18.9 trillion in 2022 under the "basic scenario," an increase of $ 7.6 trillion over 10 years. Total national debt will increase from $ 16 trillion in 2012 to $ 25 trillion by 2022, an increase of $ 9 trillion.
• Deficit as a percentage of the size of the economy (GDP): The average annual deficit before 2008 is about 3% of GDP, with 18% of the average GDP tax revenues and 21% of the average GDP expenditure. However, in 2009, the deficit increased to 10% of GDP due to a combination of economic conditions and policy options. Then fall as a percentage of GDP for five consecutive years back to 2.8% of GDP in 2014. With a GDP of $ 16.8 trillion in 2013, 1% of GDP represents about $ 170 billion.
• Debt as a percentage of GDP: Debt held by the public ranged between 23% of GDP and 50% of GDP during the period 1971-2007, then increased significantly amid the financial crisis and recession, which ended in FY2014 about 75% of GDP. On September 30, 2014, the debt held by the public was around $ 12.8 trillion. Intra-government debt, such as Social Security trust funds, reaches $ 5.0 trillion, providing a combined public debt or national debt of $ 17.8 trillion or about 105% of GDP. The debt to GDP ratio is projected to increase if the US continues its current policy.
• Uncharged liability: This is an actuarial concept used to measure today's dollar values ​​from the difference between tax revenue and expenses for a particular program. This concept is described further below in the section on Social Security and Medicare.

Maps Deficit reduction in the United States

CBO projection

The Congressional Budget Office (CBO) is the principal legal source of historical budget information and projected future earnings, expenditures, deficits and debts under various scenarios.

Overview

John Maynard Keynes writes that: "The explosion, not the slump, is the right time for austerity at the Treasury." In other words, when the economy goes well (boom), it is time to raise taxes and cut spending (austerity, to reduce deficits), while the opposite applies when the economy is in a recession, at times that lowers taxes and increases spending (stimulus, to increase the deficit) is the right medicine.

CBO reported in January 2017: "To avoid the negative consequences of high and rising federal debt and to put debt on a sustainable path, MPs must make significant changes to their tax and spending policies - increasing revenues more than they will under current legislation, reducing spending on major benefit programs below projected amounts, or adopting some combination of those approaches. "

The CBO reported in November 2013 that addressing the long-term debt challenge will require a reduction in the budget deficit in the future. MPs need to increase income further than the size of the economy, reduce the expenditure on Social Security or the major health care program associated with current legislation, cut other federal spending to a lower level by historical standards, or adopt a combination of these approaches.

The CBO reports that: "The amount of deficit reduction required will depend on the lawmakers' goals for federal debt.

• Lowering debt in 2038 to less than 70% of GDP - slightly lower than current but still high by historical standards - can be achieved if the deficit is reduced to $ 2 trillion (excluding interest costs) over the next decade , and deficit reduction as a percentage of output in 2023 is maintained in subsequent years.
• Lowering the debt in 25 years to about 30% of GDP - which will be slightly below the average for the last 40 years - can be achieved by reducing the $ 4 trillion deficit (excluding interest costs) over the next decade and keeping that reduction in the following years.
• Reaching $ 2 trillion or more savings over the 2014-2023 period will require significant tax increases, significant cuts in federal allowances or services, or both. "

CBO base projections

In January 2017, the Congressional Budget Office reported its initial budget projection for the 2017-2027 time period, based on the law in place at the end of the Obama administration. The CBO estimates that "debt held by the public" will increase from $ 14.2 trillion in 2016 to $ 24.9 trillion by 2027, an increase of $ 10.7 trillion. This increase is mainly driven by an aging population, which affects the costs of Social Security and Medicare, along with interest on debt. When President Trump introduces its budget policy, its impact can be measured against this baseline.

The CBO also predicts that if the policy in place at the end of the Obama administration continues over the next decade, real GDP will grow by about 2% per year, the unemployment rate will remain around 5%, inflation will remain around 2%, and interest rates will rise moderately. President Trump's economic policy can also be measured against this baseline.

Actual results FY2017

Fiscal year 2017 (FY2017) runs from 1 October 2016 to 30 September 2017; President Trump was inaugurated in January 2017, so he came to power in the fourth month of the fiscal year, budgeted by President Obama. In FY2017, the actual budget deficit was $ 666 billion, $ 80 billion more than the FY2016. FY2017 revenue rose $ 48 billion (1%) vs FY2016, while expenses rose $ 128 billion (3%). The deficit is $ 107 billion more than the initial estimate of the January 2017 CBO of $ 559 billion. The deficit increased to 3.5% of GDP, up from 3.2% of GDP in 2016 and 2.4% of GDP by 2015.

Actual results FY2018 (partial year)

Fiscal year 2018 (FY 2018) runs from 1 October 2017 to 30 September 2018. This is the first fiscal year budgeted by President Trump. During the first seven fiscal months until April 2018, the budget deficit increased to $ 382 billion from $ 344 billion in FY2017, an increase of $ 37 billion or 11%. Both receipts and expenditures were higher than during the comparable FY2017 period. The deficit has decreased by 1% over the comparable FY2017 period, relative to FY2016.

Ten-year forecast 2018-2028

CBO estimates the impact of Trump's withholding tax cuts and separate spending regulations for the period 2018-2028 in their annual "Budget & amp; Outlook", released in April 2018:

• The CBO forecasts stronger economies over the period 2018-2019 than many outside economists, dulling some of the impact of tax cuts and increased spending.
• Real GDP (inflation-adjusted), a key measure of economic growth, is expected to increase 3.3% in 2018 and 2.4% in 2019, versus 2.6% in 2017. It is projected to be an average of 1 , 7% from 2020-2026 and 1.8% in 2027-2028. During 2017-2027, real GDP is expected to grow by an average of 2.0% below the April 2018 baseline, versus 1.9% below the June 2017 baseline.
• The non-farm employment rate will be about 1.1 million higher on average over the period 2018-2028, about 0.7% higher than the June 2017 baseline.
• The budget deficit in fiscal 2018 (which runs from 1 October 2017 to 30 September 2018, the first year budgeted by President Trump) is estimated to be $ 804 billion, an increase of $ 139 billion (21%) from $ 665 billion in 2017 and up $ 242 billion (39%) from the previous preliminary estimate (June 2017) of $ 580 billion for 2018. The June 2017 forecast is essentially a budget line inherited from President Obama; it was prepared before the Tax Law and other spending increase under President Trump.
• For the period 2018-2027, the CBO projects an annual deficit amount (ie, an increase in debt) to $ 11.7 trillion, an increase of $ 1.6 trillion (16%) from the previous preliminary estimate (June 2017) of $ 10, 1 trillion.
• The $ 1.6 trillion debt increase includes three main elements: 1) $ 1.7 trillion less in revenue due to tax cuts; 2) $ 1.0 trillion more in expenditure; and 3) partially offsetting a revenue increase of $ 1.1 trillion due to higher economic growth than previously thought. The $ 1.6 trillion figure is about $ 12,700 per family or $ 4,900 per person total.
• Publicly held debt is expected to increase from 78% of GDP ($ 16 trillion) by the end of 2018 to 96% of GDP ($ 29 trillion) by 2028. It will be the highest level since the end of the Second World War.
• The CBO is estimated under an alternative scenario (where the policy in force in April 2018 is maintained beyond the scheduled initiation or expiration) that the deficit will be much higher, increasing by $ 13.7 trillion over the period 2018-2027, an increase of $ 3 , 6 trillion (36%) above the preliminary estimate of June 2017. Maintaining current policies for example will include an extension of individual Trump tax withholdings by expiration scheduled in 2025, among other changes. The $ 3.6 trillion figure is about $ 28,500 per household or $ 11,000 per person in total.

The Committee for Responsible Federal Funds (CRFB) estimates that laws enacted by the Donald Trump Administration will add significant national debt over the period 2018-2028, relative to the lawless baseline:

• The debt held by the public in 2028 will increase from $ 27.0 trillion to $ 29.4 trillion, an increase of $ 2.4 trillion.
• The debt held by the public as a percent of GDP in 2028 will increase from 93% of GDP to 101% of GDP.
• The deficit will start to exceed $ 1 trillion each year starting in 2019, reaching $ 1.7 trillion by 2028.
• The deficit will rise from 3.5% of GDP in 2017 to 5.3% of GDP in 2019 and 5.7% of GDP by 2028.
• Under an alternative scenario where Trump tax cuts for individuals are extended (among other assumptions), debt will reach $ 33.0 trillion or 113% of GDP by 2028.

Long-term

CBO projected in July 2014 that:

• "The gap between federal spending and income will widen after 2015 under an extended basic assumption... By 2039, the deficit will be equal to 6.5% of GDP, greater than in any year between 1947 and 2008 , and Federal debt held by the public will reach 106% of GDP, more than any year except 1946 - even without taking into account the economic effects of rising debt. "
• "Over the next 25 years, the pressure caused by rising budget and debt deficits will be even greater unless the laws governing taxes and expenditures are changed.With the deficit of the CBO project, federal debt will grow faster than GDP, in the end will not be sustainable. "

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Risk

There are risks associated with high and increasing debt levels. However, as the economy grows slowly and unemployment rises, there is a risk that the budget deficit is too small. When the private sector is unable to adequately cultivate the economy, government spending can cover the shortfall, although this increases short-term deficits and debt. Many economists argue, as Keynes did, that the time for fiscal austerity is during the economic boom, not the bust.

High debt levels

CBO reported several types of risk factors associated with high and increasing debt levels in the July 2010 publication:

• A growing share of savings leads to the purchase of government debt, rather than investing in productive capital goods such as factories and computers, leading to lower output and revenue than would otherwise occur;
• If higher marginal tax rates are used to pay increased interest costs, savings will decrease and jobs will be discouraged.
• Increased interest costs will force reductions in important government programs;
• Limitations on the ability of policymakers to use fiscal policy to respond to economic challenges; and
• Increased risk of sudden fiscal crisis, where investors demand higher interest rates.

Risk to economic growth from reducing deficit

Reducing the budget deficit by tax increases or spending cuts can slow economic growth. One example is the fiscal cliff of the United States that refers to a series of tax increases and spending cuts scheduled to take effect by the end of 2012. Risks arise mainly from the end of Bush's tax cuts and the implementation of the Budget Control Act 2011. CBO projects that economic growth will slow in 2013 if tax increases and spending cuts have been put in place, with 2013 GDP growth rates falling from 1.7% to -0.5% (causing a mild recession) and higher unemployment. Most tax increases are avoided by the American Taxpayer Assistance Act, although spending cuts from the Budget Control Act (also referred to as "foreclosures") are not addressed.

Loss of credit rating

A lower credit rating may cause investors to demand higher interest rates or more difficult to raise funds in global financial markets. On August 5, 2011, S & amp; P made the decision to provide the first downgrade to US sovereign debt, downgrading one level to "AA" rating, with a negative outlook. S & amp; P states that "[w] e downgraded our long-term ranking in the US because we believe that the prolonged controversy over raising the debt ceiling of the law and the related fiscal policy debate suggests that short-term progress further contains growth in public spending, especially on rights, or to reach an agreement on income increase, possibly less than we had expected and will remain a controversial and unattractive process. "

However, despite the credit ratings downgraded by S & amp; P, other agents do not follow it and the US has been able to borrow at record low interest rates until November 2012.

Fiscal crisis and inflation

There is a risk that some investors may one day decide that the deficit or debt is out of control and refuse to invest in US Treasury bonds. This may mean that the Federal Reserve should buy it, increasing inflation due to the creation of money. However, in 2012, interest rates and inflation are very low, indicating this risk is highly unlikely to be realized in the short term. In traditional economic models, inflation becomes more risky when the economy is closer to capacity, as consumers demand more goods and services relative to supply, price quotes. There has been significant leeway in the economy since the 2008 crisis began, making inflation unlikely. Furthermore, if the economy is heavily inflated and inflation is a risk, the deficit will tend to fall because of higher tax revenues and lower safety net costs, lowering the risk of a fiscal crisis.

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General strategy for deficit reduction

Strategies to address deficit problems may include policy options on taxation and spending, along with policies designed to promote economic growth and reduce unemployment. This policy decision can be evaluated in the context of the framework:

• Encouraging economic growth and employment: The fast-growing economy offers a win-win outcome from the larger proverbial economic pie to share, with higher job and tax revenues, lower safety net expenditures and debt lower for GDP Ratio.
• Create a fair trade-off: Many budget options have win-lose results, reflecting how government revenue is shared, with some benefits and others incurring costs. For example, taking advantage of people inside or near pensions can be considered unfair, while the elimination of retirement benefits for young workers can be considered less so.
• Keeping short-term and long-term issues in perspective: Inflation health care costs and an aging population are the main drivers of long-term deficits. Unemployment and various tax and expenditure policies are the main short-term deficit drivers. Measures to boost economic growth can now be implemented in conjunction with other measures to reduce the deficit in the future.
• Limit or avoid future spending increases: Policy options may focus on preventing future improvements through freezing or reducing the annual rate of increase. The annual growth rate since 2001 in the top three categories of expenditure (Health Care, Social Security, and Defense) is well above the level of economic growth. In the long term, expenditures related to health care programs such as Medicare and Medicaid are projected to grow faster than the whole economy when the population matures.
• Invest productively: Some spend can be categorized as an investment that lowers the deficit in the future. For example, if infrastructure, education, or R & D can make US workers and products more competitive or generate revenue streams, this can reduce the deficit in the future. Examples may include installing windows that reduce energy costs, toll roads and bridges, or power plants.
• Avoid unnecessary uncertainty and regulation: A complicated law can create uncertainty about future costs of doing business, affecting investment decisions made by businesses and households.
• Implement budgetary process reforms: A budget rule can be applied requiring new laws or programs to be funded by cutting other expenses or raising taxes (ie, "Pay as you see fit" or PAYGO rules.)

Historically, government spending increased year-on-year in nominal terms (ie, not adjusted for inflation) from 1971 to 2009. However, by limiting growth rates in discretionary spending (defense and non-defense) while revenue growth, the budget was balanced from 1998 -2001. From 1990 to 1999, discretionary spending increased by 14%, while revenue grew 77%. In contrast, from 2000-2009, discretionary spending increased by 101% while income grew only 4% (see chart on the right). Although the ideal balanced budget, allowing advance payments on debt and more flexibility in the government budget, limits the deficit to 1% to 2% of GDP enough to stabilize debt.

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Proposal revenue

Democrats and Republicans are very different when they talk about tax reform. Democrats argue for the rich to pay more through higher income tax rates, while Republicans focus on reducing income tax rates. While both sides discussed reducing tax spending (ie, exceptions and reductions), the Republicans focused on lower tax rates for capital gains and dividends, while Democrats preferred education credits and capping reductions. Political realities make it unlikely that more than $ 150 billion per year in individual tax expenditures can be eliminated. One area with a more common ground is the corporate tax rate, where both parties generally agree that lower tariffs and lesser tax spending will align the US more directly with foreign competition.

Historical Perspective

During FY2012, the federal government raised about $ 2.45 trillion in tax revenues, up $ 147 billion or 6% compared to FY2011 revenues of $ 2.30 trillion. Major acceptance categories include personal income tax ($ 1,132B or 47%), Social Security/Social Insurance ($ 845B or 35%), and corporate tax ($ 242B or 10%). Other types of income include excise, real, and prize taxes. Revenue rose in all categories in FY2012 compared to FY2011.

FY2012 revenue is 15.8% of GDP, compared to 15.4% of GDP in FY2011. Tax revenues averaged about 18.3% of gross domestic product (GDP) during the period 1970-2009, generally ranging from plus or minus 2% of that rate. Tax revenues are significantly affected by the economy. Recession usually reduces the collection of government taxes as economic activity slows down. For example, tax revenues decreased from $ 2.5 trillion in 2008 to $ 2.1 trillion in 2009, and remained at that level in 2010. From 2008 to 2009, the income tax of individuals decreased by 20%, while corporate taxes decreased 50%. At 15.1% of GDP, the 2009 and 2010 collections are the lowest for the last 50 years.

Income tax revenue

President Obama proposed during July 2012 that allowed the Bush tax cuts to expire for individual taxpayers earning more than $ 200,000 and couples earning more than $ 250,000, representing the top 2% of revenue. Returning to the Clinton-era tax rate for these taxpayers means the top rate increase to 36% and 39.6% from 33% and 35%. This will generate about $ 850 billion in revenue over a decade. This also means raising tax rates on investment income, which is highly concentrated among the rich, up to 20% from 15%.

Allowing the Bush tax cuts to expire at all income levels will have significant deficit-reduction effects. In August 2010, the CBO estimates that the extension of tax cuts for the 2011-2020 time period will add $ 3.3 trillion to the national debt: $ 2.7 trillion in lost tax revenues plus $ 0.7 trillion in interest fees and service fees debt.

The American Taxpayer Relief Act of 2012 resulted in the ending of a lower Bush income tax rate for individual taxpayers earning more than $ 400,000 and couples earning more than $ 450,000. This is expected to generate an additional $ 600 billion over ten years.

From 2002 to 2011, nine US states with the highest income tax increased their economies by 8.2%, all countries with income tax grew 6.3%, and nine states with no income tax grew 5.2%.

During 2012, Warren Buffett proposed to set a minimum effective tax rate of 30% on taxpayers earning more than $ 1 million. This is known as the Buffett Rule. Many high-income taxpayers face lower effective tax rates because most of their income comes from capital, which is taxed at a lower rate than labor. The Center for Tax Policy estimates that 217,000 households will be subject to the Buffett rules, with an average tax burden of $ 190,000, totaling about $ 41 billion per year.

Income tax and Social Security

The Social Security program faces a 75-year average annual shortfall of 1.4% of GDP, which is about $ 280 billion in 2018 dollars. CBO publishes a report every few years ( Social Security Policy Options ) which estimates ways to close the funding gap. Without changes to legislation, benefits will be cut by about 25% by 2034, since expenditures for beneficiaries will be limited to the collection of payroll taxes. Until then, the Social Security Trust Fund provided legal authority to force the federal government to borrow to cover the shortfall, but the Trust Fund reduced so far. Among the many CBO reported alternatives include:

• Remove the limit on paying taxes ($ 128,700 for 2018) without increasing benefits including 1.0% of GDP from gaps, about 70%.
• Increase the payroll tax contribution by one percentage point now will close 0.3% of the difference, around 21%. Or, increasing the payroll tax contribution by two percentage points for 10 years will cover 0.6% of the gap, about 43%.

President Obama reduced the share of Social Security tax payments paid by workers by two percentage points as part of the Tax Assistance, Endorsement of Unemployment Insurance, and the Employment Creation Act of 2010, a revenue reduction of about $ 100 billion per year. The laws provided for the Social Security Trust Fund will be upgraded as if this tax cut does not occur, making the entire financial program. This deduction ends at the end of 2012.

Corporate income tax revenue

Republicans argue for a reduction in corporate income tax rates, from a 35% rate to 25%, which will reduce tax revenues by $ 1 trillion over ten years.

The corporate income tax rate of 35% is one of the highest compared to other countries. However, the US corporate income tax return of 1.2% of GDP in 2011 was lower than almost all OECD countries (which averaged 2.5% of GDP) and compared with the US historical rate (2.7% of GDP in 2007).

US federal income tax revenues have declined relative to earnings, down from about 27% in 2000 to 17% in 2012.

In comparing corporate taxes, the Congressional Budget Office found in 2005 that the highest tax rates were the third highest among OECD countries behind Japan and Germany. However, the US ranks 27th lowest of 30 OECD countries in corporate tax collection relative to GDP, at 1.8% vs. 2.5% on average.

Tax expenditure

The term "tax expenditures" refers to the exemption of income or deductions which reduces the collection of taxes to be made by applying certain tax rates only. According to the US Progress Center, annual tax spending has increased from $ 526 billion in 1982 to $ 1,025 billion in 2010, adjusted for inflation (measured in dollars in 2010). Economist Mark Zandi wrote in July 2011 that tax spending should be regarded as a form of government spending.

Republicans have proposed reductions in taxes expenditures (ie, deductions and exemptions) rather than increasing the income tax rate. One proposal relates to limiting the amount of income tax deduction that can be claimed. For example, 2012 Presidential Candidate Mitt Romney proposes restrictions on a $ 25,000 deduction piece, which will add $ 1.3 trillion in tax revenue for 10 years.

The Congressional Research Service reports that although there are more than $ 1 trillion annually in tax spending, it is unlikely to be more than $ 150 billion/year to be cut off due to political support for various cuts and exemptions. For example, according to the Center for Tax Policy, home mortgage interest cuts accounted for $ 75 billion in lost revenue in 2011 but more than 33 million households (about one-third) benefited from it. The Center for Budget Priorities and Policy estimates in April 2013 that about 77% of the benefits of home mortgage cuts go to those earning more than $ 100,000 per year.

Value added tax (VAT)

Many countries, but not US, use national value-added tax or VAT. VAT is conceptually similar to national sales tax. Many economists advocate putting on VAT. For example, William Gale and Benjamin Harris proposed 5 percent VAT, with $ 450 per adult and $ 200 per child annual return (which equates to family spending of $ 26,000). They estimate this will raise about $ 160 billion per year, or 1 percent of GDP.

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Proposal spending or spending

Historical perspective

During FY 2012, the federal government spent $ 3.54 trillion on budget or cash, down $ 60 billion or 1.7% vs FY 2011 spending of $ 3.60 trillion. The main categories of FY 2012 shopping include: Medicare & amp; Medicaid ($ 802B or 23% of expenses), Social Security ($ 768B or 22%), Department of Defense ($ 670B or 19%), non-discretionary ($ 615B or 17%), other mandatory ($ 461B or 13 %) and interest ($ 223B or 6%). Social Security spending increased compared to 2011 while defense spending, Medicare and Medicaid fell.

Expenditures are classified as mandatory, with payments required by certain laws, or discretionary, with the amount of payments renewed annually as part of the budget process. The average expenditure of 20.6% of GDP from 1971 to 2008, generally ranges from/- 2% of GDP from that level. Spending in 2012 is 22.8% of GDP, compared to 2011's 24.1% GDP.

Defense expenditure

The United States military budget during FY 2012 is about $ 650 billion in fees to the Department of Defense (DoD). The Defense Department's basic budget, excluding additional funding for the war, has grown from $ 297 billion in FY2001 to $ 534 billion budgeted for FY2010, an 81% increase. The US defense budget (excluding spending on wars in Iraq and Afghanistan, Homeland Security, and Veterans Affairs) is about 5% of GDP. Adding these other costs places defense spending between 6% and 7% of GDP. DoD spending has fallen from as high as 7% of GDP in 1971 to 3% of GDP in 2000, before rising to about 5% of GDP in 2012. According to the CBO, defense spending grew 9% annually on average from fiscal year 2000-2009.

The allowance for spending in the 2011 Budget Control Act (BCA) essentially freezes current defense spending in dollars for the period 2013-2022, limiting growth to about 1.5% per year (about inflation rate) versus about 8% over the past decade. The CBO estimates that defense expenditures under foreclosure (excluding war expenses called "overseas contingency operations") from 2012 to 2021 will be $ 5.8 trillion, versus $ 6.3 trillion estimated before part of BCA, evasion of about $ 500 billion in additional spending for a decade.

Non-defense discretionary expenditure

Discretionary spending is funding the Cabinet Departments and other government agencies. This expenditure is approximately $ 566 billion in 2011 or about 4% of GDP. These expenditures typically range from 3.75% of GDP and 5.25% of GDP since 1971. Expenditures in the 2011 Budget Control Act (BCA) essentially freeze current non-defense spending in the current dollar for the 2013-2022 period, limiting growth of about 1.5% per year (about inflation rate) versus about 6% over the last decade. The CBO estimates expenditure under foreclosures from 2012 to 2021 will be $ 5.4 trillion, versus $ 5.9 trillion estimated before part of BCA, evasion of about $ 500 billion in additional spending over a decade.

Required program

Some government agencies provide data and analysis of budgets and debt. These include the Government Accountability Office (GAO), the Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the US Treasury. These agencies have reported that the federal government is facing a series of critical long-term funding challenges. This is because expenses associated with compulsory programs or "rights" such as Social Security, Medicare, and Medicaid grow much faster than the economy as a whole, as the population grows older.

These institutions have indicated that under current legislation, between 2030 and 2040, compulsory spending (mainly Social Security, Medicare, Medicaid, and interest on national debt) will exceed tax revenues. In other words, all "discretionary" spending (eg, Defense, internal security, law enforcement, education, etc.) will require loans and related deficit expenditures. These institutions have used languages ​​such as "unsustainable" and "train" to describe such a future.

CBO writes in November 2012: "The aging of the baby-boom generation signifies a significant and sustained increase in the coming years in the population section that will benefit from Social Security and Medicare and long-term care services financed through Medicaid., Per capita expenditure for health care is likely to continue to grow faster than per capita spending on other goods and services over the years Without significant changes in the laws governing Social Security, Medicare and Medicaid, these factors will increase federal spending as a percentage of GDP well above the average of the last four decades - a conclusion that applies under reasonable assumptions about future trends in demographics, economic conditions, and health care costs. "

Medicare

The CBO reported that the long-term deficit and major debt risk were driven by health care costs. For example, CBO projects that Social Security spending will rise from 5.0% of GDP in 2012 to 5.4% of GDP in 2022 and 6.2% of GDP by 2037 and are stable around that level. However, CBO projects that combine Medicare and Medicaid spending will increase from 5.4% of GDP in 2012 to 7.5% of GDP by 2022 and 10.4% of GDP by 2037 and continue to increase thereafter.

• The present value of unfunded liabilities under Medicare is $ 35.6 trillion over an estimated 75-year period (2012-2086), including Medicare Part A, B and D. Average average annual shortfall 3.2% of GDP. Above the infinite horizon, these figures are $ 56.3 trillion and 3.8% of GDP.

Patient Protection and Affordable Care Act, also known as "Obamacare," includes $ 716 billion in Medicare deductions for a decade, especially reductions for future projected increases. These deductions will be paid by Medicare service suppliers such as hospitals, not patients.

Proposals to reduce Medicare costs are parallel to proposals to reduce health care costs in general. Many health reform proposals were made during the Obama administration. Topics include obesity, defensive treatment or tort reform, rationing, lack of doctors and nurses, vs. intervention. hospice, fraud, and use of imaging technology.

The Medicare Trustees provide annual financial reports of the program. Estimates from 2009 and 2015 differ materially, primarily due to changes in the projected level of health care cost increases, which have moderated considerably. Rather than rising to almost 12% of GDP over the estimated period (up to 2080) as estimated in 2009, the 2015 forecast has Medicare costs rising to 6% of GDP, comparable to the Social Security program. The long-term budget situation has significantly increased in 2015 forecasts versus 2009 forecasts per Trust Agent Report.

Social Security

Social Security faces a long-term shortfall of about 1% of GDP per year or $ 155 billion/year in 2012 dollars. Key reform proposals include:

• Remove the limit on payment taxes. Earnings exceeding the threshold ($ 110,100 in 2012) are not subject to payroll taxes, or additional benefits paid to those earning above this level. Removing the cap will fund the entire 75-year deficiency.
• Increase retirement age gradually. Raising the useful retirement age to 70 will fund half a 75-year deficiency.
• Reduce the cost of living adjustment (COLA), which is an increased annual payment to offset wages. Reducing COLA each year by 0.5% compared to the current formula will fund half the deficiency for 75 years.
• Means testing for a richer pensioner, beyond the taxation of benefits that can already be considered a form of testing means.
• Increase the payroll tax rate. Raising rates by one percentage point will cover half the deficiency for 75 years. Raising tariffs by two percentage points gradually over 20 years will cover all the flaws.

One way to measure the risk of compulsory programs is in the case of unfunded liabilities, the amount to be set aside today such that the principal and interest will cover the program shortage (the expenditure on tax revenues dedicated to the program). It is measured over a period of 75 years and an infinite horizon by the Program Supervisor:

• The present value of unfunded liabilities under Social Security is approximately $ 8.6 trillion over an estimated 75-year period (2012-2086). The estimated annual shortfall averages 2.5% of the payroll tax base or 0.9% of the gross domestic product (the measure of economic size). Measured above the infinite horizon, these figures are $ 20.5 trillion, 3.9% and 1.3%, respectively.

Increase age eligibility for Social Security and Medicare

CBO estimates in January 2012 that raising the full retirement age for Social Security from 67 to 70 will reduce spending by about 13%. Raising the early retirement age from 62 to 64 has little impact, as those who wait longer to start receiving benefits get higher amounts. Over the long term, CBO estimates increase the retirement age of Social Security increasing the size of labor and marginal economic size. Increasing the Medicare eligibility age from 65 to 67 will reduce Medicare costs by 5%.

Lifting the retirement age into one or both programs raises questions about justice, as some professions are more difficult to sustain for the elderly (for example, laborers) and the poor have no long life expectancy as rich people.

Interest expense

Net interest budgeted for public debt is approximately $ 245 billion in FY2012 (7% of spending). During FY2012, the government also incurred a $ 187 billion non-cash interest charge for intergovernmental debt, in particular the Social Security Trust Fund, for a total interest fee of $ 432 billion. This accrual interest is added to the Social Security Trust Fund and therefore national debt annually and will be paid to future Social Security beneficiaries. However, since it is a non-cash charge, it is excluded from the calculation of the budget deficit.

Net interest costs paid on public debt decreased from $ 203 billion in 2011 to $ 187 billion in 2012 due to lower interest rates. If this rate goes back to the historical average, interest costs will increase dramatically.

During 2013, the US Federal Reserve is expected to buy about $ 45 billion of US treasury securities per month in addition to $ 40 billion in purchased mortgage debt, which effectively absorbs about 90 percent of fixed-income assets in new net dollar denominations. This reduces the supply of available bonds for sale to investors, raises bond prices and lowers interest rates, which helps boost the US economy. During 2012, global demand for US debt is strong and interest rates are near record lows.

Public debt owned by foreigners has risen to about 50% of the total or about $ 3.4 trillion. As a result, nearly 50% interest payments are now leaving the country, which is different from previous years when interest is paid to US citizens holding public debt. Interest expense is projected to grow dramatically in line with rising US debt and interest rates from very low levels in 2009 to a more typical historical level. CBO estimates that almost half of the debt increases during the period 2009-2019 will be due to interest.

If interest rates return to historical averages, interest costs will increase dramatically. Historian Niall Ferguson illustrates the risk that foreign investors will demand higher interest rates as US debt levels increase over time in an interview in November 2009.

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Economic proposal

In addition to policies on earnings and expenditures, policies that promote economic growth are the third major way to reduce deficits. Economic growth offers a "win-win" scenario of higher employment, which increases tax revenues while reducing net spending on things like unemployment compensation and food stamps. Other deficit proposals related to expenditure or income tend to take money or benefits from one constituency and give it to others, the "win-lose" scenario. Democrats usually advocate a Keynesian economy, which involves additional government spending during the economic downturn. Republicans typically advocate supply-side economies, which involve tax cuts and deregulation to encourage the private sector to increase spending and investment.

Economic growth and employment creation are influenced by globalization, technological change or automation, international competition, education level, demography, trade policy, and other factors. Cyclical unemployment is caused by variations in economic cycles and is responsive to stimulus measures, while structural unemployment is unrelated to economic cycles and unresponsive to stimulus measures. For example, general reductions in employment across industries are likely to occur in cycles, while geographical skills or incompatibility for available jobs will be a structural problem.

Conservative organizations such as the US Chamber of Commerce have advocated growth and employment strategies based on reduced government regulations; empowering the state education system; teacher salaries for performance strategies; more focused training programs on available jobs; the creation of private and public infrastructure banks to finance investment; reduction of tax rates for companies; free trade agreements; and reduce the strength of trade unions.

Inflation or real negative interest rate

Contrary to popular belief, reducing the debt burden (ie, lowering the debt ratio relative to GDP) is almost always achieved without running a budget surplus. The US has just run a surplus in four of the last 40 years (1998-2001) but has several periods where the debt to GDP ratio is lowered. This is achieved by growing GDP (in real terms and through inflation) relatively faster than the increase in debt.

Since 2010, the US Treasury has obtained negative real interest rates on government debt. Such low rates, surpassed by the rate of inflation, occur when the market believes that there is no alternative with a low enough risk, or when popular institutional investments such as insurance, pension, or bond, money market and balanced mutual funds are required or to invest a substantial amount in Treasury securities to hedge against risk. Lawrence Summers, Matthew Yglesias and other economists claim that at such low rates, government debt loans save taxpayer money, and increase creditworthiness.

In the late 1940s and early 1970s, the United States and Britain reduced their debt burden by 30% to 40% of GDP per decade by taking advantage of negative real interest rates, but there was no guarantee that the level of government debt would continue. remain low. Between 1946 and 1974, the debt-to-GDP ratio fell from 121% to 32% although there was a surplus in just eight years that was much smaller than the deficit.

Balancing economic growth with deficit reduction

Actions can be taken now to boost economic growth while implementing measures that reduce the deficit in the future. Ben Bernanke writes in September 2011: "... two goals - achieving fiscal sustainability, which is the result of a responsible policy set for the long term, and avoiding the creation of fiscal headwinds for recovery - not contradictory. credible to reduce future deficits in the long run, while taking into account the implications of fiscal options for recovery in the near future, can help serve both purposes. "

Stimulus vs. savings

There is a significant debate as to whether lowering the deficit (ie, fiscal savings) is the right economic policy when unemployment rises and economic growth is slow. Economist Laura D'Andrea Tyson writes in July 2011: "Like many economists, I believe that the immediate crisis facing the US economy is a job deficit, not a budget deficit.The size of the job crisis is clearly illustrated by the job gap - currently around 12.3 million jobs, that is how much work the economy should add to its top job levels before the 2008-09 recession and to absorb 125,000 people who enter the workforce every month, at the current pace of recovery, the pause will not close until 2020 or later "He further explained that job growth between 2000 and 2007 was only half that of what had happened in the previous three decades, pointing to studies by other economists demonstrating globalization and technological change having a very negative effect on certain sectors of the US workforce and overall wage rate..

Economic policies that stimulate demand (eg, higher government spending or tax cuts) generally increase employment but also increase deficits. Strategies involving short-term stimulus with long-term savings are not mutually exclusive. Measures can be taken in the present that will reduce future spending, such as "bending the curve" on pensions by reducing the cost of living adjustment or raising the retirement age for young members of the population, while at the same time creating short-term expenditures or cutting programs taxes to stimulate the economy to create jobs.

IMF Managing Director Christine Lagarde wrote in August 2011: "For developed countries, there is a clear need to restore fiscal sustainability through credible consolidation of plans.At the same time we know that slamming the brakes too fast will hurt recovery and worsen prospects work. fiscal should solve the puzzle that is not too fast or too slow Forming the Goldilocks fiscal consolidation is about time.. What is needed is a double focus on medium term consolidation and short-term support for growth and employment.That may sound contradictory, but both reinforce each other Decisions on future consolidation, addressing issues that will bring about sustainable fiscal improvements, create space in the near future for policies that support growth and employment. "

Paul Krugman wrote in August 2011: "What is the real response to our problem? First of all, it will involve more, not less, government spending for now - with mass unemployment and very low loan costs, we have to rebuild our school , our roads, our water system and more.This will involve aggressive steps to reduce household debt through mortgage pardons and refinancing, and that will involve an all-out effort by the Federal Reserve to get the economy moving, with the intentional purpose of generating inflation. higher to help ease debt problems. "

Former Finance Minister Lawrence Summers cited the importance of economic growth and job creation as critical to addressing the deficit problem during July 2011. The 2012 Presidential Budget estimates real annual GDP growth averaging 3.2% from 2011-2021 (3.7% of 2011 -2016 and 2.6% from 2017-2021.) Changes in real GDP were -0.3% in 2008, -3.5% in 2009 and 3.0% in 2010. During 2011, real GDP increased at an annual rate of 0.4% during the first quarter and 1.0% during the second quarter.

Federal Reserve Chairman Ben Bernanke testified in February 2013 that the Federal government should replace the sequester with smaller spending cuts today and larger cuts in the future, as sequester fears will slow the economy. He reminded lawmakers about CBO guidance that recent austerity measures are projected to reduce economic growth by 1.5 percentage points in 2013 (relative to what would happen otherwise), where 0.6 percentage points related to the foreclosure. Bernanke stated that long-term fiscal problems are mainly related to aging populations and health care costs. He writes: "To address short-and long-term fiscal problems, Congress and the Administration should consider replacing the sharp and front-loaded spending cuts required by sequestration with policies that reduce the federal deficit more gradually in the short term but more substantial in the long term, such an approach could reduce the short-term fiscal constraints facing recovery while more effectively addressing long-term imbalances in the federal budget. "

Job creation sector

Economist Michael Spence said in August 2011 that during the period 1990-2008, job creation was almost entirely in "non-tradable" sectors, producing goods and services to be consumed domestically, such as health care, and some of the work created in "" sectors that produce goods that can be sold internationally, such as manufacturing. He falsely claims that job creation in both sectors is needed and various factors, such as housing bubbles, hide the lack of job creation in tradable sectors. He stated: "We should try to improve the ineffective part of our education system... We are less invested in things like infrastructure... we just live from consumption and we have to live a little more on investments, including investments public sector. "He also advocated a shift in tax policy to encourage recruitment of US workers.

Income inequality

Economist Robert Reich wrote in September 2011 that political policy has resulted in a relatively stagnant US wage for the middle class since 1979 and recorded income inequality. Although there are more women entering the workforce to provide a second family income, US consumption becomes increasingly financed by debt and unsustainable. He advocates higher taxes on richer and stronger security nets, strengthens unions (representing less than 8% of the private workforce), Medicare for all, increases the average wage in trading partner nations, and the focus on education.

Economist Joseph Stiglitz wrote in 2012 that moving money from the bottom to the top of the income spectrum through income inequality lowers consumption, and therefore economic growth and job creation. High-income individuals consume a fraction of their income rather than low-income individuals; those at the top save 15-25% of their income, while those at the bottom spend all of their income. This can reduce the tax revenue collected by the government, increasing the relative deficit to the economy with greater income equality.

Reduce fractional reserve loan

The International Monetary Fund publishes a working paper entitled Chicago Revisited Plan which shows that debt can be written off by increasing bank reserve requirements, converting from fractional reserve banking into full banking reserves. Economists at the Paris School of Economics have commented on the plan, stating that it has become a status quo for coin currencies, and an economist Norges Bank has reviewed the proposal in the context of considering the financial industry as part of the real economy. A Center for Economic Policy The research paper agreed with the conclusion that, "no real accountability is created by the creation of new fiat money, and therefore public debt does not increase as a result."

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Specific deficit reduction proposal

National Research Council

During January 2010, the National Research Council and the National Academy of Public Administration reported a series of strategies to address the problem. They include four scenarios designed to prevent the ratio of public debt to GDP exceeding 60%:

1. Low spending and low taxes. This line will allow payroll and income tax rates to remain unchanged, but will require a sharp reduction in the projected growth of health and pension programs; defense and cuts in domestic spending by 20 percent; and no funds for new programs without additional spending cuts.
2. Intermediary path 1. This line will raise moderate rates of income tax and payroll. This will allow some growth in health and pension expenses; defense and cuts of domestic programs 8 percent; and opting for new public investments, such as for the environment and for promoting economic growth.
3. Intermediate path 2. This line will raise income tax and salary somewhat higher than the previous one. Growth in spending on health and pension programs will be slowed, but less than below other intermediate channels; and spending on all other federal responsibilities will be reduced. This path gives higher priority to the rights program for the elderly than other types of government spending.
4. High shopping and taxes. This line will require a much higher tax. This will sustain the projected growth in Social Security benefits for all future retirees and require a smaller reduction over time in growth expenditures for health programs. This will allow spending on all other federal programs to be higher than the level implied by the current policy.

Allowing laws already in the book to apply

As of November 2014, no major legislation is scheduled to expire or effect projected by the CBO to have a material material impact on the budget deficit. However, an unusual situation developed in early 2013, referred to as a fiscal cliff, where Bush's 2001 and 2003 tax cuts are due to expire (causing income tax revenues to rise significantly) and spending cuts due to the 2011 Budget Control Act (also known as " sequester ") is scheduled to take effect. The CBO predicts allowing the law to apply will dramatically reduce the deficit for a decade, but it will also slow the economy and increase unemployment as the economy recovers from the subprime mortgage crisis.

In particular, enabling legislation on books in 2011 applies will reduce future debt to $ 7.1 trillion over a decade:

• $ 3.3T from allowing temporary income and withholding of land tax imposed in 2001, 2003, 2009 and 2010 (some of which are known as Bush's tax cuts to end on schedule by the end of 2012;
• $ 1.2T from foreclosure implementation (spent freezing/reduction) in the 2011 Budget Control Act);
• $ 0.8T temporary tax cuts ("extensions" regularly extended by "temporary" congress) end on schedule;
• $ 0.3T of Medicare reduced Medicare medical treatment deductions scheduled under current law (required under the Medicare Sustainable Growth Medal formula passed in 1997, but which has been suspended since 2003) is valid (i.e. no longer implements improvements Document);
• $ 0.7T from allowing a temporary increase in the number of exceptions under the Alternate Minimum Tax to expire, thereby restoring the exemption to the prevailing level in 2001;
• $ 0.9T in low interest payments on debt as a result of the deficit reduction achieved from not extending the current policy.

CBO reported in November 2012: "Under current legislative assumptions embodied in the CBO's basic projections, the budget deficit will shrink significantly - from nearly $ 1.1 trillion in fiscal year 2012 to about $ 200 billion by 2022 - and debt will drop to

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