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The Concord Coalition concordcoalition

Generational Outlook: The Federal Budget Now and in the Future. The Concord Coalition www.concordcoalition.org. 2010-2011. Policy Making Process. 1. Agenda Setting President Clinton and Obama – Health Care; Bush – Tax cuts Congress 1994 Republicans “ Contract with America ”

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The Concord Coalition concordcoalition

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  1. Generational Outlook: The Federal Budget Now and in the Future The Concord Coalitionwww.concordcoalition.org 2010-2011

  2. Policy Making Process • 1. Agenda Setting • President • Clinton and Obama – Health Care; Bush – Tax cuts • Congress • 1994 Republicans “Contract with America” • 2006 Democrats “100 hour agenda” • Courts • Abortion; Desegregation of Schools; Judicial Activism • Media • Watergate • Special Interests • Americans with Disabilities Act • Veteran groups • United Cerebral Palsy • Citizens • http://www.nytimes.com/2010/04/13/us/13tank.html

  3. 2. Policy Formation • President • Hilary Clinton: Health Care • G.W. Bush: Iraq War, Tax Cuts • Congress • 2010 Health Care Bill • Bureaucracy • Medicare and Medicaid

  4. 3. Implementation • Use of the Bureaucracy • Rules and Regulations • Mandates • Grants • Discretionary Authority

  5. Newsbound – Budget Breakdown • http://www.youtube.com/watch?v=fWu8o-ZzUNs

  6. Types of Spending • Mandatory Spending: • Spending Required due to previously passed legislation • Medicare, Medicaid, Social Security • Discretionary Spending: • Optimal Spending set by annual Appropriations • Foreign Aid, Education, Defense, Transportation

  7. OMB/Obama Proposed Budget FY2011 Budget Request 2011 http://www.youtube.com/watch?v=DH9U42vptzw Source: http://www.whitehouse.gov/omb/budget/Overview/

  8. Taken from: http://www.nytimes.com/interactive/2011/07/28/us/charting-the-american-debt-crisis.html?hp#panel/how-the-debt-accumulated

  9. The U.S. debt is divided into two categories: • IntragovernmentalHoldings - Just under one-third of the Federal debt is owed to about 230 other Federal agencies. How does this happen? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need right now. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasuries with it. • Social Security - $2.72 trillion • Office of Personnel Management (Federal Employees Retirement, Life Insurance, Hospital Insurance Trust Funds, including Postal Service Fund) - $1.12 trillion • Dept. of Health and Human Services - $69 billion • Federal Deposit Insurance Corporation - $35 billion • Department of Transportation (Airport and Highway Trust Fund) - $20 billion • Department of the Treasury (Exchange Stabilization Fund) - $23 billion • Department of Labor (Unemployment Trust Fund) - $21 billion • Debt Held by the Public - Foreign governments and investors hold 48% of the nation's public debt. The next largest part (21%) is held by other governmental entities, like the Federal Reserve and state and local governments. • Foreign - $5.311 trillion • Federal Reserve - $1.66 trillion • State and Local Government, including their pension funds - $709.1 billion • Mutual Funds - $864.9 billion • Private Pension Funds - $605.2 billion • Banks - $305.2 billion • Insurance Companies - $259.1 billion • U.S. Savings Bonds - $184.7 billion

  10. Outlays of Select Mandatory Spending Programs(FY 2007 Projected) Source: Congressional Budget Office, January 2007

  11. Defense Discretionary Spending as a Percentage of GDP As a Percentage of GDP Source: Congressional Budget Office, August 2007

  12. Monetary Policy

  13. Federal Reserve System • Run by board of governors – serve 14 year terms • Chair – serves a 4 year term • 12 Federal Reserve districts • Can set reserve requirements and give discount rates • Can control the money supply to counteract inflation or a recession. • How?

  14. Taxing and Spending • Fiscal Policy is the use of national govt.’s taxing and spending to influence the operation of the economy and maintain economic stability • Discretionary fiscal policy – deliberate decisions by the President or Congress to run budget surpluses or deficits • How can the Pres. and Congress influence the economy? • Revenue Act of 1964 – Kennedy reduced taxes to help stimulate the economy • Bush and Reagan attempted to repeat this success

  15. Budget Deficit and the Debt • What has led to our debt? • Tax cuts • Defense spending • Gross expansion of Social Security, Medicaid and Medicare • View the deficit as a percentage of the Gross Domestic Product • GDP – total market value of all goods and services produced in a country during the year • 1980s – 3-5% • 2006 – 3.2% • Over the years, deficit reduction legislation has been proposed and passed but not on consistent basis • Keynesian economics justifies more spending in times of economic recession

  16. 1980s - Reagan • Tax and budget cuts led to huge deficit • Gramm-Rudman – had to agree to declining deficit number, if not – cuts “across the board” in discretionary spending • Why did some members of Congress not like this? • 1986 – Tax Reform Act of 1986 • Dropped number of tax brackets from 15-3 • By 1988, $1 trillion had tripled to $3 trillion

  17. Bush Sr. • “Read my lips, no new taxes” • Recession in early 1990, had to tax • To avoid the across the board cuts, Bush: • Created new top 31% tax bracket for upper class • Increased the federal tax on gasoline • Cut defense spending • Budget Enforcement Act – created the “pay as you go” system. What is this?

  18. Clinton • New 39% tax bracket • Increase in federal gasoline tax • Cutback in Medicare spending • Balanced Budget Act • Limited govt. spending • “Phantom surplus”

  19. BUSH • $1.35 trillion in cuts over 10 years • Top tax bracket from 39%-35% • Gradual elimination of “death tax” • Attempted to fix the marriage penalty

  20. Social Security • Origins: • New Deal • Contributors • Employee: 6.2% • Employer: 6.2% • Taxable Maximum: $90,000 • Contribute for 10 years to receive benefits • HOW DOES IT WORK? • “Pay as you go” system

  21. WHO GETS IT? • Recipients: • 62.8% Retired • 18.4% Survivor • Benefits • 13% Disabled • 5.8% Non working spouses

  22. Social Security Trust Fund • Surplus goes into the trust fund • 2005: 1.7 trillion in trust fund • 155 billion added in 2005 • Government borrows • 150 billion a year (IOUs in fund)

  23. Problems • Baby Boomers • Living longer • Fewer childbirths • 1945 • 42 workers/1 retiree • 2010 • 3 workers/1 retiree

  24. America’s Population is AgingPopulation age 65 and Over Percentage of Population Aged 65 and Over Year Source: Social Security and Medicare Trustees’ Report, April 2007

  25. Americans are living longer and having fewer children Consequently, fewer workers are available to support each Social Security recipient 2040: 2.1 to 1 Today: 3.3 to 1 1960: 5.1 to 1 Source: Social Security Administration, April 2007

  26. Problem • 2015 Payouts exceed income • Need to tap into the trust fund • Govt. borrows $150 billion a year • 2037/2052: Trust Fund depleted • Annual collections only pay for 74% of benefits

  27. Social Security and Medicare Part A Cumulative Cash Surpluses and DeficitsIn Constant 2007 Dollars—2007 through 2080 $708 Billion: Cumulative Social Security Cash Surplus -$26 Trillion: Cumulative Social Security Cash Deficits -$46 Trillion: Cumulative Medicare Part A Cash Deficits In Billions of Constant 2007 Dollars -72.3 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits 2007 2010 2020 2030 2040 2050 2060 2070 2080 Calendar Year Source: Social Security Trustees’ Report—April 2007 (Intermediate Projections)

  28. Medicare Costs Soar in the Coming Decades As a Percentage of GDP Calendar Year General Revenues required to fund the program Income from dedicated taxes, premiums, and state transfers Source: Medicare Trustees’ Report, 2007

  29. Health Care Costs are Rising Faster Than the Economy All Federal Spending In Fiscal Year 2006 All Federal Revenues In Fiscal Year 2006 Percentage of GDP Year Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.) Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth—consistent with the assumption used by the Medicare Trustees. Source: Congressional Budget Office, December 2005.

  30. Proposed Solutions • Raise Max level from $90,000 to $140,000 • Lower shortfall by 43% • Raise tax by ½% • Lower shortfall by 24% • Raise age 67-70 • Lower shortfall by 38% • Reduce benefits by 5% • Lowers shortfall by 26% • Lower benefits for high wage workers • Lowers shortfall by 14% • Put estate tax into Social Security Fund • Lowers shortfall by 75%

  31. Topics to study • Policy Making Process • Budget Policy • Tax Policy • Monetary Policy • Social Security Policy

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