1 / 36

Shootout at the DC corral

Shootout at the DC corral. What do we need in place for our government to function?. 1) Every government program has to be authorized. 2) Every government program has to be funded. 3) Every dollar spent needs to paid for (by either taxes collected or borrowing) .

quana
Download Presentation

Shootout at the DC corral

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Shootout at the DC corral

  2. What do we need in place for our government to function? 1) Every government program has to be authorized 2) Every government program has to be funded 3) Every dollar spent needs to paid for (by either taxes collected or borrowing)

  3. 1) Every government program has to be authorized 2) Every government program has to be funded Mandatory Spending programs do not require annual appropriations…they are automatically funded (e.g. Social Security/Medicare) 3) Every dollar spent needs to paid for (by either taxes collected or borrowing) Discretionary spending does require an annual appropriation of funding (e.g. Defense)

  4. Timeline for the budget/appropriations process With the help of the office of management and budget (OMB), the president creates a budget proposal – sent to congress the first week of February Differences between House/Senate proposals are worked out in conference committees – joint resolution presented and voted on January February March April May June July August September October Appropriations bills presented and voted on Fiscal Year Begins Vote takes place for final budget resolution With the help of the congressional budget office (CBO), the house and senate budget committees write their own budget proposals

  5. We also have a borrowing constraint –the debt ceiling Article 1, Section 8 of the Constitution “Congress shall have the power ….to borrow money on the credit of the United States” • Prior to 1917, the US congress approved every new debt issue • Beginning with the second liberty bond act in 1917, congress began to allow the Treasury the discretion as to term, interest rate, etc., but put caps on total borrowing.

  6. Raising the debt ceiling requires a vote on both the house and senate…historically, this has been a formality. However, recently, the debt ceiling has become a hot political issue…

  7. The last “shootout” resulted in a compromise….debt limit increase for spending cuts • Budget Control Act of 2011 • Debt Ceiling raised by $400B (to $14,694B) • President can request an additional $500B subject to congressional approval (motion to block failed 45-52 in senate) – ceiling raised to $15,194 • President could request an addition $1.2T to $1.5T (the house passed a disapproval, but the senate failed to pass one). Ceiling raised to $16,394B • Establish the Joint Select committee on Deficit Reduction to produce legislation to cut the deficit by $1.5T over the next 10 year. (The committee failed to come up with anything) • If congress failed to come up with a deficit reduction plan, automatic, across the board cuts are triggered equal to the amount of the debt ceiling increase over the next 10 years ($1.2T) – this is the sequestration. (Exceptions are Social Security, Medicare, Medicaid, civil and military employee pay)

  8. Sequestration cuts

  9. 2013 • February 4, 2013 Obama signs the No budget, no Pay act • Suspends the debt ceiling until May 18th • If a budget is not passed by April 15th, congressional pay is suspended until they pass a budget. • Deadline for Action • Government funding runs out with expiration of continuing resolution • Treasury exhausts “extraordinary measures” Debt ceiling limit of $16,394 established by BCA 2111 hit on Dec. 31. January February March April May June July August September October Treasury undertakes “extraordinary measures” to avoid debt ceiling • American Taxpayer relief act passed to avoid “Fiscal Cliff” • Bush Tax cuts extended (except for top bracket) • Sequestration delayed for two months) New Debt ceiling of $16,699B imposed

  10. Government funding runs out with expiration of continuing resolution • Treasury exhausts “extraordinary measures” President Obama is refusing to negotiate over the debt ceiling – without an increase in the debt ceiling, the government shuts down Senator Ted Cruz (R) is pushing too defund Obamacare in the next appropriations bill – without an appropriations bill, the government shuts down

  11. Why has this become such a big deal? Let’s take a quick look at the Spending/Revenues for 2012: Federal Spending: $3.729T Taxes collected: $2.627T The difference between spending and tax revenues is the deficit – that’s what we need to borrow to finance the government Federal Deficit: $1.102T • $3B per day! • $125M per hour! • $2M per minute! • $33,000 per second!

  12. US Government Deficits since 1980 Deficit = $1.225T Deficit = $236B Deficit = $135B Deficit = $167B Deficit = $139B

  13. US Government Deficits since 1900 Yikes!

  14. Now, let’s step back for a second…the US is a big country. We collectively earn a lot of income, so we should be able to borrow a lot of money… $1,102,000,000,000.00 US Government Deficit (2012) $15,811,000,000,000.00 Total US Income (2012) Therefore, if we knock off 9 zeroes off of each, we have: Income: $15,811/yr. Borrowing: $1,102/yr. Or, we could say we are borrowing equivalently to around 7% of our annual income…sounds better, right?

  15. US Government Deficits as a percentage of total income since 1900 We ran much larger deficits during WW11 (As a percentage of our economy)

  16. Our deficit to income ratio puts us in with the PIGS!

  17. Persistent, large deficits create a rapidly increasing total debt

  18. We have run our total debt up to: $16,443,372,900,000.00 $52,000 per citizen $145,000 per taxpayer

  19. Let’s do the same trick with the total US debt outstanding. $16,443,372,900,000.00 US Government Debt (2012) $15,811,000,000,000.00 Total US Income (2012) Therefore, if we knock off 9 zeroes off of each, we have: Income: $15,811/yr. Total Debt: $16,443/yr. Or, we could say we have debt outstanding equal to around 100% of our income…sounds better, right?

  20. US Government Debt as a percentage of GDP Following WWII, we paid our debt down

  21. Our deficit to income ratio puts us in with the PIGS! Why is it so bad to be a PIG? Note: #1 is Japan at 214%!

  22. Portugal Italy Greece Spain

  23. 2007 • GDP Growth: 3% • Unemployment Rate: 7.7% • GDP: $15.94T • GDP per capita: $48,000 • GDP Growth: 2.2% • Unemployment Rate: 7.6% • Population below poverty line: 15% • Household income by percentage • Top 10%: 30% of total • Bottom 10%: 2% of total • Budget Deficit: -8.7% of GDP • Total Debt: 100% of GDP • GDP: $281B • GDP per capita: $24,900 • GDP Growth: -6.4% • Unemployment Rate: 24.3% • Population below poverty line: 20% • Household income by percentage • Top 10%: 26% of total • Bottom 10%: 2.5% of total • Budget Deficit: -10% of GDP • Total Debt: 156% of GDP We’re one recession away from Greece! *2011 estimate- Source: CIA world fact book

  24. Let’s break down the budget … • Defense $884B • Non-Defense Discretionary: $456B • Social Security: $761B • Medicare/Medicaid: $754B • Other Mandatory: $613B • Interest of Debt $240B • TARP $19B • Individual Income Tax: $1,141B • Corporate Taxes: $329B • Social Security: $659B • Medicare/Medicaid: $247B • Excise Tax: $103B • Estate Tax: $14B • Other: $116B $2.627T $3.729T Deficit = $1.102T

  25. Now, let’s regroup… • Social Security Administration • Total Revenues: $659B • Total Spending:$761B • Federal Government Proper • Total Revenues: $1.703T • Income Taxes: $1.141T • Corporate Taxes: $329B • Other Taxes: $233B • Total Spending:$2.210 • Defense: $884B • Non-Defense Discretionary: $456B • Other Mandatory: $613B • Interest: $240B • TARP: $19B Deficit: $102B (1% of GDP) • Medicare/Medicaid • Total Revenues: $247B • Total Spending:$754B Deficit: $507B (3% of GDP) Deficit: $507B (3% of GDP)

  26. A manageable debt grows at a slower pace than the economy Current Deficit Current GPD Growth + Current Interest Rate Total Debt Deficit 2.5%/yr. 1.5%/yr. *100 = X $16,400B • Federal Government • Total Revenues: $1.703T • Income Taxes: $1.141T • Corporate Taxes: $329B • Other Taxes: $233B • Total Spending:$2.210 • Defense: $884B • Non-Defense Discretionary: $456B • Other Mandatory: $613B • Interest: $240B • TARP: $19B Under current circumstances, We need to get the deficit down to around $150B difficult, but possible Deficit: $507B

  27. Current Deficit Current GPD Growth + Current Interest Rate Total Debt Deficit 7%/yr. 5%/yr. *100 = X $16,400B Long term average Long term average • Federal Government • Total Revenues: $1.703T • Income Taxes: $1.141T • Corporate Taxes: $329B • Other Taxes: $233B • Total Spending:$2.210 • Defense: $884B • Non-Defense Discretionary: $456B • Other Mandatory: $613B • Interest: $240B • TARP: $19B Under normal circumstances, we would require a reduction in the deficit to around $350B…again, manageable. Deficit: $507B

  28. The problems of the Social Security Administration only get worse in the coming years! • Social Security Administration • Total Revenues: $659B • Total Spending:$761B Deficit: $102B (1% of GDP) Doesn’t look good!

  29. Now, add the Medicare deficits… • Social Security Administration • Total Revenues: $659B • Total Spending:$761B Deficit: $102B (1% of GDP) • Medicare/Medicaid • Total Revenues: $247B • Total Spending:$754B Social Security Deficit: $350B Medicare Deficit: $3T Deficit: $507B (3% of GDP) Yikes!

  30. What happens if the debt ceiling isn’t raised? The government is no longer allowed to borrow! • Defense $884B • Non-Defense Discretionary: $456B • Social Security: $761B • Medicare/Medicaid: $754B • Other Mandatory: $613B • Interest of Debt $240B • TARP $19B We need to cut $1T in spending!!! $3.729T Tax collections = $2.627T

  31. Can Obama ignore the debt ceiling? Maybe! • Argument #1: The debt ceiling creates conflicting laws. • Every dollar the government spends is authorized by law. Therefore, if borrowing by the president is against the law, which law does he follow. • Further, if the president needs to decide which programs to fund and which to cut, it puts the executive branch in charge of a legislative decision US Constitution Article 1, section 1 “All legislative powers herein shall be vested in a congress of the United States”

  32. Or do we? Can Obama ignore the debt ceiling? Maybe! Argument #2: The debt ceiling is unconstitutional 14th Amendment to the Constitution, Section 4 “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. “

  33. Or do we? Can Obama ignore the debt ceiling? Maybe! • Argument #3: The President could issue scrip • Scrip is a term used for any substitute to legal tender. • The scrip would not violate the debt ceiling because it is not new borrowing backed by the credit of the US government…merely the formal acknowledgement of existing debt • It is also not legal tender, so it does not violate congress’ right to “coin money” Military personnel abroad have been paid in scrip

  34. Or do we? Can Obama ignore the debt ceiling? Maybe! Argument #4: The Trillion Dollar Coin The president could authorize the Treasury to mint a $1T platinum coin and then sell it to the Fed which would credit the account of the Treasury for $1T US Code: Title 31, Section 5112, subsection K “The secretary may mint and issue platinum bullion coins…with such specifications, …denominations, …in the secretary’s discretion”

  35. Is the $1T coin constitutional? US Constitution, Article 1, Section 1 “All legislative powers herein shall be vested in a Congress of the United States” US Constitution, Article 1, Section 8 “Congress shall have the power to coin money and regulate its value”

  36. How does this get resolved?

More Related