THE CONCORD COALITION

www.concordcoalition.org

THE CONCORD COALITION www.concordcoalition.org

Generational Outlook: The Federal Budget Now and in the Future

presented byJoshua Gordon, Policy Director


$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


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


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%


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*


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

sion

of E

mpl

oyer

Pro

vided

...

Mor

tgag

e In

tere

st D

educ

tion

Long

-Ter

m C

apita

l Gai

ns R

ates

Net E

xclu

sion

of D

efine

d Be

nefit

...

Earn

ed In

com

e Cr

edit

Stat

e an

d Lo

cal I

ncom

e De

duct

...

Net E

xclu

sion

of D

efine

d Co

ntrib

...

Exclu

sion

of C

apita

l Gai

ns a

t D...

Char

itabl

e Co

ntrib

utio

ns D

educ

...

Exclu

sion

of U

ntax

ed S

ocia

l Sec

u...

$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

rs


*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


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%


Looking at the Commission Report


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.


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


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


The Trigger: What Gets Cut?

Discretionary Spending

Mandatory Spend-ing

Interest Savings0%

25%

50%

75%

71%

13% 16%

Source: Congressional Budget Office, 2011.


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


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


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.”

Documents

THE CONCORD COALITION