LIVING WITHIN OUR MEANS?
By Stephen Smith
June 7th, 2011
Policy makers have known for years that the United States is facing
daunting long term structural budget problems driven by changing demographics
and rising health care costs. Treasury Secretary Timothy Geithner has made
budgetary moves to keep the United States from defaulting on its debt
obligations until August 2, 2011, but if the United States doesn’t raise its
debt limit, currently at $14.294 trillion, it will default on its obligations.
The debt ceiling is a cap set by Congress that the federal government cannot
exceed in its borrowing. The cap applies to debt owed to the public (investors
who buy U. S. bonds) plus debt owed to Federal Government Trust Funds, such as
those for Social Security and Medicare.
How did our deficit of $161 billion or 1.2% of Gross Domestic Product
in 2007 balloon to $1.5 trillion or 9.8% of Gross Domestic Product in 2011. The
chart below will help answer that question.
|
|
2007 |
2011 |
||
|
|
$ BIL |
% GDP |
$ BIL |
% GDP |
|
Total
Outlays |
2,729 |
19.6% |
3,705 |
24.6% |
|
Nondefense discretionary |
494 |
3.6% |
663 |
4.4% |
|
Defense |
548 |
3.9% |
712 |
4.7% |
|
Social Security |
581 |
4.2% |
727 |
4.8% |
|
Medicare |
436 |
3.1% |
572 |
3.8% |
|
Medicaid |
191 |
1.4% |
274 |
1.8% |
|
Economically sensitive entitlements |
203 |
1.5% |
401 |
2.7% |
|
Noneconomically sensitive entitlements |
217 |
1.6% |
322 |
2.1% |
|
Offsetting receipts |
-178 |
-1.3% |
-191 |
-1.3% |
|
Interest |
237 |
1.7% |
225 |
1.5% |
|
|
|
|
|
|
|
Total
Revenues |
2,568 |
18.5% |
2,228 |
14.8% |
|
|
|
|
|
|
|
Deficit |
-161 |
-1.2% |
-1,477 |
-9.8% |
Spending increased by five percentage points of Gross Domestic Product
and revenue fell by nearly four percentage points of Gross Domestic Product.
Most of the drop in revenues is a function of the weaker economy, although tax
cuts have played a role in the decrease
($110 billion in the payroll tax cut this year). In terms of the largest
increases are the economically sensitive entitlements (1.3% of GDP) such as
unemployment compensation. Domestic discretionary spending is up 0.9% of GDP,
largely driven by the stimulus bill and big funding increases. Defense is up
0.8% of GDP, driven by bigger commitments overseas. The major entitlements are
up in part due to long term demographics, a weaker economy, and the stimulus
bill. Our deficit is a growing concern but we have time to fix the budget
issue, hopefully our politicians will work together and create a plan to fix it.
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