Federal Budget Math: Federal Budget Math: We Cant Repeat the Past - - PowerPoint PPT Presentation
Congressional Budget Office Presentation at the Federal Reserve Bank of New York Federal Budget Math: Federal Budget Math: We Cant Repeat the Past June 16, 2011 Douglas W. Elmendorf Director Total Federal Deficits and Surpluses
Congressional Budget Office
Douglas W. Elmendorf Director
Total Federal Deficits and Surpluses
2 4
2 4
Actual Projected Baseline
Percentage of GDP
2
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021
Continuation of Certain Policies
Federal Debt Held by the Public
80 100 120 80 100 120
Actual Projected Baseline Continuation
Policies
Percentage of GDP
3
1940 1949 1958 1967 1976 1985 1994 2003 2012 2021 20 40 60 20 40 60
Baseline
Key Aspects of Federal Budget Policy during the Past 40 Years
Revenues have averaged about 18 percent of GDP, with substantial variation around that level but no trend. Older Americans have received:
– Cash payments that have risen with average wages (through Social Security),
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– Health insurance with a significant defined-benefit subsidy (through Medicare), and – Additional subsidies for health insurance and subsidized long- term care (through Medicaid) for many of those with very high medical costs or little income and assets.
Defense spending has trended down relative to GDP. Outlays for all other federal programs have shown substantial variation relative to GDP and a slight downward trend.
Total Federal Revenues
Percentage of GDP
20 22 24 20 22 24 Actual Baseline Projection
5
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 14 16 18 14 16 18 Average Revenues, 1971 to 2010
Average Federal Tax Rates by Quintile
20 25 30 Highest Quintile Fourth Quintile
Percent
6
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 5 10 15 Middle Quintile Second Quintile Lowest Quintile
Outlays for Social Security and Major Health Care Programs
Percentage of GDP
4 5 6 Social Security Actual Baseline Projection
7
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 1 2 3 Medicare Medicaid, CHIP, and Exchange Subsidies
Other Components of Federal Spending
Percentage of GDP
5 6 7 8 Defense Discretionary Actual Baseline Projection
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1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 1 2 3 4 Mandatory Spending Other Than Social Security, Medicare, Medicaid, CHIP, and Exchange Subsidies Non-Defense Discretionary
Federal Employees
Millions Percent
5 6 7 8 8 10 12 Number of Federal Employees (left axis)
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1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 1 2 3 4 2 4 6 Federal Employees as a Share of the Total Workforce (right axis)
Shares of Federal Spending in 2010
Percent Transfer payments to people in the United States
47
Grants to state and local governments
14
10
Grants to state and local governments
14
Purchases of goods and services for defense
19
Purchases of goods and services for nondefense
9
Interest
8
Other (includes transfers to people outside the U.S.)
4
Source: National Income and Product Accounts.
Trends in Federal Spending during the Past 40 Years
The costs of Social Security, Medicare, Medicaid, and the Children’s Health Insurance Program have risen substantially relative to GDP, from 4.3 percent in 1971 to 8.7 percent in 2007 (before the recession).
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Defense spending has fallen substantially relative to GDP, from 7.3 percent in 1971 to 3.9 percent in 2007.
We Cannot Repeat the Past in the Federal Budget
Given the aging of the population and the rising cost of health care, the United States cannot achieve all of the following objectives in the future: Keep federal revenues at their average share of GDP during the past 40 years.
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during the past 40 years. Provide the same sorts of benefits for older Americans that we have provided in the past 40 years. Operate the rest of the federal government in line with its role in the economy and society during the past 40 years.
Components of the Federal Budget (percentage of GDP)
1971-2010 Average 2021 March Baseline Projection 2021 President’s Budget Estimate 2022 Ryan Proposal Estimate
Revenues
18.0 20.8 19.3 18 1/2
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Outlays
20.8 23.9 24.2 20 1/4 Noninterest outlays 18.6 20.5 20.3 17 Interest 2.2 3.4 3.9 3 1/4
Deficit
2.8 3.1 4.9 2
Note: The Ryan proposal was estimated relative to an earlier baseline, so the figures are not precisely comparable to the latest baseline projection or estimates for the President’s budget.
Noninterest Outlays (percentage of GDP)
1971-2010 Average 2021 March Baseline Projection 2021 President’s Budget Estimate 2022 Ryan Proposal Estimate
Noninterest Outlays
18.6 20.5 20.3 17
Social Security
4.3 5.3 5.3 5 1/4
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Social Security
4.3 5.3 5.3 5 1/4 Major health programs 2.9 6.9 7.1 5 1/2 Defense 4.8 3.6 3.1
Other mandatory spending and nondefense discretionary spending 6.7 4.6 4.8
Note: Major health programs include Medicare, Medicaid, the Children’s Health Insurance Program, and exchange subsidies. The Ryan proposal was estimated relative to an earlier baseline, so the figures are not precisely comparable to the latest baseline projection or estimates for the President’s budget.
Outlays for Major Programs Compared with Total Revenues Under a Continuation of Certain Policies
Percentage of GDP
20 22
Outlays for Social Security, Major Health Programs, Defense, and Net Interest Actual Projected
15 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 14 16 18
Total Revenues
The Choices Confronting Policymakers
The question is not whether to change current policies, but when and in what ways. There are trade-offs regarding the timing of implementing policy changes, but there are important benefits and few
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apparent costs to deciding about those changes soon. Fiscal policy cannot be put on a sustainable path just by eliminating waste and inefficiency; instead, changes will need to significantly affect popular programs, people’s tax payments, or both.