The Numbers

Posted: June 10, 2011 in Papers/ Analysis

US Federal Budget Proposal

Ian R and John G

[All figures are in billions of dollars]

Overall

Category Actual FY2012 Budget Our Proposal
Receipts 2,627 3,246
Outlays 3,729 3,383
Deficit 1,101 137

Outlays

Category Actual FY2012 Budget Our Proposal
Security (discretionary) 884 878[1]
Non-security discretionary 456 446[2]
Social Security 761 566[3]
Medicare 485 364[4]
Medicaid 269 269
Troubled Asset Relief Program 13 0[5]
Other mandatory programs 612 612
Net interest 242 242
Disaster relief 6 6
Total outlays 3,729 3,383

Receipts

Category Actual FY2012 Budget Our Proposal
Individual income taxes 1,141 1,495[6]
Corporation income taxes 329 593[7]
Social Security payroll taxes 659 659
Medicare payroll taxes 201 201
Unemployment insurance 57 57
Other retirement 8 8
Excise taxes 103 103
Estate and gift taxes 14 14
Customs duties 30 30
Deposits of earnings, Federal Reserve System 66 66
Other miscellaneous receipts 20 20
Total receipts 2,627 3,246

Explanation of changes and projection methodologies

  1. $5.7 billion annually could be saved by restructuring the Department of Defense’s healthcare administration system, according to the GAO.
  2. According to the GAO, following their specific recommendations for elimination of redundancy, waste, fraud, abuse, and mismanagement in the Executive departments “could result in tens of billions of dollars in annual savings.” Including the GAO’s plan as part of our budget proposal, we cut $10 billion for non-security discretionary spending to reflect such efforts at streamlining government operations.
  3. We propose raising the eligibility age for Social Security benefits for retired workers and aged widowers to 70. The annual savings in Social Security were calculated by multiplying the number of Social Security beneficiaries of each age under 70 (a total of about 14 million) by the average annual spending per beneficiary for each age group (about $14,000). This resulted in a savings of $195 billion.
  4. We propose raising the eligibility age for Medicare Parts A & B to 70. The annual savings in Medicare spending were calculated by multiplying the number of Medicare beneficiaries under the age of 70 (about 16 million) by the average annual spending per beneficiary (about $7,400). This resulted in a savings of $121 billion. Unfortunately, the data used in our calculations, the most recent available, was from 2004.
  5. TARP was intended to avert a collapse of the nation’s financial markets; since that is no longer a threat, continued spending on it is unnecessary.
  6. Gains achieved by repealing the 2001 and 2003 Bush Tax Cuts and restoring individual income tax rates to their 2000 levels. Taxes brought in revenue amounting to 10.2% of GDP in 2000, so we estimated current tax revenues with 2000 tax rates as 10.2% percent of today’s GDP.
  7. Corporate profits in 2010 amounted to approximately $1,756 billion. To estimate the gains by raising the effective tax rate to match the statutory tax rate for high-earning corporations, we took 15% of this amount ($264 billion) and added it to the current national corporate tax liability. This is, in all likelihood, a generous underestimation of the statutory tax liability of the nation’s largest corporations.

Conclusion

The United States is currently facing a national debt that is close to equaling our Gross Domestic Product. If our national debt continues to grow at its current astronomical rate, it will someday be untenable. Unfortunately, at the moment, that growth rate shows no sign of slowing. We believe that, ideally, our nation should run a modest annual surplus, so that we can begin to pay off the principal of our debt. To our dismay, it seems that members of Congress from both parties disagree with that belief. They continue to display their customary lack of efficacy in making any meaningful progress towards stabilizing the nation’s financial state. In spite of this, we strove to use our much more limited time and resources to propose changes to the federal budget that would save the country money without harming America’s citizens, and then project the exact effects that those changes would have on the budget.

The above proposed federal budget succeeds in reducing the nation’s annual deficit to only about 12% of what it currently is. It makes deep cuts into Medicare and Social Security and raises taxes substantially to accomplish this. However, we believe these drastic measures, and more, are necessary. Our proposed budget does not succeed in generating a surplus, however, it is our hope that changes we did not specify would be able to close the $137 billion deficit our proposal leaves. We excluded longer-term changes, such as withdrawal of our military forces from Iraq and Afghanistan, which would save hundreds of billions of dollars annually, as well as changes we felt necessary but that we were unable to accurately project the effects of, especially the elimination of inefficient and redundant programs in the civil discretionary spending category.

Data and statistics sources:

White House Office of Management and Budget (whitehouse.gov/omb)

Congressional Budget Office (cbo.gov)

Government Accountability Office (gao.gov)

Social Security Administration (ssa.gov)

US Department of Commerce Bureau of Economic Analysis (bea.gov)

CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/
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