THE CONCORD COALITION The Federal Budget Now and In the Future presented by Joshua Gordon, Policy Director.

THE CONCORD COALITION www.concordcoalition.org

The Federal Budget Now and In the Futurepresented by

Joshua Gordon, Policy Director

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$771

$952$440

$291$629

$216 $584

223

Composition of Fiscal Year 2013 Federal BudgetRevenues and Outlays, in Billions of Dollars

(Deficit: $642 Billion)

• Includes CHIP, spending related to exchanges and subsidies

**Includes all appropriated domestic spending such as education, transportation, homeland security, housing assistance and foreign aid.

Source: Congressional Budget Office, May 2013.

Outlays: $3.46 trillion Revenues: $2.81 trillion

Interest

Domestic**

SocialSecurity

Medicare & Medicaid*

Other Mandatory

Defense

Estate & Gift Taxes ($19 billion)

IndividualIncome Taxes

Social InsuranceTaxes

Corporate Taxes

Other Taxes

$809 $1,133

53%

40%

7%

38%

14%

49% 35%

14%

59%

Mandatory DiscretionaryNet Interest

*ProjectedSource: Congressional Budget Office, September 2013.

Automatic Expenditures Are Consuming a Growing Share of the Budget

1973 1993 2013

24%62%

6%

2023*

Outlays of Select Mandatory Spending Programs Fiscal Year 2013 projected

Social Security

Medicare Medicaid Federal Re-tirement & Disability

Unemploy-ment

Comp.

Earned Income & Child Tax Credits

Food Stamps

Family Support

Child Nutri-tion

Agriculture$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$810

$502

$265

$150

$76 $80 $82$25 $21 $23

In B

illio

ns o

f Dol

lars

Source: Congressional Budget Office, February 2013.

19651967

19691971

19731975

19771979

19811983

19851987

19891991

19931995

19971999

20012003

20052007

20092011

20132015

20172019

20212023

0

1

2

3

4

5

6

7

8

9

10

Defense Discretionary Spending as a Percentage of GDP

Source: Congressional Budget Office, February 2013.

As a

Per

cent

age

of G

DP

Projected

Outlays of Select Non-Defense Discretionary Programs (FY 2012 Projected)

Source: Congressional Budget Office, January 2012.

*includes ground, air, and water

Education Transp. Housing Veterans Foreign Aid Natural Science, General Agriculture Energy & Resources Space & Government Nutrition Asst. Technology

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.

Per

cen

t of

GD

P

Tax Expenditures: The Hidden EntitlementFiscal Year 2012

Source: Congressional Budget Office and Tax Policy Center, Tax Notes, April 9, 2012.

Individual Corporate$0

$200

$400

$600

$800

$1,000

$1,200

Individual Income Taxes Tax Expenditures

Tax

Rece

ipts

in B

illio

ns o

f Dol

lars

Revenues collected from Individual Income and Corporate Taxes

Amount of Forgone Revenue in the Individual and Corporate Tax from “Tax Expenditures”

Excl

usio

n of

Em

ploy

er P

rovi

ded

H...

Redu

ced

Rate

s on

Cap

Gai

ns &

Di..

.

Excl

usio

n of

Defi

ned

Bene

fit &

Con

...

Hom

e M

ortg

age

Inte

rest

Ded

uctio

n

Earn

ed In

com

e Ta

x Cr

edit

Child

Cre

dit

Stat

e &

Loc

al T

ax D

educ

tions

Excl

usio

n of

Cap

ital G

ains

at D

eath

Char

itabl

e Co

ntri

butio

ns D

educ

tion

$0

$100

$200

$300

$400

$500

$600

$700

$800

Largest Tax ExpendituresFiscal Years 2013-2017

Source: Joint Committee on Taxation, JCS-1-13, February 1, 2013.

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 economically they are considered analogous to direct outlay programs.

Billi

ons

of D

olla

rs

How Marginal Tax Rates Work:First Calculate “Taxable Income”

TaxableIncome

Gross Income (Wages, Dividends, Capital Gains, Tips, etc.)

− Less Certain Deductions (IRA contributions, alimony payments, some educator and student expenses)

= Adjusted Gross Income (AGI)

− Less Standard Deduction (taken by 70% of taxpayers) Or Itemized Deductions (Charitable Contributions, Mortgage Interest, State & Local Taxes, etc.)

= Taxable Income ($100,000 in this case)

How Marginal Tax Rates Work:Only your taxable income in the last “bucket” get taxed at the highest rate. This highest rate also determines the value of your deductions.

$51,600 @25%

$12,150 @28%

Taxable

Income = $100,000

$8,925 taxed @10%

15%

33% 39.6%$27,325 @15%

Note: 2013 Income Tax Rates/Brackets35% rate applies to $1,650 of income below $400K

CBO Projected Baseline

13%

15%

17%

19%

21%

23%

25%

27%

CBO Outlays

CBO Revenues

Federal Spending vs. Revenues as a Percent of GDP CBO Baseline 2013-2023

Source: Congressional Budget Office, 2013.

Perc

enta

ge o

f GD

P

Projected

Average outlays: 20.4%

Average revenues: 17.4%

Source: Congressional Budget Office, May 2013.

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Interest costs rise sharply under current lawNet Interest, in Billions of Dollars, 2014-2023

Percentage of Debt Held by the Public Owned by Foreigners

Calendar Years 1987-2012

Source: United States Treasury Department, Treasury Bulletin, Table OFS-2, December 2012.

0%

10%

20%

30%

40%

50%

60%

Perc

enta

ge o

f Ow

ners

hip

of P

ublic

ly-H

eld

Deb

t

The Sources of Growth in Federal Spending

-8-7-6-5-4-3-2-101234567

Change in Outlays as a Percentage of GDP, 2013-2038

Gro

wth

as a

Per

cent

age

of G

DP

Source: CBO Alternative Fiscal Scenario, 2013

MedicareMedicaid

Social Security All Other

Spending

Interest

Medicaid, CHIP,

Exchange Subsidies

Effects of aging and health care spending on the federal budget.

Source: Congressional Budget Office, June 2010 & 2011.

0.0

5.0

10.0

15.0

20.0

25.0

As a

Per

cent

age

of G

DP

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%

America’s population is aging.Percentage Change in the Increase in Working-Age and Elderly Population, 2010-2030

2010-20300%

10%

20%

30%

40%

50%

60%

70%

80%

90%

10%

79%

Age 20-64

Age 65 & Over

Source: U.S. Census Bureau (2008)

Increase inWorking AgePopulation

Increase inPopulation Aged

65 and Over

Americans are Living Longer and Having Fewer Children

Consequently, fewer workers are available to support each Social Security recipient

1960: 5.1 to 1 Today: 2.9 to 1 2029: 2.1 to 1

Source: Social Security and Medicare Trustees’ Report, 2012.

Social Security Promised Benefits Exceed Dedicated Tax Revenues

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

2073

2074

2075

2076

2077

2078

2079

2080

2081

2082

2083

2084

2085

2086

2087

4.0

5.0

6.0

7.0

Source: Social Security Trustees’ Report—May 2012 (Intermediate Projections).

Social Security Outlays

Payroll Tax & Taxation of Benefits

Perc

ent o

f GD

P

Calendar Year

Cash Deficits Rise to 1.5% of GDP and Stabilize

2011 2020 2030 2040 2050 2060 2070 20800

2

4

6

8

10

12

Medicare Costs Under Alternative Scenarios

Calendar Year

As

a P

erce

nta

ge o

f G

DP

Current Law

Alternative Physician projection

Source: Medicare Trustees’ Report, May, 2012.

Full Alternative projection

America is on an Unsustainable Fiscal Path Debt Held by the Public, as a Percent of GDP, 1940-2050

Source: CBO’s Long Term Outlook Extended Alternative Scenario, 2013..

As a

Per

cent

age

of G

DP

1940194319461949195219551958196119641967197019731976197919821985198819911994199720002003200620092012201520182021202420272030203320362039204220452048

0

50

100

150

200

250

300

350

Actual Projected

World War II106%

201373%

Looking at the Simpson-Bowles Commission Report