U.S. Government Budget Why can’t we balance it?

The Government Budget Government Revenue Government Spending All Gov’t Expenses Taxes

Deficit vs. Debt Deficit: how much more Government spends than it receives in tax revenue over 1- year Debt: total amount Government owes (has borrowed OVER TIME)

2016 Budget Summary Spending: $3.5 Trillion dollars Revenue $2.99 Trillion (from taxes) Deficit: $501 Billion Debt: $19.9 Trillion

2017 Budget Summary Spending: $3.65 Trillion dollars Revenue $3.21 Trillion (from taxes) Deficit: $440 Billion Debt: $19.9 Trillion

2018 Budget Summary Spending: $4.094 Trillion dollars Revenue $3.65 Trillion (from taxes) Deficit: $779 Billion Debt: $22.02 Trillion

2019 Budget Summary Spending: $4.407 Trillion dollars Revenue $3.42 Trillion (from taxes) Deficit: $985 Billion Debt: $????? Trillion

Government Spending Social Security 36% Medicare/Medicaid 27% Interest on Debt 7% Defense Spending 16% Other 29% 70% of Budget

Government Spending

US Demographics By 2040 1 in 4 Americans will be over 65 This FACT guarantees that entitlement spending will increase It is projected to increase to over 60% of the federal budget by 2040!

Entitlement Spending Includes- Social Security, Medicare & Medicaid Citizens are “entitled” to benefits at 65 years of age Largest part of Government budget Consumes approximately 49% of budget in 2016! Projected to 60%-70% by 2040!

Three Largest Entitlement Programs Medicare: --Health care for those over age 65 Medicaid: --Health care for the poor Social Security: --pension money for those who retire --unemployment insurance; disability

Interest on debt The government sells bonds to pay for deficit spending Interest payments on bonds are 8% of budget today Will rise to 15% by 2020 Entitlements & interest on debt could reach 75-90% of budget by 2040!

How does the US borrow $ to pay for deficit spending? U.S. Treasury Department sells “Treasuries” —Treasury bills,Treasury notes, Treasury bonds Treasuries = a very safe investment Example: I buy a $1000 five-year Treasury note with a 4% annual interest rate --every 6 months I receive an interest payment: ($1000 X 4%) / 2 = $20 --at the end of five years the U.S. Treasury pays me back my $1000

Growing National Debt Should we be worried?

Federal Deficit Leads to a larger Federal Debt $15.4 Trillion

Deficit & Debt relative to GDP Do both have an equal debt burden? “It’s not only what you owe” Joe & Bob Joe Bob Owns $800,000 home Housing Rents apartment Investments $200,000 in stocks none Do both have an equal debt burden? Rental properties One none $300,000 Debt $300,000

Deficit & Debt relative to GDP Current Deficit = $ 501 Billion 2016 Current Debt = $19.9 Trillion Current GDP = $16.7 Trillion Debt as % of GDP =104.7% of GDP

History of DEBT as % of GDP 1) 1946- National debt peaked: 120% of GDP (WWII) 2) 1950-1980- Fell to pre-war levels: 32% 3) 1980-2005- Rose to 70% 4) 2009 76% 5) 2013 107% 6) 2015 101%

History of DEBT as % of GDP

U.S. Debt in Comparison European Union (EU) debt limit of 60% France 96.2% of GDP China 22.4% of GDP Italy 132.8% of GDP India 66% of GDP Greece 179% of GDP Germany 88% of GDP Japan: 243% of GDP (1970: 10% of GDP)

Analyzing Deficits Summary Entitlements make up an ever-increasing percentage of the Federal Budget Debt & Deficit should be viewed as % of GDP This allows you to compare past deficits and to compare with other countries’ deficits The current Federal Deficit is a structural deficit Just cutting Discretionary Spending will not be enough to fix the problem Entitlement spending must be addressed to correct it