Government Budget Do Deficits & Debt Matter?
Federal Gov’t Taxes Federal Income Tax –Progressive Tax: tax rate increases as income increases Social Security Tax- –6.2% of salary on first $110,000 income –Why: Gov’t pension starting at 65 (or older) Medicare Tax –1.45% of entire salary –Why: Gov’t health insurance starting at 65
Federal Income Tax Progressive Income Tax As income % Tax Rate 2013 TAX BRACKETS Federal Marginal Tax Rate Single Person 10% $0 – $8,925 15% $8,926 – $36,250 25% $36,251 – $87,850 28% $87,851 – $183,250 33% $183,251 – $398,350 35% $398,351 – $400, % $400,001+
The Government Budget Government SpendingGovernment Revenue Taxes All Gov’t Expenses
2014 Budget Summary Spending:$3.651 Trillion dollars Revenue$3,002Trillion (from taxes) Deficit: $649 Billion Debt: $17.9 Trillion
Government Spending Social Security22.0% Medicare14.0% Medicaid7.0% Interest on Debt6.0% Defense Spending18.0% Homeland Security1.0% Education2.0% Other26.0 Total100.0% 43% of Budget 24% of Budget
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US Demographics America’s population is aging –smaller young (echoboomer) generation –Babyboomers beginning to retire –By in 4 Americans will be over 65 Average life span has risen – 77 years men, 81 years women –why: advances in medical technology, nutrition, etc… This FACT ensures that entitlement spending will increase a rapidly growing rate
Entitlement Spending Includes- Social Security, Medicare & Medicaid –Citizens are “entitled” to benefits at 65 years of age Largest part of Government budget –Consumes approximately 40% of budget in 2011! Projected to 60%-70% by 2040!
Not Enough Workers? The ratio of workers to retirees is falling –This means less money coming in => more going out
Wake-Up Call Video
Deficit & Debt relative to GDP Current Deficit = $649 Billion (2014 numbers) Current Debt = $17.9 Trillion Current GDP = $17.0 Trillion Deficit as % of GDP = 3.8% of GDP –Highest since World War II –Recent high (1983) 6% of GDP Debt as % of GDP =105.0% of GDP –Highest ever (1946) was 120% of GDP
NATIONAL DEBT AS % OF GDP Debt: 17.9 Trillion GDP 17.0 Trillion 105 % GDP.
Growth of Entitlements *Current services estimate. Source: Budget of the United States Government, FY 2005, Office of Management and Budget. Defense Social Security Net interest Medicare & Medicaid All other spending * 9% 19%..
Entitlement Reform?.
Balancing the Budget? “The only real question” is whether adjustments to taxes and spending will come from a “careful and deliberative process” or from a “rapid and painful response to a looming or actual fiscal crisis,” Ben Bernanke 2010
Changing Entitlements Social Security, Medicare & Medicaid Social Security Medicare
$470 Billion spent per year $50 Billion stolen?
Medicare Fraud Video
U.S. Debt in Comparison Japan: 190% of GDP (1970: 10% of GDP) –$56,000 per person France 80% of GDP –Deficit 7.5% of GDP Italy 115% of GDP –Deficit 8.0% of GDP European Union (EU) debt limit of 60% –Deficit limit: 3.0% of GDP
. Debt as a % of GDP