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

What is a Budget? Income Expenses

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

Budget Handout

Deficit vs. Debt Deficit: how much more Government spends than it receives in tax revenue over 1- year $649 Billion Debt: total amount Government owes (has borrowed) $18.4 Trillion

Balancing the Budget? 17.8 Trillion = GDP = C + I + G + (X-M) Total Spending: $3.6 Trillion Total Revenue $3.0 Trillion --------------------------------------------- Total Deficit: $649 Billion Total Debt: $18.4 Trillion 17.8 Trillion = GDP = C + I + G + (X-M)

Government Spending (2014) Social Security 23.5% Medicare 14.0% Medicaid 8.5% Interest on Debt 6.3% Defense Spending 16.7% Homeland Security 1.0% Education 2.0% Other 27.0 Total 100.0% 46% of Budget 23% of Budget

What are Entitlements? Social Security, Medicare & Medicaid

THANK YOU!

Wake-Up Call Video http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml

What are Entitlements? Social Security, Medicare & Medicaid

US Demographics America’s population is aging smaller young (echoboomer) generation Babyboomers beginning to retire By 2040 1 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 46% of budget in 2014! Projected to 60%-75% by 2040!

Growth of Entitlement Spending . 1964 . 1984 2004* 9% 19% Defense Social Security Medicare & Medicaid Net interest All other spending *Current services estimate. Source: Budget of the United States Government, FY 2005, Office of Management and Budget.

Entitlement Reform? .

Interest on Gov’t debt The government sells bonds to pay for deficit spending Interest payments on bonds are 6% of budget today could rise to 15% by 2020 Entitlements & interest on debt alone could reach 75-90% of budget by 2040!

Growing Entitlement Spending

Kicking the Can Down the Road

Problems increase as the Babyboomers Retire! Social Security Problems increase as the Babyboomers Retire! Medicare spending Medicare problem 5 times bigger!

USA spends 16% of GDP 11% of GDP for other countries

Cyclical vs. Structural Problems Cyclical economic issues are related to the business cycle & “fix themselves” as the economy recovers Example: Unemployment during a recession goes away at the peak Structural economic issues need policy changes to correct Example: low performing public schools in cities (think Oakland, New York, etc…) Structural economic issues are significantly more problematic than Cyclical economic issues

2-Types of Gov’t Deficits Cyclical deficit: Portion of deficit attributable to a slowdown in the business cycle (during recession) Cyclical deficits “self regulate” or fix themselves as economy recovers Structural deficit: occurs with the economy at full potential output (peak of business cycle, high GDP) Structural deficits remain even at the peak of a business cycle

Entitlement Worksheet

Changing Entitlements Social Security, Medicare & Medicaid

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

Boomerang Kids https://www.youtube.com/watch?v=uwMxOsD2Dhg