4. About the Federal Budget in Pictures
F ederal spending and debt are out of control,
and if America does not change course, the
future will be dramatically worse. Now more than
spending and stabilize the debt, U.S. Debt Is on
Track to Fuel an Economic Crisis (p. 38).
Runaway Spending, Not Inadequate Tax Revenue,
ever, it is crucial that Americans understand what Is Responsible for Future Deficits (p. 7). Medicare
our nation’s spending, taxes, and debt mean for Is Adding to Federal Deficits Faster Than Other
them and their families. The Heritage Foundation’s Government Spending Programs (p. 44), and Social
Federal Budget in Pictures offers a unique tool Security Deficits Are Permanent and Growing (p.
to learn about the federal budget in a clear and 45). Meanwhile, Medicare and Other Entitlements
compelling way. Are Crowding Out Spending on Defense (p. 8), a core
These pictures reveal the urgent need to constitutional function of government.
rein in spending. The federal budget is on an Some suggest raising taxes to cover budget
unsustainable course, because Publicly Held Debt deficits. However, Balancing the Budget Without
Is Set to Skyrocket (p. 30) despite Taxes Soaring Cutting Spending Would Cause Taxes to Skyrocket
Past Highest Level Ever (p. 24). Federal Spending (p. 50) to the point where Hiking Taxes to Balance
per Household Is Skyrocketing (p. 2), and Federal the Budget Would Require Doubling Tax Rates (p. 51).
Spending Exceeds Federal Revenue by More Taxing the Wealthy to Balance the Budget Will Not
than $1 Trillion (p. 3). If Congress fails to adopt Work (p. 52), as this would necessitate raising tax
the transformational reforms necessary to cut rates to mathematically impossible levels.
iii
5. President Obama’s Budget Hikes Taxes by $2 The Heritage plan, Saving the American Dream,
Trillion (p. 23) even though Increasing Tax Rates achieves this through spending, entitlement, and
Does Not Necessarily Lead to Higher Income Tax tax reforms. It reduces the size of government,
Receipts (p. 25). Higher taxes on working, saving, encourages personal fiscal responsibility, and
and investing would, however, discourage the fosters economic growth. It balances the federal
productive activities that enable the American budget in ten years—without raising taxes.
economy to flourish and the American people The Federal Budget in Pictures will help all
to prosper. American businesses are already Americans understand the severity of the nation’s
hamstrung internationally, as the U.S. Has the current fiscal situation and appreciate the growing
Highest Corporate Tax Rate (p. 21). magnitude of decisions that lawmakers must
Bold, transformational reforms are needed confront to fix the debt, cut spending, and restore
to solve America’s spending and debt crises. prosperity in America.
iv
6. Table of Contents
FEDERAL SPENDING
Federal Spending per Household Is Skyrocketing................................................................................................................................................................................................................................................. 2
Federal Spending Exceeds Federal Revenue by More than $1 Trillion............................................................................................................................................................... 3
Federal Spending Grew Nearly 12 Times Faster than Median Income............................................................................................................................................................... 4
What if Families Handled Finances Like the Federal Government Does?................................................................................................................................................. 5
Mandatory Spending Has Increased Nearly Six Times Faster than Discretionary Spending..................................................................... 6
Runaway Spending, Not Inadequate Tax Revenue, Is Responsible for Future Deficits...............................................................................................7
Medicare and Other Entitlements Are Crowding Out Spending on Defense...................................................................................................................................... 8
National Defense Spending Would Plummet Under Obama’s Budget................................................................................................................................................................. 9
Budget Control Act Sequestration Would Hit Defense Hardest.....................................................................................................................................................................................10
Obama Budget Would Make Defense the Lowest Budget Priority...............................................................................................................................................................................11
More than Half of All Federal Spending Will Be on Entitlement Programs in 2012....................................................................................................... 12
Total Welfare Spending Is Rising Despite Attempts at Reform......................................................................................................................................................................................... 13
More than 70 Percent of Federal Spending Goes to Dependence Programs..................................................................................................................................... 14
Cut Spending, Fix the Debt, and Restore Prosperity................................................................................................................................................................................................................................... 15
FEDERAL REVENUE
Taxes per Household Have Risen Dramatically....................................................................................................................................................................................................................................................... 18
v
7. Top 10 Percent of Earners Paid 71 Percent of Federal Income Taxes ................................................................................................................................................................. 19
Federal Revenues by Source.................................................................................................................................................................................................................................................................................................................................. 20
U.S. Has the Highest Corporate Tax Rate................................................................................................................................................................................................................................................................................. 21
Obamacare’s Barrage of Tax Hikes..........................................................................................................................................................................................................................................................................................................22
Obama’s Budget Hikes Taxes by $2 Trillion......................................................................................................................................................................................................................................................................23
Taxes Soaring Past Highest Level Ever.........................................................................................................................................................................................................................................................................................24
Increasing Tax Rates Does Not Necessarily Lead to Higher Income Tax Receipts........................................................................................................... 25
Tax Revenues Return to Historical Average....................................................................................................................................................................................................................................................................26
Heritage’s New Flat Tax Simplifies the Tax System....................................................................................................................................................................................................................................... 27
DEBT AND DEFICITS
Publicly Held Debt Set to Skyrocket....................................................................................................................................................................................................................................................................................................30
Each American’s Share of Publicly Held Debt Is Skyrocketing........................................................................................................................................................................................... 31
Obama’s Budget Fails to Solve the Debt Crisis Despite $2 Trillion in Tax Hikes....................................................................................................................32
Obama’s Budget Continues Unprecedented Deficits................................................................................................................................................................................................................................. 33
Federal Budget Deficits Will Reach Levels Never Seen in the U.S..............................................................................................................................................................................34
Rising Deficits Drive U.S. Debt Limit Higher, Faster................................................................................................................................................................................................................................... 35
Interest On the Debt Will Nearly Double Over the Next Decade..................................................................................................................................................................................36
vi
8. Interest on the Debt Exceeds Spending for Many Programs.................................................................................................................................................................................................. 37
U.S. Debt on Track to Fuel Economic Crisis..................................................................................................................................................................................................................................................................... 38
Debt to Grow Unless Government Spending Is Reduced................................................................................................................................................................................................................39
ENTITLEMENTS
Entitlement Spending Will Nearly Double by 2050.....................................................................................................................................................................................................................................42
Tax Revenues Devoured By Medicare, Medicaid, and Social Security in 2045...........................................................................................................................43
Medicare Adding to Federal Deficits Faster than Other Government Spending Programs.........................................................................44
Social Security Deficits are Permanent and Growing................................................................................................................................................................................................................................45
Without Entitlement Reform, Federal Spending Will Exceed 40 Percent of the Economy by 2050....................................46
Discretionary Spending Cuts Alone Will Not Balance the Budget............................................................................................................................................................................ 47
Even Eliminating Defense Spending Completely Would Not Balance the Budget...........................................................................................................48
Letting Tax Cuts Expire Will Not Balance the Budget............................................................................................................................................................................................................................49
Balancing the Budget Without Cutting Spending Would Cause Taxes to Skyrocket....................................................................................................50
Hiking Taxes to Balance the Budget Would Require Doubling Tax Rates................................................................................................................................................ 51
Taxing the Wealthy to Balance the Budget Will Not Work........................................................................................................................................................................................................... 52
Government Policy Reform Needed to Keep Spending Low and End Deficits Without Raising Taxes.......................... 53
vii
10. Federal Spending INFLatIoN-adJuSted doLLarS (2012)
per Household 2022: $34,602
Is Skyrocketing $35,000
2012:
2009—Stimulus package and bailouts: $31,542 $30,015
the federal government is $30,000
spending more per
household than ever before.
Since 1965, spending per $25,000
household has grown by 152
percent, from $11,900 in 1965
$20,000
to $30,015 in 2012. From
2012 to 2022, it is projected $11,900
to rise to $34,602—a 15 $15,000
percent increase.
$10,000
$5,000
Actual Projected
$0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Sources: U.S. Census Bureau, Office of Management and Budget, and Congressional Budget Office.
Federal Spending Chart 1 • Federal Budget in Pictures 2012 heritage.org
2
11. Federal Spending INFLatIoN-adJuSted doLLarS (2012)
Exceeds Federal $4 trillion $3.60
trillion
Revenue by More
than $1 Trillion est. 2012:
Since 1965, spending has $3 trillion
n
$1.08
risen constantly. While trillion
federal revenues are deficit
recovering from the recent
recession, spending is Spending $2.52
trillion
growing sharply, resulting in $2 trillion
n
four consecutive years of
deficits exceeding $1 trillion.
revenue
$1 trillion
n
$0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Office of Management and Budget.
Federal Spending Chart 2 • Federal Budget in Pictures 2012 heritage.org
3
12. Federal Spending PerCeNt ChaNge IN INFLatIoN-adJuSted doLLarS (2012)
Grew Nearly 300%
12 Times Faster +287.5%
1970: $926 billion
than Median Income 2010: $3.6 trillion
250%
When federal spending
grows faster than americans’
paychecks, the burden of 200%
government on taxpayers total Federal
becomes greater. over the Spending
past four decades, 150%
median-income americans’
earnings have risen only 24
percent, while spending has 100%
increased 288 percent.
Median household
50% Income
+24.2%
1970: $41,358
0% 2010: $51,360
1970 1975 1980 1985 1990 1995 2000 2005 2010
Sources: U.S. Census Bureau and Office of Management and Budget.
Federal Spending Chart 3 • Federal Budget in Pictures 2012 heritage.org
4
13. What if Families INFLatIoN-adJuSted doLLarS (2012)
Handled Finances If a typical
Like the Federal family spent like ... which would
leave it with a
the government,
Government Does? it would spend one-year deficit of
$73,319 $21,959
In 2010, median family (equivalent to ($1.08 trillion).
income was $51,360. If a $3.6 trillion) ...
typical family followed the
federal government’s lead, it ... even though
would spend $73,319 and put it had only
30 cents of every dollar spent earned $51,360
on a credit card. this family ($2.5 trillion)...
would have racked up
That deficit—and
$325,781 in credit card borrowing to pay
debt—like a mortgage, only for it—would be a
without the house. What part of its
credit card company would growing family
continue lending money to debt of
$325,781
this family? ($16 trillion).
Each block
represents $1,000
Sources: Congressional Budget Office and U.S. Census Bureau.
Federal Spending Chart 4 • Federal Budget in Pictures 2012 heritage.org
5
14. Mandatory INFLatIoN-adJuSted doLLarS (2012)
Spending Has $4 trillion
2012: $3.57 trillion total
Increased Nearly (Mandatory spending: 63%)
Six Times Faster
than Discretionary
Spending $3 trillion
Mandatory spending—
primarily entitlements and
interest—is set on budgetary
$2 trillion
autopilot, growing without
congressional debate. It has 1965: $633.6 billion total
increased almost six times (Mandatory spending: 29%) Discretionary
faster than discretionary
spending, including defense,
$1 trillion
which is the part of federal
spending subject to annual
budgets. Mandatory
$0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Office of Management and Budget.
Federal Spending Chart 5 • Federal Budget in Pictures 2012 heritage.org
6
15. Runaway Spending, PerCeNtage oF gdP
Not Inadequate 28%
Tax Revenue,
Is Responsible 26%
for Future Deficits 2012:
24% Spending 23.3%
2022: averages,
the main driver behind 22.1% 1960–
long-term deficits is 22% 2008:
government spending, not
Spending
low revenue. While revenue 20.2%
20%
will surpass its historical
2022: 18.3% Revenue
average of 18.1 percent of
18% 18.1%
gdP by 2018, spending
remains above its historical
average of 20.2 percent, 16% Revenue
2012:
reaching 22.1 percent by 16.1%
2022, even after $2.1 trillion 14%
in spending cuts in the
Budget Control act. Actual Projected
12%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Heritage Foundation calculations based on Congressional Budget Office data.
Federal Spending Chart 6 • Federal Budget in Pictures 2012 heritage.org
7
16. Medicare and Other PerCeNtage oF gdP
Entitlements Are 10%
2012:
Crowding Out Entitlements 9.7%
Spending on 1976 was the
Medicare, Medicaid,
and Social Security
Defense first year
8% entitlement
spending
ever-increasing entitlement exceeded
spending is putting pressure 7.4% defense
on key spending priorities, spending
such as national defense, a 6%
core constitutional function
of government. defense
spending has declined 2012:
significantly over time, even Defense 4.5%
when the wars in Iraq and 4%
afghanistan are included, as
spending on the three major 2.5%
entitlements—Social
Security, Medicare, and
2%
Medicaid—has more than
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
tripled.
Note: 2012 figures estimated.
Source: Office of Management and Budget.
Federal Spending Chart 7 • Federal Budget in Pictures 2012 heritage.org
8
17. National Defense PerCeNtage oF gdP
Spending Would 10%
9.5%
Plummet Under
Obama’s Budget
8%
President obama’s “lean
defense” strategy would
create a hollow force and
exacerbate today’s readiness 6%
crisis. decreases in funding
for the core defense program 2012: Post-9/11
4.5% average:
mean losing capabilities that
are crucial for the military to 4% 4.1%
fulfill its constitutional duty
to provide for the common
defense. 2022:
2% 2.5%
Actual Projected
0%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Office of Management and Budget.
Federal Spending Chart 8 • Federal Budget in Pictures 2012 heritage.org
9
18. Budget Control Act NoMINaL doLLarS
Sequestration Entitlement Spending Total Spending, 2013–2021
Budget Authority
Would Hit Defense Cuts due to sequestration
Hardest Non-Defense
Discretionary
Spending
the Budget Control act’s
$1.2 trillion automatic Defense
$26.1 trillion Spending
sequestration cuts, out of
Net Interest
$46.3 trillion in total $11.3 trillion
spending, would impose
$5.3 trillion $3.6
draconian cuts on defense trillion
(on top of an estimated $407 $492
$171 billion $322 billion billion $169 billion
billion in cuts from its
spending caps). this would
slash the defense budget and
jeopardize the u.S. military’s
Share oF totaL
ability to defend the nation. SeQueStratIoN CutS
entitlement spending—the
biggest part of the budget— 14.8% 27.9% 42.6% 14.6%
would scarcely be touched by
comparison. Entitlement Non-Defense Defense Net
Spending Discretionary Spending Spending Interest
Source: Congressional Budget Office.
Federal Spending Chart 9 • Federal Budget in Pictures 2012 heritage.org
10
19. Obama Budget NoMINaL doLLarS
Would Make $3.0 trillion
Defense the Lowest Medicare,
Medicaid, and
Budget Priority Social Security
$2.5 trillion
President obama’s budget
would lower defense
spending below other major $2.0 trillion
budget priorities, forcing cuts
to personnel levels and
weakening military $1.5 trillion all other
readiness. By 2018, the u.S. Spending
would spend more on
interest on the debt than on $1.0 trillion
protecting the country. $631 billion Net Interest
Defense
$0.5 trillion
$602 billion
$0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: Office of Management and Budget.
Federal Spending Chart 10 • Federal Budget in Pictures 2012 heritage.org
11
20. More than Half PerCeNtage oF FY2012 SPeNdINg
of All Federal Entitlement Programs
Spending Will Be 62%
on Entitlement
Programs in 2012 Medicare, Welfare
Medicaid, and Programs
Medicare, Medicaid, and other health Social and other
Care Security entitlements all other
Social Security—along with
other entitlements such as 22% 21% 19% Spending
8%
food stamps, unemployment,
and housing assistance—
make up 62 percent of all
federal spending. In contrast,
spending on foreign aid
represents about 1 percent.
50%
National defense 19%
Net Interest 6%
education 4%
Foreign affairs 1%
Source: Office of Management and Budget.
Federal Spending Chart 11 • Federal Budget in Pictures 2012 heritage.org
12
21. Total Welfare INFLatIoN-adJuSted doLLarS (2011)
Spending Is Rising $1 trillion 2011: $910 billion
Despite Attempts
at Reform 1996
$800 billion
reform
total means-tested welfare “ends
welfare”
spending (cash, food,
housing, medical care, and
social services to the poor)
1981
$600 billion reagan
has increased more than “slashes”
17-fold since the beginning of welfare
Lyndon Johnson’s War on
Poverty in 1964. though the $400 billion 1964
current trend is War on
unsustainable, the obama Poverty
begins
administration would
increase future welfare $200 billion
spending rather than enact
true policy reforms.
$0
1950 1960 1970 1980 1990 2000 2010
Source: Heritage Foundation calculations based on data from current and previous White House Office of Management and Budget documents
and other official government sources.
Federal Spending Chart 12 • Federal Budget in Pictures 2012 heritage.org
13
22. More than 70 Share oF totaL FederaL SPeNdINg
Percent of Federal 80%
2003: 2010:
Spending Goes to 68.3% 70.5%
Dependence 70%
Programs
60% 1990:
government dependence is 48.5%
driving budget deficits and
50%
federal debt. More than 70
percent of federal spending
goes to 47 government 40% 1962:
dependence programs, 28.3%
including housing, farm 30%
subsidies, and the three
largest entitlements,
Medicare, Medicaid, and 20%
Social Security.
10%
0%
1962 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: The Heritage Foundation’s Index of Dependence on Government.
Federal Spending Chart 13 • Federal Budget in Pictures 2012 heritage.org
14
23. Cut Spending, PerCeNtage oF gdP
Fix the Debt, and CURRENT PROJECTIONS HERITAGE PLAN
Restore Prosperity 35% 35%
33.9%
By rapidly lowering total
federal spending, Saving the Spending
American Dream: The Heritage 30% 30%
Plan to Fix the Debt, Cut
Spending, and Restore
Prosperity would balance the 25% 25%
budget by 2021 and keep it
balanced permanently,
without raising taxes. Spending
20% 20% 18.5%
18.7%
Revenue Revenue 17.6%
15% 15%
10% 10%
2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035
Sources: Current projections: Heritage Foundation calculations based on data from the Congressional Budget Office (Alternative Fiscal Scenario). Heritage
Plan: Calculations by the Center for Data Analysis based on data provided by the Peter G. Peterson Foundation. For more information, go to savingthedream.org.
Federal Spending Chart 14 • Federal Budget in Pictures 2012 heritage.org
15
25. Taxes per INFLatIoN-adJuSted doLLarS (2011)
Household Have 2000: 2007: 2011:
$24,701 $23,610 $19,409
Risen Dramatically $25,000
though the economic
downturn has temporarily
lowered overall tax revenues, $20,000
the tax burden on americans
is still high.
1965:
$15,000 $11,554
$10,000
$5,000
$0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Sources: U.S. Census Bureau and Office of Management and Budget.
Federal revenue Chart 1 • Federal Budget in Pictures 2012 heritage.org
18
26. Top 10 Percent of PerCeNtage oF FederaL INCoMe taXeS aNd INCoMe earNed (2009)
Earners Paid 71 Bottom
Top 1% 2%–5% 5%–10% 10%–25% 25%–50% 50%
Percent of Federal
This
Income Taxes group of
income
top earners are the target for earners ...
new tax increases, but the
federal income tax system is
already highly progressive.
the top 10 percent of income
earners paid 71 percent of all 17% 15% 11% 23% 21% 13%
federal income taxes in 2009 ... earned
this share
though they earned 43
of all
percent of all income. the income ...
bottom 50 percent paid 2
percent of income taxes but 37% 22% 12% 17% 10% 2%
earned 13 percent of total ... and paid
income. about half of tax this share
filers paid no federal income of federal
tax at all. income
taxes.
Source: Internal Revenue Service.
Federal revenue Chart 2 • Federal Budget in Pictures 2012 heritage.org
19
27. Federal Revenues PerCeNtage oF totaL FederaL reVeNue (2011)
by Source 47.4%
50% $1,091.5 billion
Most federal revenues come
from individual taxpayers.
Personal income taxes are
the largest portion of total 40% 35.6%
$818.8
tax revenues. Social Security
and Medicare payroll taxes
Total: $2.3 trillion
are the second-largest 30%
source.
20%
7.9%
5.7%
10% $181.1
3.1%
0.3%
$131.3
$72.4
$7.4
0%
Individual Social Corporate Customs excise estate
taxes Insurance taxes duties, taxes and gift
(Payroll) Misc. taxes
Source: Congressional Budget Office.
Federal revenue Chart 3 • Federal Budget in Pictures 2012 heritage.org
20
28. U.S. Has the CoMBINed CorPorate taX rateS
Highest Corporate 42%
Tax Rate
40% United States
high federal and state 39.26%
corporate tax rates make it 38%
difficult for u.S. 36.8% Japan
headquartered businesses to 36%
compete internationally. u.S.
rates have been consistently 34%
higher than the average of
industrialized nations. In OECD average
32%
april 2012, Japan reduced its (comprises
developed
corporate tax rate to 36.8 nations, such
30%
percent, making the u.S. total as Canada,
corporate tax rate the France, United
28% Kingdom, and
highest.
Switzerland)
26%
25.47%
24%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (est.)
Source: Organisation for Economic Co-operation and Development (OECD).
Federal revenue Chart 4 • Federal Budget in Pictures 2012 heritage.org
21
29. Obamacare’s BILLIoNS oF NoMINaL doLLarS
Barrage of Tax $101.5
Hikes $100
$91.1 Tax on “Cadillac” plans
obamacare imposes
numerous tax hikes which $80
total more than $500 billion $74.9
Individual and employer mandates
over 10 years. obamacare’s $68.7
higher tax rates on income $62.8
and investment will slow $60 Health insurance tax
economic growth, leaving
hardworking american
Increase in Medicare HI tax and
families and businesses $42.1 application to investment income
worse off. a particularly $40 $37.9 for high earners
harmful new payroll tax on
investment income goes into
effect in January 2013. Fee on medical device manufacturers
$20
New restrictions and penalties
$12.4
$9.8 on HSA and FSA accounts
Fee on pharmaceutical companies
$0.1 Revenue from 8 other new taxes
$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Joint Committee on Taxation.
Federal revenue Chart 5 • Federal Budget in Pictures 2012 heritage.org
22
30. Obama’s Budget BILLIoNS oF NoMINaL doLLarS
Hikes Taxes by $0 $500 billion $1 trillion $1.5 trillion
$2 Trillion
$1,433.1 tax increases on high-income earners and small businesses
President obama’s FY 2013
budget includes about $1.5 $147.5 higher taxes on businesses operating internationally
trillion in tax hikes. other
proposals bring the true size $143.3 higher death tax
of obama’s tax hikes to
over $2 trillion. this
$86.8 repeal inventory valuation rules
includes letting the Bush tax
$61.8 Increase unemployment insurance tax
cuts expire for high-income
earners and small
$61.3 Impose a bank tax
businesses and imposing
additional taxes on these
$51.2 higher taxes on energy companies
groups. obama also
proposes a higher death tax
$98.0 IrS program integrity cap, insurance company tax increase,
and the institution of new
and other miscellaneous tax increases
taxes, such as the punitive
bank tax.
–$75.3 New tax cuts
Sources: Heritage Foundation calculations based on data from the Office of Management and Budget and the U.S. Department of the Treasury.
Federal revenue Chart 6 • Federal Budget in Pictures 2012 heritage.org
23
31. Taxes Soaring Past PerCeNtage oF gdP
Highest Level Ever 24%
23% highest tax burden TAX CUTS EXPIRE OBAMA BUDGET
taxes are projected to in u.S. history: (current law) FY 2013
increase rapidly under 22% 20.6% (2000)
different policy scenarios. If
the 2001 and 2003 tax cuts 21%
expire and more 20%
middle-income americans
are required to pay the 19%
alternative minimum tax 18%
(aMt), taxes will reach
unprecedented levels. the 17% average tax Tax cuts made
tax burden will climb even if Burden (1959– permanent,
16% 2008): 18.1% AMT fixed
those tax breaks are hIStorICaL taX
extended. President obama’s 15% reVeNue
budget, which cuts some
14%
taxes and raises others,
increases the overall tax 13%
burden. Actual Projected
12%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Sources: Heritage Foundation calculations based on data from the Congressional Budget Office and Office of Management and Budget.
Federal revenue Chart 7 • Federal Budget in Pictures 2012 heritage.org
24
32. Increasing Tax PerCeNtage oF gdP
Rates Does Not 100%
91%
Necessarily Lead
to Higher Income
Tax Receipts 70%
75%
tax cuts can create 50%
incentives for individuals to toP INdIVIduaL
work, save, and invest, which taX rate
can generate more revenue.
50%
the most dramatic decline in 28% 39.6%
the top individual income tax 35% 35%
rate, from 70 percent to 28
percent, occurred during the
reagan administration, 25%
during which tax receipts INdIVIduaL taX
remained relatively constant reCeIPtS
as a share of the economy.
7.8% 7.1% 9.2% 8% 7.7% 7.2% 7.5%
0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2012*
* Projected
Sources: Office of Management and Budget and the Tax Foundation.
Federal revenue Chart 8 • Federal Budget in Pictures 2012 heritage.org
25
33. Tax Revenues PerCeNtage oF gdP
Return to Historical 25%
Average
average historical revenue
Since World War II, tax (1959–2008):
receipts have averaged 1945: 18.1% 2000:
around 18.1 percent of gdP. 20.4% 20.6%
receipts have fallen due to 20%
2022:
the recession, but as the 18.3%
economy recovers, they will
rise above the historical
average level by the end of
the decade, even if all the
2001 and 2003 tax cuts are
15%
made permanent. 2010:
1950: 15.1%
14.4%
Actual Projected
10%
1945 1950 1960 1970 1980 1990 2000 2010 2020 2022
Sources: Office of Management and Budget and Congressional Budget Office (Alternative Fiscal Scenario).
Federal revenue Chart 9 • Federal Budget in Pictures 2012 heritage.org
26
34. Heritage’s New Flat MargINaL taX rateS (2012)
Tax Simplifies the
Tax System
40.3%
30.3%
the heritage Foundation’s
28%
New Flat tax (NFt), part of
Saving the American Dream, Income Tax
replaces today’s complex tax
system with one that is
25.0% Income Tax
simple and fair. the New Flat
tax would help more
15.0%
americans save and invest,
and it would encourage
economic growth without
raising taxes.
Payroll Tax Payroll Tax
15.3% 15.3%
TYPICAL TAX RATES TODAY NEW FLAT TAX
In these two examples, total marginal tax rates include the NFt replaces all income,
individual income and payroll taxes. payroll, and death taxes, and
a slew of excises.
Sources: Heritage Foundation calculations and the Internal Revenue Service.
Federal revenue Chart 10 • Federal Budget in Pictures 2012 heritage.org
27
35. Debt and Deficits
Excessive spending has created record
levels of debt and deficits, and the worst
is yet to come, threatening opportunity
and prosperity for younger generations.
36. Publicly Held Debt PerCeNtage oF gdP
Set to Skyrocket 200%
2036: 195%
runaway spending on
Medicare, Medicaid, and
Social Security will drive
federal debt to unsustainable 150%
levels over the next few World War II
decades. total national debt
consists of publicly held debt
1946: 108.6% 2021: 101%
and intergovernmental debt.
100%
Intergovernmental debt is Great
the amount that the Depression Global Recession
government owes to specific
programs or agencies, such World War I War on Terrorism
as the Social Security trust 50%
Fund. Publicly held debt is
more relevant to credit
markets.
0%
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2036
Sources: Heritage Foundation calculations based on Office of Management and Budget and Congressional Budget Office data.
Debt and Deficits Chart 1 • Federal Budget in Pictures 2012 heritage.org
30
37. Each American’s INFLatIoN-adJuSted doLLarS (2012)
Share of Publicly $150,000
Held Debt Is 2036: $135,547
Skyrocketing
$120,000
as Washington continues to
spend dramatically more
2031: $102,108
than it can afford, every
american will be on the hook $90,000
for increasing levels of debt.
Without reining in spending,
the amount of debt per
citizen will skyrocket. $60,000
2012: $36,267
2001:
$14,534
$30,000
1970: $6,435
Actual Projected
$0
1970 1980 1990 2000 2010 2020 2030 2036
Sources: U.S. Census Bureau and Congressional Budget Office (Alternative Fiscal Scenario).
Debt and Deficits Chart 2 • Federal Budget in Pictures 2012 heritage.org
31
38. Obama’s Budget PerCeNtage oF gdP
Fails to Solve the 120%
Debt Crisis 1946: 108.7%
Despite $2 Trillion
100%
in Tax Hikes 2012: 2022:
74.2% 76.5%
In 2008, publicly held debt
as a percentage of the 80%
economy (gdP) was 40.5 Post-WWII 1993: 2008:
percent, nearly four points average: 44.2% 49.3% 40.5%
below the post-World War II 60%
average. Since then, the debt
has increased by 45 percent.
the President’s FY 2013 40%
budget would increase the
debt to 76.5 percent by 2022,
despite $2 trillion in tax
20%
hikes.
Actual Projected
0%
1940 1950 1960 1970 1980 1990 2000 2010 2020
Sources: Congressional Budget Office and Office of Management and Budget.
Debt and Deficits Chart 3 • Federal Budget in Pictures 2012 heritage.org
32
39. Obama’s Budget Budget deFICItS aS a PerCeNtage oF gdP, BY adMINIStratIoN
Continues
Unprecedented
Deficits
Kennedy Johnson Nixon
yJ n Ford Carter Reagan Bush Clinton Bush Obama
the President is responsible 0%
for submitting an annual –0.1%
budget to Congress and has
–1.0% –0.9%
the authority to veto
–2% –1.6%
legislation, including
irresponsible spending. –2.4%
Most administrations have
–3.5% –3.2%
run small but manageable –4%
deficits, but President –4.3% –4.3%
obama’s unprecedented
budget deficits pose serious
economic risks. –6%
–8%
–8.3%
Source: Office of Management and Budget.
Debt and Deficits Chart 4 • Federal Budget in Pictures 2012 heritage.org
33
40. Federal Budget PerCeNtage oF gdP
Deficits Will Reach 60%
2085: 57.5%
Levels Never Seen
in the U.S. 50%
unless entitlements are
reformed, spending on
40%
Medicare, Medicaid, and
Social Security will drive
deficits to catastrophic
levels. While recent budget 30%
deficits have reached
unprecedented levels,
future deficits will be 20%
2000: 2009:
dramatically worse. –2.4% 10.1%
10%
historical average
(1959–2008): 2.1%
0%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
Source: Congressional Budget Office (Alternative Fiscal Scenario).
Debt and Deficits Chart 5 • Federal Budget in Pictures 2012 heritage.org
34
41. Rising Deficits Drive NoMINaL doLLarS
U.S. Debt Limit 2012: $16.39 trillion
Higher, Faster $16 trillion
n Budget Control act, 2012: +$1.2 trillion
Since 2001,
the Budget Control act, a Budget Control act, 2011: +$900 billion the debt
$14 trillion
n limit has
result of the contentious 2011
Largest one-year change: +$1.9 trillion, 2010 been raised
debt ceiling debate, 13 times, for
$12 trillion
n
increased the debt limit by a total of
$2.1 trillion, but failed to rein $10.4 trillion
$10 trillion
n
in the key driver of spending
and debt: entitlement
spending. Congress first $8 trillion
n
placed a statutory limit on unchanged for 5 years,
the national debt in 1917, in $6 trillion
n 1997–2001 ($5.95 trillion)
the Second Liberty Bond act.
It has been raised 13 times $4 trillion
n
since 2001.
n
$2 trillion
$0
0
1940 1950 1960 1970 1980 1990 2000 2012
Note: Figure for 2012 is current as of April 6.
Sources: Congressional Research Service, U.S. Treasury, and Office of Management and Budget.
Debt and Deficits Chart 6 • Federal Budget in Pictures 2012 heritage.org
35
42. Interest On the INFLatIoN-adJuSted doLLarS (2012)
Debt Will Nearly 2022: $524 billion
Double Over the $500
Next Decade
as the publicly held debt $400
grows, net interest payments 1990:
will increase dramatically, $294 billion
even assuming that interest 2012: $224 billion
rates remain low. under $300
current projections, real net
interest costs would more
than double over the next $200
decade.
$100
Actual Projected
$0
1990 1995 2000 2005 2010 2015 2020 2022
Sources: Congressional Budget Office and Office of Management and Budget.
Debt and Deficits Chart 7 • Federal Budget in Pictures 2012 heritage.org
36
43. Interest on the Debt BILLIoNS oF doLLarS (2011)
Exceeds Spending $250
for Many Programs $227.1
In 2011, the u.S. spent more $200
on net interest—interest paid
on publicly held debt—than it
spent on many federal
departments, including $150 $139.4 $132.0
education and Labor. $126.9
$100
$77.3
$65.5
$50 $45.7
$0
Net Department of Department of Department of Department of Department of Department of
Interest Agriculture Labor Veterans Transportation Education Homeland
Affairs Security
Source: Office of Management and Budget.
Debt and Deficits Chart 8 • Federal Budget in Pictures 2012 heritage.org
37
44. U.S. Debt on Track PerCeNtage oF gdP
to Fuel Economic
200%
Crisis
2035: U.S.
Many european countries, Japan greece debt at
like greece and Italy, are 131% 153% 187% GDP
suffering financial or budget 150%
crises as a result of mounting
debt. Countries such as Spain u.k. Italy
are not far behind. unless the 73% 100%
u.S. controls spending, RY
TO
JEC
100%
america’s debt will surpass A
those of troubled nations, TR
Spain EBT
leading to similar economic 56% U. S. D
woes.
50%
2011: U.S. debt at 67% GDP
(Credit rating downgraded by S&P)
Comparisons
2000: U.S. debt are to other
at 34% GDP nations’ 2011
0% levels of debt.
2000 2005 2010 2015 2020 2025 2030 2035
Sources: International Monetary Fund and Congressional Budget Office (Alternative Fiscal Scenario).
Debt and Deficits Chart 9 • Federal Budget in Pictures 2012 heritage.org
38
45. Debt to Grow PerCeNtage oF gdP
Unless Government 200%
Spending Is
Reduced CurreNt
ProJeCtIoNS 2035:
Without significant spending 150%
187%
reforms, publicly held debt is
projected to reach 187
percent of gdP by 2035.
under the heritage plan,
Saving the American Dream, 100% 2011:
future federal spending
would be reduced by about
68% SaVINg the
half, which would aMerICaN
dramatically lower the debt dreaM 2035:
to 29 percent of gdP. 50%
29%
0%
2010 2015 2020 2025 2030 2035
Sources: Current projections: Congressional Budget Office (Alternative Fiscal Scenario). Heritage Plan: Calculations by the Center for Data Analysis based on
data provided by the Peter G. Peterson Foundation. For more information, go to savingthedream.org.
Debt and Deficits Chart 10 • Federal Budget in Pictures 2012 heritage.org
39
46. Entitlements
Medicare, Medicaid, and Social Security
spending is set to explode, placing enormous
pressure on other priorities such as defense
and the rest of the budget.
47. Entitlement PerCeNtage oF gdP
Spending Will 20% 19.0% total
Nearly Double
by 2050 17.4%
Spending on Medicare,
15.3% 5.9% Social
Security
Medicaid, Social Security,
15% 6.0%
and the obamacare
subsidies will soar as 78
12.1% 6.0%
million baby boomers retire 10.3% 4.5%
Medicaid,
obamacare
and health care costs climb. 10% Subsidies
total spending on federal 5.2% 4.0%
health care programs will 4.8%
more than double. Future 3.4%
generations will be left with
2.7%
an untenable debt burden. 5%
1.9% 8.6% Medicare
7.4%
5.9%
3.6% 4.2%
0%
2010 2020 2030 2040 2050
Source: Congressional Budget Office (Alternative Fiscal Scenario).
Entitlements Chart 1 • Federal Budget in Pictures 2012 heritage.org
42
48. Tax Revenues PerCeNtage oF gdP
Devoured By 30%
2085:
Medicare, Medicaid, 2045: Entitlement spending 25.7%
matches tax revenue average
and Social Security
25%
in 2045 actual average Social
revenue historical Security
Spending on Medicare, revenue: 18.1%
20%
Medicaid, the obamacare
subsidies, and Social Security Medicaid,
obamacare
will devour all revenues by Subsidies,
2045. entitlement spending 15% ChIP
is already crowding out vital 1970: 2011:
constitutional functions, such 3.9% 10.4%
as defense. 10%
Medicare
5%
Actual Projected
0%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2085
Source: Congressional Budget Office (Alternative Fiscal Scenario).
Entitlements Chart 2 • Federal Budget in Pictures 2012 heritage.org
43
49. Medicare Adding PerCeNtage oF gdP
to Federal Deficits 14%
Faster than Other
Government 12%
Spending Programs
entitlement spending is the 10%
main cause of long-term Medicare
runaway federal deficits.
8% all other
Medicare is the Non-Interest
fastest-growing program due Spending
to retiring baby boomers, the 6% Social
effects of an aging Security
population, and rising
Medicaid,
healthcare costs. 4% obamacare
Subsidies
2%
0%
2011 2015 2020 2025 2030 2035 2040 2045 2050
Source: Congressional Budget Office (Alternative Fiscal Scenario).
Entitlements Chart 3 • Federal Budget in Pictures 2012 heritage.org
44
50. Social Security BILLIoNS oF doLLarS (2011)
Deficits are $100
Permanent and
Growing $50
2010 2015 2020 2025 2030 2035 Surplus
Social Security began running $0
1987 1990 1995 2000 2005 Deficit
deficits in 2010, paying out
$48.9 billion more in benefits –$50
than it received through
payroll taxes. Nor will these –$100 2010: $48.9 billion deficit
deficits ever end, meaning
that without reforms, Social
–$150
Security will continue to add
billions to the deficit and
–$200
debt each year.
–$250
–$300
–$350 2035: $344 billion deficit
Source: Social Security Administration (OASI and DI Trust Fund Data and 2011 Trustees Report).
Entitlements Chart 4 • Federal Budget in Pictures 2012 heritage.org
45
