The Federal Budget Outlook and Aid to States
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The Federal Budget Outlook and Aid to States

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Associate Director for Economic Analysis Jeffrey R. Kling's presentation to the National Lieutenant Governors Association

Associate Director for Economic Analysis Jeffrey R. Kling's presentation to the National Lieutenant Governors Association

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The Federal Budget Outlook and Aid to States The Federal Budget Outlook and Aid to States Presentation Transcript

  • The Federal Budget Outlook and Aid to StatesPresentation to the National Lieutenant Governors Association Jeffrey R. Kling Associate Director for Economic Analysis March 21, 2012 CONGRESSIONAL BUDGET OFFICE 1
  • Deficits or Surpluses, 1972 to 2011 (Percentage of GDP) 4 2 0 -2 -4 Deficit for 2011: -6 8.7% of GDP -8-10-12 1972 1977 1982 1987 1992 1997 2002 2007 CONGRESSIONAL BUDGET OFFICE 2
  • What Policy Assumptions Underlie the Baseline and theAlternative Fiscal Scenario?Baseline Projections: Generally, current law.Alternative Fiscal Scenario:- All expiring tax provisions (other than the payroll tax reduction) are extended.- The alternative minimum tax (AMT) is indexed for inflation after 2011.- Medicare’s payment rates for physicians’ services are held constant at current level.- The automatic spending reductions required by the Budget Control Act do not take effect (although the original caps on discretionary appropriations remain in place). CONGRESSIONAL BUDGET OFFICE 3
  • Deficits or Surpluses, Actual and Projected(Percentage of GDP) 4 Actual Projected 2 0 -2 CBOs Baseline Projection -4 -6 Alternative -8 Fiscal Scenario-10-12 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). CONGRESSIONAL BUDGET OFFICE 4
  • Federal Debt Held by the Public(Percentage of GDP)140 Actual Projected120 Alternative Fiscal100 Scenario8060 CBOs Baseline40 Projection20 0 1940 1950 1960 1970 1980 1990 2000 2010 2020 Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). CONGRESSIONAL BUDGET OFFICE 5
  • Components of the Federal Budget as Shares of GDP:1972-2011 Average and 2022 Projection Under theAlternative Fiscal Scenario(Percentage of GDP) 30 1972-2011 Average 25 24.3 2022 Projection Under the 21.0 Alternative Fiscal Scenario 20 17.9 18.5 15 12.8 11.4 10 7.3 7.8 5.9 5 3.7 3.0 2.2 0 Social Security and All Other Net Interest Total Outlays Total Revenues Deficit Major Federal Programs Health Care Programs Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). CONGRESSIONAL BUDGET OFFICE 6
  • Selected Tax Expenditures Providing Support for Stateand Local Governments Percentage of GDP Percent 2012 2015 Change Deductibility of Property } Taxes on Owner-Occupied Homes Deductibility of Nonbusiness State and Local Taxes Other than on 0.6 0.8 +36% Owner-Occupied Homes Exclusion of Interest on State and Local BondsSource: Joint Committee on Taxation. The temporarily higher exemption amounts that have limited the impact of the AMT since2001 expired at the end of December 2011; if relief from the AMT were extended, the amounts shown here would be slightlyhigher. CONGRESSIONAL BUDGET OFFICE 7
  • Federal Grants-in-Aid to State and Local Governments(Percentage of GDP) 4 Actual Projected ARRA 3 Average, 1972-2011 2 1 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 Note: Preliminary estimates using the framework of the National Income and Product Accounts, including grants-in-aid and excluding most transportation spending. ARRA = American Recovery and Reinvestment Act (the source of the increase in 2009 and 2010). 8 CONGRESSIONAL BUDGET OFFICE
  • Projected Federal Spending Aiding State and LocalGovernments, by Type of Aid(Percentage of GDP) 4 Discretionary Aid Other Mandatory Aid Medicaid & CHIP 3 2 1 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Note: Preliminary estimates using the framework of the National Income and Product Accounts, including grants-in-aid and capital transfers (most transportation spending). Derived from CBO’s March 2012 baseline projections of federal expenditures. CHIP = Children’s Health Insurance Program. CONGRESSIONAL BUDGET OFFICE 9
  • Projected Spending on Medicaid and CHIP Percentage of GDP Percent 2012 2022 Change }MedicaidChildren’s Health 1.7 2.5 +47%Insurance ProgramEstimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). Amounts do not include the stateshare of spending on these programs. CONGRESSIONAL BUDGET OFFICE 10
  • Projected Spending on Selected Income Security Programs Percentage of GDP Percent 2012 2022 Change } Child Nutrition Programs Temporary Assistance to Needy Families SNAP Administration 0.8 0.5 -35% Foster Care and Permanency Child Support Enforcement Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). CONGRESSIONAL BUDGET OFFICE 11
  • How will the Budget Control Act (BCA) Affect FederalSpending?The BCA established caps on certain types of discretionary funding, calledfor a process to achieve additional deficit reduction, and set up automaticenforcement procedures. The BCA:  Limits cuts in most Medicare benefits to 2 percent;  Exempts many mandatory programs—including Social Security, and Medicaid, CHIP, SNAP, child nutrition, and other income security programs;  Exempts most transportation programs; and  Cuts most defense and nondefense discretionary programs— including education, housing and others. CONGRESSIONAL BUDGET OFFICE 12
  • Sequestration of Discretionary Programs in 2013Under current law for 2013, cuts for most discretionary programswill be achieved by automatically canceling a portion of theirbudgetary resources (in an action known as sequestration) starting inJanuary of that year.  Cuts will be across-the-board, proportional reductions in budgetary resources for most discretionary programs in the appropriations bills for 2013.  Cuts are scheduled to occur regardless of the amount of funding that Congress chooses to appropriate for 2013.CBO projects that nondefense discretionary spending will be 5percent lower in 2013 than if discretionary funding grew from 2012amounts at the rate of inflation. CONGRESSIONAL BUDGET OFFICE 13
  • Cap Reductions for Discretionary Programs from2014 to 2021Automatic cuts will be achieved by lowering the caps on discretionarybudget authority as specified in the Budget Control Act.Appropriations committees and Congress will then decide how toallocate funding within those newly reduced caps.CBO projects that nondefense discretionary spending will be 10percent lower in 2021 than if discretionary funding grew from 2012amounts at the rate of inflation. CONGRESSIONAL BUDGET OFFICE 14
  • Nondefense Discretionary Spending in CBO’s Baseline Percentage of GDP Percent 2012 2022 Change }TransportationEducationHousing 4.1 2.6 -35%Other ProgramsNot Aiding StatesEstimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). CONGRESSIONAL BUDGET OFFICE 15
  • Nondefense Discretionary Spending, Actual andProjected(Percentage of GDP) 6 Actual Projected 5 Funding Grows at the Rate of Inflation 4 3 Lowest Level over the 1972-2011 Period: 3.2% CBOs Baseline 2 Projection 1 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). CONGRESSIONAL BUDGET OFFICE 16