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All budget-chart-book-2012

  1. 1. 2012 Federal Budget $4.0 trillion $4.0 trillion $4.0 trillion trillion $4.0 in Pictures $3.5 trillion $3.5 trillion $3.5 trillion trillion $3.5 $3.0 trillion $3.0 trillion $3.0 trillion trillion $3.0 $2.5 trillion $2.5 trillion $2.5 trillion trillion $2.5 $2.0 trillion $2.0 trillion $2.0 trillion trillion $2.0 Budget Chart$1.5 trillion Book $1.5 trillion $1.5 trillion $1.5 trillion Federal Federal Debt and Entitlements Spending Revenue Deficits $1.0 trillion $1.0 trillion $1.0 trillion trillion $1.0 $0.5 trillion $0.5 trillion $0.5 trillion trillion $0.5
  2. 2. 2012 Federal Budget $4.0 trillion $4.0 trillion $4.0 trillion trillion $4.0 in Pictures $3.5 trillion $3.5 trillion $3.5 trillion trillion $3.5 $3.0 trillion $3.0 trillion $3.0 trillion trillion $3.0 $2.5 trillion $2.5 trillion $2.5 trillion trillion $2.5 $2.0 trillion $2.0 trillion $2.0 trillion trillion $2.0 Budget Chart$1.5 trillion Book $1.5 trillion $1.5 trillion $1.5 trillion Federal Federal Debt and Entitlements Spending Revenue Deficits $1.0 trillion $1.0 trillion $1.0 trillion trillion $1.0 $0.5 trillion $0.5 trillion $0.5 trillion trillion $0.5
  3. 3. The Thomas A. Roe Institute for Economic Policy Studies Copyright © 2012 The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 heritage.org
  4. 4. About the Federal Budget in PicturesF ederal spending and debt are out of control, and if America does not change course, thefuture 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). Medicareour nation’s spending, taxes, and debt mean for Is Adding to Federal Deficits Faster Than Otherthem and their families. The Heritage Foundation’s Government Spending Programs (p. 44), and SocialFederal 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 Entitlementscompelling 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 budgetunsustainable course, because Publicly Held Debt deficits. However, Balancing the Budget WithoutIs Set to Skyrocket (p. 30) despite Taxes Soaring Cutting Spending Would Cause Taxes to SkyrocketPast Highest Level Ever (p. 24). Federal Spending (p. 50) to the point where Hiking Taxes to Balanceper 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 Notthan $1 Trillion (p. 3). If Congress fails to adopt Work (p. 52), as this would necessitate raising taxthe transformational reforms necessary to cut rates to mathematically impossible levels. iii
  5. 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. 6. Table of ContentsFEDERAL 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................................................................................................................................................................................................................................... 15FEDERAL REVENUE Taxes per Household Have Risen Dramatically....................................................................................................................................................................................................................................................... 18 v
  7. 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..................................................................................................................................................................................36vi
  8. 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................................................................................................................................................................................................................39ENTITLEMENTS 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
  9. 9. Federal SpendingSpending is at record levels and is stillgrowing, threatening economic freedom.
  10. 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.org2
  11. 11. Federal Spending INFLatIoN-adJuSted doLLarS (2012)Exceeds Federal $4 trillion $3.60 trillionRevenue by Morethan $1 Trillion est. 2012:Since 1965, spending has $3 trillion n $1.08risen constantly. While trillionfederal revenues are deficitrecovering from the recentrecession, spending is Spending $2.52 trilliongrowing sharply, resulting in $2 trillion nfour consecutive years ofdeficits exceeding $1 trillion. revenue $1 trillion n $0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010Source: Office of Management and Budget. Federal Spending Chart 2 • Federal Budget in Pictures 2012 heritage.org 3
  12. 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.org4
  13. 13. What if Families INFLatIoN-adJuSted doLLarS (2012)Handled Finances If a typicalLike the Federal family spent like ... which would leave it with a the government,Government Does? it would spend one-year deficit of $73,319 $21,959In 2010, median family (equivalent to ($1.08 trillion).income was $51,360. If a $3.6 trillion) ...typical family followed thefederal government’s lead, it ... even thoughwould spend $73,319 and put it had only30 cents of every dollar spent earned $51,360on a credit card. this family ($2.5 trillion)...would have racked up That deficit—and$325,781 in credit card borrowing to paydebt—like a mortgage, only for it—would be awithout the house. What part of itscredit card company would growing familycontinue lending money to debt of $325,781this family? ($16 trillion). Each block represents $1,000Sources: Congressional Budget Office and U.S. Census Bureau. Federal Spending Chart 4 • Federal Budget in Pictures 2012 heritage.org 5
  14. 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.org6
  15. 15. Runaway Spending, PerCeNtage oF gdPNot 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 Spendinglow revenue. While revenue 20.2% 20%will surpass its historical 2022: 18.3% Revenueaverage of 18.1 percent of 18% 18.1%gdP by 2018, spendingremains above its historicalaverage 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 theBudget Control act. Actual Projected 12% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020Source: Heritage Foundation calculations based on Congressional Budget Office data. Federal Spending Chart 6 • Federal Budget in Pictures 2012 heritage.org 7
  16. 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.org8
  17. 17. National Defense PerCeNtage oF gdPSpending Would 10% 9.5%Plummet UnderObama’s Budget 8%President obama’s “leandefense” strategy wouldcreate a hollow force andexacerbate today’s readiness 6%crisis. decreases in fundingfor the core defense program 2012: Post-9/11 4.5% average:mean losing capabilities thatare crucial for the military to 4% 4.1%fulfill its constitutional dutyto provide for the commondefense. 2022: 2% 2.5% Actual Projected 0% 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020Source: Office of Management and Budget. Federal Spending Chart 8 • Federal Budget in Pictures 2012 heritage.org 9
  18. 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.org10
  19. 19. Obama Budget NoMINaL doLLarSWould Make $3.0 trillionDefense the Lowest Medicare, Medicaid, andBudget Priority Social Security $2.5 trillionPresident obama’s budgetwould lower defensespending below other major $2.0 trillionbudget priorities, forcing cutsto personnel levels andweakening military $1.5 trillion all otherreadiness. By 2018, the u.S. Spendingwould spend more oninterest on the debt than on $1.0 trillionprotecting the country. $631 billion Net Interest Defense $0.5 trillion $602 billion $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Source: Office of Management and Budget. Federal Spending Chart 10 • Federal Budget in Pictures 2012 heritage.org 11
  20. 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.org12
  21. 21. Total Welfare INFLatIoN-adJuSted doLLarS (2011)Spending Is Rising $1 trillion 2011: $910 billionDespite Attemptsat Reform 1996 $800 billion reformtotal means-tested welfare “ends welfare”spending (cash, food,housing, medical care, andsocial services to the poor) 1981 $600 billion reaganhas increased more than “slashes”17-fold since the beginning of welfareLyndon Johnson’s War onPoverty in 1964. though the $400 billion 1964current trend is War onunsustainable, the obama Poverty beginsadministration wouldincrease future welfare $200 billionspending rather than enacttrue policy reforms. $0 1950 1960 1970 1980 1990 2000 2010Source: Heritage Foundation calculations based on data from current and previous White House Office of Management and Budget documentsand other official government sources. Federal Spending Chart 12 • Federal Budget in Pictures 2012 heritage.org 13
  22. 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.org14
  23. 23. Cut Spending, PerCeNtage oF gdPFix the Debt, and CURRENT PROJECTIONS HERITAGE PLANRestore Prosperity 35% 35% 33.9%By rapidly lowering totalfederal spending, Saving the SpendingAmerican Dream: The Heritage 30% 30%Plan to Fix the Debt, CutSpending, and RestoreProsperity would balance the 25% 25%budget by 2021 and keep itbalanced 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 2035Sources: Current projections: Heritage Foundation calculations based on data from the Congressional Budget Office (Alternative Fiscal Scenario). HeritagePlan: 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
  24. 24. Federal RevenueAmerica’s growing tax burden is a dragon the economy and will reach recordlevels without policy changes.
  25. 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.org18
  26. 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 ThisIncome Taxes group of incometop earners are the target for earners ...new tax increases, but thefederal income tax system isalready highly progressive.the top 10 percent of incomeearners paid 71 percent of all 17% 15% 11% 23% 21% 13%federal income taxes in 2009 ... earned this sharethough they earned 43 of allpercent of all income. the income ...bottom 50 percent paid 2percent of income taxes but 37% 22% 12% 17% 10% 2%earned 13 percent of total ... and paidincome. about half of tax this sharefilers paid no federal income of federaltax at all. income taxes.Source: Internal Revenue Service. Federal revenue Chart 2 • Federal Budget in Pictures 2012 heritage.org 19
  27. 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.org20
  28. 28. U.S. Has the CoMBINed CorPorate taX rateSHighest Corporate 42%Tax Rate 40% United Stateshigh federal and state 39.26%corporate tax rates make it 38%difficult for u.S. 36.8% Japanheadquartered businesses to 36%compete internationally. u.S.rates have been consistently 34%higher than the average ofindustrialized nations. In OECD average 32%april 2012, Japan reduced its (comprises developedcorporate tax rate to 36.8 nations, such 30%percent, making the u.S. total as Canada,corporate tax rate the France, United 28% Kingdom, andhighest. 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. 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.org22
  30. 30. Obama’s Budget BILLIoNS oF NoMINaL doLLarSHikes Taxes by $0 $500 billion $1 trillion $1.5 trillion$2 Trillion $1,433.1 tax increases on high-income earners and small businessesPresident obama’s FY 2013budget includes about $1.5 $147.5 higher taxes on businesses operating internationallytrillion in tax hikes. otherproposals bring the true size $143.3 higher death taxof obama’s tax hikes toover $2 trillion. this $86.8 repeal inventory valuation rulesincludes letting the Bush tax $61.8 Increase unemployment insurance taxcuts expire for high-incomeearners and small $61.3 Impose a bank taxbusinesses and imposingadditional taxes on these $51.2 higher taxes on energy companiesgroups. obama alsoproposes a higher death tax $98.0 IrS program integrity cap, insurance company tax increase,and the institution of new and other miscellaneous tax increasestaxes, such as the punitivebank tax. –$75.3 New tax cutsSources: 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. 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.org24
  32. 32. Increasing Tax PerCeNtage oF gdPRates Does Not 100% 91%Necessarily Leadto Higher IncomeTax Receipts 70% 75%tax cuts can create 50%incentives for individuals to toP INdIVIduaLwork, save, and invest, which taX ratecan generate more revenue. 50%the most dramatic decline in 28% 39.6%the top individual income tax 35% 35%rate, from 70 percent to 28percent, occurred during thereagan administration, 25%during which tax receipts INdIVIduaL taXremained relatively constant reCeIPtSas 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* * ProjectedSources: Office of Management and Budget and the Tax Foundation. Federal revenue Chart 8 • Federal Budget in Pictures 2012 heritage.org 25
  33. 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.org26
  34. 34. Heritage’s New Flat MargINaL taX rateS (2012)Tax Simplifies theTax System 40.3% 30.3%the heritage Foundation’s 28%New Flat tax (NFt), part ofSaving the American Dream, Income Taxreplaces today’s complex taxsystem with one that is 25.0% Income Taxsimple and fair. the New Flattax would help more 15.0%americans save and invest,and it would encourageeconomic growth withoutraising 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. 35. Debt and DeficitsExcessive spending has created recordlevels of debt and deficits, and the worstis yet to come, threatening opportunityand prosperity for younger generations.
  36. 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.org30
  37. 37. Each American’s INFLatIoN-adJuSted doLLarS (2012)Share of Publicly $150,000Held Debt Is 2036: $135,547Skyrocketing $120,000as Washington continues tospend dramatically more 2031: $102,108than it can afford, everyamerican will be on the hook $90,000for increasing levels of debt.Without reining in spending,the amount of debt percitizen 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 2036Sources: 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. 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.org32
  39. 39. Obama’s Budget Budget deFICItS aS a PerCeNtage oF gdP, BY adMINIStratIoNContinuesUnprecedentedDeficits Kennedy Johnson Nixon yJ n Ford Carter Reagan Bush Clinton Bush Obamathe 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, includingirresponsible spending. –2.4%Most administrations have –3.5% –3.2%run small but manageable –4%deficits, but President –4.3% –4.3%obama’s unprecedentedbudget deficits pose seriouseconomic 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. 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.org34
  41. 41. Rising Deficits Drive NoMINaL doLLarSU.S. Debt Limit 2012: $16.39 trillionHigher, 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 hasresult of the contentious 2011 Largest one-year change: +$1.9 trillion, 2010 been raiseddebt ceiling debate, 13 times, for $12 trillion nincreased the debt limit by a total of$2.1 trillion, but failed to rein $10.4 trillion $10 trillion nin the key driver of spendingand debt: entitlementspending. Congress first $8 trillion nplaced 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 nsince 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. 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.org36
  43. 43. Interest on the Debt BILLIoNS oF doLLarS (2011)Exceeds Spending $250for Many Programs $227.1In 2011, the u.S. spent more $200on net interest—interest paidon publicly held debt—than itspent on many federaldepartments, including $150 $139.4 $132.0education 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 SecuritySource: Office of Management and Budget. Debt and Deficits Chart 8 • Federal Budget in Pictures 2012 heritage.org 37
  44. 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.org38
  45. 45. Debt to Grow PerCeNtage oF gdPUnless Government 200%Spending IsReduced CurreNt ProJeCtIoNS 2035:Without significant spending 150% 187%reforms, publicly held debt isprojected to reach 187percent of gdP by 2035.under the heritage plan,Saving the American Dream, 100% 2011:future federal spendingwould be reduced by about 68% SaVINg thehalf, which would aMerICaNdramatically lower the debt dreaM 2035:to 29 percent of gdP. 50% 29% 0% 2010 2015 2020 2025 2030 2035Sources: Current projections: Congressional Budget Office (Alternative Fiscal Scenario). Heritage Plan: Calculations by the Center for Data Analysis based ondata 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. 46. EntitlementsMedicare, Medicaid, and Social Securityspending is set to explode, placing enormouspressure on other priorities such as defenseand the rest of the budget.
  47. 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.org42
  48. 48. Tax Revenues PerCeNtage oF gdPDevoured By 30% 2085:Medicare, Medicaid, 2045: Entitlement spending 25.7% matches tax revenue averageand Social Security 25%in 2045 actual average Social revenue historical SecuritySpending on Medicare, revenue: 18.1% 20%Medicaid, the obamacaresubsidies, and Social Security Medicaid, obamacarewill devour all revenues by Subsidies,2045. entitlement spending 15% ChIPis 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 2085Source: Congressional Budget Office (Alternative Fiscal Scenario). Entitlements Chart 2 • Federal Budget in Pictures 2012 heritage.org 43
  49. 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.org44

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