To give you some perspective, since 1966 the U.S. has maintained an annual deficit, where federal spending surpassed federal income, in all but 5 years (1969, 1998-2001). Over this 50-year period the U.S. deficit has averaged 2.8 percent of U.S Gross Domestic Product (GDP). According to the World Bank estimated 2014 GDP for the U.S. was $17. 4 trillion, #1 in world followed by China with a GDP of $10.4 trillion.
Where Does the Money in the U.S. budget come from? Simple answer is you, the taxpayer! Annual budget policies and priorities impact every American and are worthy of your consideration each year.
Here’s a breakdown of revenues for the annual U.S. budget in FY 2016 and CBO’s projection through FY 2026:
How are my tax dollars spent? Below are charts and data showing a breakdown of the two major categories of federal government spending: mandatory and discretionary program spending.
Explanation of Mandatory and Discretionary Spending
Congress enacts federal programs and mandates that taxpayer dollars fund them. These “authorized programs” receive funding each year without changing the authorization statute. Congress cannot reduce the funding for mandatory programs unless it changes the authorization law.
Some authorization laws provide direct mandatory spending to recipients. These include the major entitlement programs, such as Social Security, Medicare and Medicaid. Almost all mandatory programs are permanent, until repealed by Congress. However, there are a few exceptions. An example is the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamp program) which requires periodic renewal.
Each year the mandatory portion of the U.S. budget is estimated to cover the costs to implement the benefits promised by these previously enacted authorization laws. These estimates are made by the Office of Management and Budget (OMB).
Discretionary spending is under the discretion of Congress each year. Discretionary spending amounts to about 30% of the total U.S. budget, or roughly $1 trillion total. The amount of annual spending for a discretionary program requires an annual appropriation bill passed by Congress. The latest FY 2016 Omnibus appropriations package totaled $1.15 trillion (PL 114-113) and was signed into law Dec. 18, 2015.
Each year the House and Senate Appropriations Committees set the annual spending levels. Only appropriations for housing and military procurement are typically longer than one year.
National defense discretionary spending is about half of the total discretionary budget each year.
Non-defense discretionary spending includes many federal programs like agriculture, education, training, science, technology, housing, transportation, and foreign aid.
So, what are the implications for my organization?
The U.S. House and Senate Budget Committees have begun hearings to review the President’s budget & policy priorities and hear the views and opinions of members of Congress on their budget and policy priorities for FY 2017. The result of these deliberations is typically a concurrent congressional budget resolution that is passed by both the House and the Senate. Unlike other bills and resolutions adopted by Congress, a budget resolution is not sent to the President and does not maintain the force of law. It does however become binding in future congressional procedures and sets varying federal program budget allocations. The budget resolution may also include reconciliation instructions to any of the House or Senate committees with jurisdiction over multiple and varying federal programs. These instructions can have significant implications to federal programs that can impact your organization or business interests. Now is the time to get your viewpoints heard to impact the federal budget process.
Is The Price Right?
House Budget Committee Chairman Tom Price (R-GA) is beginning to build support for an FY 2017 congressional budget resolution that will create as much deficit savings out of economic growth as possible. Price has said that history has taught us that one way to make up for a rising deficit and still balance the federal budget in 10 years is in the tax and spending framework.
In the future Congress will focus on adopting policies that promote economic growth.
There are multiple types of growth policies that will help you and grow the U.S. economy amidst rising deficits in the future:
- While the Federal Reserve raised interest rates in mid-December 2015, it foreshadowed that it will be patient with future rate increases so as not to negatively impact the economic recovery. The Fed said the economy will only merit “gradual increases” in rates, which are likely to remain low “for some time.” Any future rate hikes will be gradual according to the Fed. This is smart economic policy and let’s hold the Fed to it.
- Encouraging entrepreneurship and innovation, national revenue and spending policies must promote innovation that ensures there will be enough high-tech, high-skilled and high-paying jobs to carry on into the next few decades.
- Reducing the effective income tax rate by 5.5% next year. In its mid-December report the Federal Reserve said it could not foresee inflation rising until 2018. Let’s test that hypothesis and put more disposable income in consumers’ pockets.
- Reducing the corporate income tax rate by 7% next year. Let’s get started and test this hypothesis and put an end to the debate. When businesses and potential employers’ have more money they tend to re-invest it in, and grow their business by hiring people.
- Stop rewarding unemployed. Research shows unemployment payments extend the length of joblessness in the U.S. The length of providing unemployment insurance should be shortened and those receiving benefits should be required to volunteer at non-profit centers.
- Reduce health care costs. Over the past two years under the Affordable Care Act there hasn’t proven to be anything more affordable. Premiums have been reported to increase up to 30% for families of four. Premiums seem to be the same for the unhealthy, drug-addicted and their healthy, same-aged counter-parts. Yet some things should remain in place. Access to health care no matter your physical condition should be allowed, so too should access to quality healthcare coverage. People should be rated based on their health condition.
- Provide incentives to buy bonds and keep bond rates low. This should increase the money supply and lower interest rates to boost investment and economic activity.
- Tie congressional pay raises to adopted budget resolutions. No resolution that effectively reduces the national debt, no pay raise.
- Place an 18-month moratorium on all federal regulations and scour the federal code significantly reducing regulations that hamper 21st Century economic growth.
- Repeal trade-distorting laws like the 1933 Buy American Act and the 1941 Berry Amendment that in no way reflects today’s global, 21st Century economy and high-tech marketing.
Enacting such pro-growth policies would likely help the U.S. economy surpass the expected real GDP growth of 2.7 percent this year and 2.5 percent next year and prevent the slowing pace expected in later years. These types of polices will benefit everyone in the economy by improving consumer spending and increasing investments in people and securities by businesses over the next few years.