[A Citizen's Guide to the Federal Budget]
[2. Where the Money Comes From - and Where It
Goes]
[From the U.S. Government Printing Office, www.gpo.gov]
In a typical American household, a father and mother might sit around
the kitchen table to review the family budget. They might discuss how
much they expect to earn each year, how much they can spend on food,
shelter, clothing, transportation, and perhaps a vacation, and how
much they might be able to save for their future needs.
If they do not have enough money to make ends meet, they might discuss
how they can spend less, such as by cutting back on restaurants,
movies, or other entertainment. They also might consider whether to
try to earn more by working more hours or taking another job. If they
expect their shortfall to be temporary, they might try to borrow.
Chart 2-1. Family Budgeting
[[Page 6]]
Generally speaking, the Federal Government plans its budget much like
families do. The President and Congress determine how much money they
expect the Government to receive in each of the next several years,
where it will come from, and how much to spend to reach their
goals--goals for national defense, foreign affairs, social insurance
for the elderly, health insurance for the elderly and poor, law
enforcement, education, transportation, science and technology, and
others.
They decide how much spending they will finance through taxes and how
much through borrowing. They debate how to use the budget to help the
economy grow, or to redistribute income. And, especially lately, they
debate how to reduce spending in order to eliminate the deficit and
balance the budget.
In this chapter, we will discuss these decisions in some detail--that
is, how the Government raises revenues and where it spends money.
Chart 2-2. National Budgeting
[[Page 7]]
Revenues
The money that the Federal Government uses to pay its bills--its
revenues--comes mostly from taxes. In recent years, revenues
have been lower than spending, and the Government has borrowed to
finance the difference between revenues and spending--that is, the
deficit.
Revenues come from these sources:
Individual income taxes will raise an estimated $645 billion in 1997,
equal to about 8 percent of GDP--about the same percent as in each of
the last 40 years.
Social insurance payroll taxes--the fastest growing category of Federal
revenues--include Social Security taxes, Medicare taxes, unemployment
insurance taxes, and Federal employee retirement payments. This
category has grown from two percent of GDP in 1955 to seven percent in
1997.
Corporate income taxes, which will raise an estimated $185 billion in
1997, have shrunk steadily as a percent of GDP, from 4.6 percent in
1955 to 2.2 percent today.
Chart 2-3. The Federal Government Dollar--Where It Comes From
[[Page 8]]
Excise taxes apply to various products, including alcohol, tobacco,
transportation fuels, and telephone services. The Government earmarks
some of these taxes to support certain activities--including highways,
airports and airways, and the cleanup of hazardous substances--and
deposits others in the general fund.
The Government also collects miscellaneous revenues--e.g., customs
duties, Federal Reserve earnings, fines, penalties, and forfeitures.
Table 2-1. Revenues By Source-Summary
(In billions of dollars)
------------------------------------------------------------------------------
1995 Estimate
Source Actual 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------
Individual income taxes 590 631 645 683 714 749 790 835
Corporate income taxes 157 167 185 202 213 225 237 246
Payroll taxes 484 508 536 561 589 619 647 679
Excise taxes 57 54 60 60 62 63 64 66
Estate and gift taxes 15 16 17 18 19 21 22 24
Customs duties 19 19 20 21 21 22 22 24
Miscellaneous receipts 32 32 32 33 34 35 37 38
Total revenues 1,355 1,427 1,495 1,578 1,653 1,734 1,820 1,912
Notes: The revenues listed in this table do not include revenues from
the Government's business-like activities-e.g., the sale of
electricity and fees to national parks. The Government counts these
revenues on the spending side of the budget, deducting them from other
spending to calculate its outlays for the year.
Numbers may not add to the totals due to rounding.
[[Page 9]]
Chart 2-4. Composition of Revenues Over the Last 40 Years
Chart 2-5. Revenues as a Percent of GDP-Comparison With Other Countries
[[Page 10]]
Spending
As we have said, the Federal Government will spend over $1.6
trillion 1 in 1997, which we divided into eight large categories as
shown in Chart 2-6.
The largest Federal program is Social Security, which provides monthly
benefits to more than 43 million retired and disabled workers, their
dependents, and survivors. It accounts for 22 percent of all Federal
spending.
Medicare, which provides health care coverage for over 37 million
elderly Americans and people with disabilities, consists of Part A
(hospital insurance) and Part B (insurance for physician costs and
other services). Since its birth in 1965, Medicare has accounted for
an ever-growing share of spending. In 1997, it will comprise 11
percent.
Chart 2-6. The Federal Government Dollar--Where It Goes
[[Page 11]]
Medicaid provides health care services to over 36 million Americans,
including the poor, people with disabilities, and senior citizens in
nursing homes. Unlike Medicare, the Federal Government shares the
costs of Medicaid with the States, paying between 50 and 83 percent of
the total (depending on each State�s requirements). Federal and State
costs are growing rapidly. Medicaid accounts for six percent of the Federal
budget.
Other means-tested entitlements provide benefits to people and
families with incomes below certain minimum levels that vary from
program to program. The major means-tested entitlements are Food
Stamps and food aid to Puerto Rico, Aid to Families with Dependent
Children, Supplemental Security Income, Child Nutrition, the Earned
Income Tax Credit, and veterans� pensions. This category will account
for an estimated six percent of the budget in 1997.
The remaining entitlements, which mainly consist of Federal retirement
and insurance programs and payments to farmers, comprise six percent
of the budget.
National defense discretionary spending will total an estimated $259
billion in 1997, comprising 16 percent of the budget and 3.3 percent
of GDP.
Non-defense discretionary spending-a wide array of programs that
include education, training, science, technology, housing,
transportation, and foreign aid�has shrunk as a share of the budget
from 23 percent in 1966 to an estimated 17 percent in 1997.
Interest payments, primarily the result of previous budget deficits,
averaged seven percent of Federal spending in the 1960s and 1970s.
But, due to the large budget deficits that began in the 1980s, that
share quickly doubled to 15 percent, where it stands today.
[[Page 12]]
Table 2-2. Spending Summary
(Outlays, in billions of dollars)
------------------------------------------------------------------------------
1995 Estimate
Category Actual 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------
Discretionary:
National Defense 274 266 259 256 257 264 267 276
International 20 20 20 19 19 18 18 19
Domestic 252 255 263 264 260 255 264 278
Subtotal, discretionary 546 541 542 539 536 537 548 573
Mandatory:
Programmatic:
Social Security 333 348 365 383 402 421 442 464
Medicare 157 175 187 202 216 228 246 264
Medicaid 89 95 106 111 117 122 129 133
Means-tested entitlements
(except Medicaid) 92 97 104 109 114 121 121 129
Other 114 118 134 138 142 147 147 151
Subtotal, programmatic 786 832 896 943 990 1,040 1,084 1,141
Undistributed offsetting
receipts, -44 -42 -41 -42 -43 -46 -48 -69
Subtotal, mandatory 741 790 855 901 947 955 1,036 1,072
Net interest 232 241 238 236 235 230 227 223
Subtotal, mandatory
and net interest 973 1,031 1,093 1,137 1,181 1,225 1,263 1,295
Total 1,519 1,572 1,635 1,676 1,717 1,761 1,812 1,868
Note: Numbers may not add to the totals due to rounding.
[[Page 13]]
Table 2-3. Spending by Function
(Outlays, in billions of dollars)
------------------------------------------------------------------------------
1995 Estimate
Function Actual 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------
National defense:
Department of Defense--
Military, 259 254 247 244 246 254 257 265
Other 13 11 11 11 10 9 9 11
Total, National defense 272 266 259 255 256 263 266 275
International affairs 16 15 15 14 14 13 14 15
General science, space,
and technology 17 17 17 17 16 15 15 17
Energy 5 3 2 2 2 1 2 *
Natural resources and
environment 22 22 22 21 21 20 21 22
Agriculture 10 8 8 9 9 8 7 7
Commerce and housing credit -14 -11 6 6 7 7 5 5
Transportation 39 40 39 39 37 35 34 35
Community and regional
development 11 13 12 10 9 8 8 8
Education, training,
employment, and social
services 54 54 54 54 56 57 59 62
Health 115 121 135 141 147 152 156 162
Medicare 160 178 190 205 218 231 248 267
Income security 220 228 237 245 253 264 269 282
Social Security 336 351 368 386 405 424 445 467
Veterans benefits and
services 38 38 40 39 37 37 36 40
Administration of justice 16 19 22 24 25 26 26 25
General government 14 14 15 14 14 14 15 15
Net interest 232 241 238 236 235 230 227 223
Allowances -* -* -* -* -* 5 9
Undistributed offsetting
receipts -44 -42 -41 -42 -43 -46 -48 -69
Total 1,519 1,572 1,635 1,676 1,717 1,761 1,812 1,868
* $500 million or less.
Notes: Spending that is shown as a minus means that receipts exceed outlays.
Numbers may not add to the totals due to rounding.
[[Page 14]]
Table 2-4. Spending by Agency
(Outlays, in billions of dollars)
------------------------------------------------------------------------------
1995 Estimate
Function Actual 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------
Legislative Branch 3 3 3 3 3 3 3 3
The Judiciary 3 3 4 4 4 4 4 4
Executive Office of the President * * * * * * * *
Funds Appropriated to the
President 11 10 10 10 10 10 9 10
Agriculture 57 55 56 58 59 59 61 63
Commerce 3 4 4 4 5 6 4 4
Defense-Military 260 254 247 244 246 254 257 265
Defense-Civil 32 32 33 34 35 36 37 38
Education 31 30 30 29 30 31 32 33
Energy 18 15 15 14 13 12 12 12
Health and Human Services 303 327 354 378 397 416 439 465
Housing and Urban Development 29 26 32 33 33 31 30 30
Interior 7 7 7 7 7 7 7 7
Justice 11 13 16 18 19 20 20 19
Labor 32 34 35 36 37 38 40 41
State 5 6 6 5 5 5 5 5
Transportation 39 39 38 38 36 34 33 35
Treasury 349 365 369 370 374 376 377 381
Veterans Affairs 38 38 40 39 37 37 36 40
Environmental Protection Agency 6 6 6 7 7 7 7 7
General Services Administration 1 * 1 1 * * * *
National Aeronautics and Space
Administration 13 14 14 14 13 12 12 13
Office of Personnel Management 41 42 45 47 49 51 54 57
Small Business Administration 1 1 * * * * * 1
Social Security Administration 362 377 398 418 438 462 480 506
Other Independent Agencies 2 9 21 20 20 19 19 20
Allowances ... -1 -5 -7 -6 -7 -2 *
Undistributed offsetting
receipts -138 -140 -143 -148 -153 -161 -166 -192
Total 1,519 1,572 1,635 1,676 1,717 1,761 1,812 1,868
* $500 million or less.
Notes: Spending that is shown as a minus means that receipts exceed outlays.
Numbers may not add to the totals due to rounding.
[[Page 15]]
``On'' and ``Off'' Budget
From time to time, you may hear about programs that are
``off-budget,'' meaning that the Government categorizes them
separately from other programs.
Specifically, the law requires that the spending and revenues of two
Federal programs, Social Security and the Postal Service, be excluded
from the budget totals--that is, categorized as ``off-budget.''Therefore, the budget displays ``on-budget,'' ``off-budget,''
and ``unified budget'' totals to satisfy this legal requirement.
The unified budget is the most useful display of the Government's
finances; it is vital in calculating how much the Government has to borrow.
The ``off-budget'' category is designed to give special status to
certain programs. Over the years, the Government has placed numerous
programs ``off-budget,'' then returned them to the unified budget. But
the mere listing of programs as ``off-budget'' does not, by itself,
protect them from the budget process--e.g., Administration and
congressional review, possible cuts, and hiring and procurement rules.
Chart 2-7 illustrates the relationship between on- and off-budget
items, and the unified budget.
Chart 2-7. On- and Off-Budget Deficit Projections