[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
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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
goal--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
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Revenues
Chart 2-3. The Federal Government Dollar--Where It Comes From
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 $691 billion in 1998, equal
to about eight percent of GDP--roughly 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 nearly seven
percent in 1998.
. Corporate income taxes, which will raise an estimated $190 billion in
1998, have shrunk steadily as a percent of GDP, from 4.5 percent in
1955 to 2.3 percent today.
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Table 2-1. Revenues By Source--Summary
(In billions of dollars)
------------------------------------------------------------------------
1996 Estimate
Source Actual 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------
Individual income taxes 656 673 691 722 756 795 840
Corporate income taxes 172 176 190 200 212 221 228
Payroll taxes 509 536 558 585 614 642 673
Excise taxes 54 57 61 64 65 66 67
Estate and gift taxes 17 18 19 20 21 23 25
Customs duties 19 17 18 18 20 21 22
Miscellaneous receipts 26 29 30 34 39 41 42
-----------------------------------------
Total receipts 1,453 1,505 1,567 1,643 1,727 1,808 1,897
-------------------------------------------------------------------------
Notes: The revenues listed in this table do not include revenues from
the Government's business-like activities--i.e., 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.
. 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.
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Chart 2-4. Composition of Revenues
Chart 2-5. Revenues as a Percent of GDP--Comparison With Other Countries
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Spending
As we have said, the Federal Government will spend nearly $1.7 trillion 1~ in
1998, 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 23 percent of all Federal
spending.
. Medicare, which provides health care coverage for over 33 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 1998, it will comprise 12 percent.
Chart 2-6. The Federal Government Dollar--Where It Goes
---------
1 In calculating Federal spending~, the Government~ deducts collections
(revenues) generated by the Government's business-like activities, such
as fees to national parks. These collections w~ill total an estimated
$209 billion in 1998. ~Without them, spending would total an estimated
$1.9 trillion in 1998, not $1.7 trillion.
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. Medicaid provides health care services to over 38 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, 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 1998.
. The remaining entitlements, which mainly consist of Federal retirement
and insurance programs and payments to farmers, comprise five percent
of the budget.
. National defense discretionary spending will total an estimated $260
billion in 1998, comprising 15 percent of the budget and 3.2 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 1998.
. 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.
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Table 2-2. Spending Summary
(Outlays, in billions of dollars)
-----------------------------------------------------------------------------
1996 Estimate
Category Actual 1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------
Discretionary:
National Defense 266 268 260 262 268 269 274
International 18 20 19 20 19 19 19
Domestic 250 263 268 276 277 274 274
----------------------------------------
Subtotal, discretionary 534 550 547 558 564 561 567
Mandatory:
Programmatic:
Social Security 347 364 381 399 418 438 460
Medicare 171 192 204 217 227 243 261
Medicaid 92 99 106 112 118 125 133
Means-tested entitlements
(except Medicaid) 95 104 107 112 117 115 122
Other 117 122 147 156 169 167 166
-----------------------------------------
Subtotal, programmatic 822 880 946 995 1,048 1,089 1,142
Undistributed offsetting
receipts -38 -46 -56 -44 -46 -50 -68
-----------------------------------------
Subtotal, mandatory 785 834 890 951 1,002 1,038 1,074
Net interest 241 247 250 252 248 245 239
-----------------------------------------
Subtotal, mandatory
and net interest 1,026 1,081 1,140 1,203 1,251 1,283 1,313
-----------------------------------------
Total 1,560 1,631 1,687 1,761 1,814 1,844 1,880
-------------------------------------------------------------------------
Note: Numbers may not add to the totals due to rounding.
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Table 2-3. Spending by Function
(Outlays, in billions of dollars)
-----------------------------------------------------------------------------
1996 Estimate
Function Actual 1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------
National defense:
Department of Defense-
Military 253 254 247 249 255 256 261
Other 13 13 12 12 12 12 12
-----------------------------------------
Total, National defense 266 267 259 261 267 268 273
International affairs 13 15 15 16 15 15 15
General science, space,
and technology 17 17 16 16 16 16 16
Energy 3 2 2 1 2 2 -*
Natural resources and
environment 22 23 22 23 23 23 23
Agriculture 9 10 12 12 11 10 10
Commerce and housing credit -11 -9 3 6 13 7 8
Transportation 40 39 39 39 39 39 39
Community and regional
development 11 13 11 11 10 8 8
Education, training,
employment, and social
services 52 51 56 62 63 64 63
Health 119 128 138 145 152 160 165
Medicare 174 194 207 220 229 246 263
Income security 226 239 247 256 266 269 280
Social Security 350 368 384 402 421 441 463
Veterans benefits and
services 37 40 41 42 44 41 43
Administration of justice 18 21 24 26 26 26 26
General government 12 13 13 13 14 13 13
Net interest 241 247 250 252 248 245 239
Undistributed offsetting
receipts -38 -46 -56 ~ -44 -46 -50 -68
-----------------------------------------
Total 1,560 1,631 1,687 1,761 1,814 1,844 1,880
---------------------------------------------------------------------------
* $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.
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Table 2-4. Spending by Agency
(Outlays, in billions of dollars)
-----------------------------------------------------------------------------
1996 Estimate
Agency Actual 1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------
Legislative Branch 2 3 3 3 3 3 3
The Judiciary 3 4 4 4 4 4 4
Executive Office of the
President * * * * * * *
Funds Appropriated to the
President 10 10 10 10 11 11 11
Agriculture 54 57 59 58 60 60 62
Commerce 4 4 4 5 6 4 4
Defense-Military 253 254 247 249 255 256 261
Defense-Civil 33 34 35 36 37 38 39
Education 30 28 32 36 37 37 36
Energy 16 15 15 15 15 14 12
Health and Human Services 320 351 376 397 414 439 462
Housing and Urban Development 26 30 32 33 32 30 30
Interior 7 7 7 7 7 7 7
Justice 12 15 17 19 19 19 18
Labor 32 33 36 38 39 40 40
State 5 5 6 6 5 6 6
Transportation 39 38 38 39 38 38 38
Treasury 365 381 390 398 400 402 403
Veterans Affairs 37 40 41 42 44 41 43
Environmental Protection Agency 6 6 7 7 7 7 7
General Services Administration 1 1 1 * * * *
National Aeronautics and Space
Administration 14 14 14 13 13 13 13
Office of Personnel Management 43 45 47 49 51 53 56
Small Business Administration 1 * * * * 1 1
Social Security Administration 375 396 413 432 454 471 496
Other Independent Agencies 9 10 20 23 26 24 25
Undistributed Offsetting
Receipts -135 -151 -166 -157 -165 -174 -197
--------------------------------------------
Total 1,560 1,631 1,687 1,761 1,814 1,844 1,880
---------------------------------------------------------------------------
* $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.
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``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