[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]
2. Where the Money Comes From--
and Where it Goes
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
SOURCES: CASH AND CREDIT
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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 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 use the budget surplus to adress longer-term concerns and
invest in the Nation's future.
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
SOURCES: TAXES AND BORROWING
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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 1998, revenues were greater than
spending, and the Government was able to reduce the national debt with
the difference between revenues and spending--that is, the surplus.
Revenues come from these sources:
Individual income taxes will raise an estimated $900 billion
in 2000, equal to about 10 percent of GDP.
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 an estimated seven percent in 2000.
Corporate income taxes, which will raise an estimated $189
billion, have shrunk steadily as a percent of GDP, from 4.5
percent in 1955 to an estimated 2.1 percent in 2000.
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Table 2-1. Revenues By Source Summary
(In billions of dollars)
----------------------------------------------------------------------------
Source 1998 Estimate
Actual 1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------
Individual income taxes..... 829 869 900 912 943 971 1,018
Corporate income taxes...... 189 182 189 197 203 212 221
Payroll taxes............... 572 609 637 660 686 712 739
Excise taxes................ 58 68 70 71 72 74 75
Estate and gift taxes....... 24 26 27 28 30 32 34
Customs duties.............. 18 18 18 20 21 23 25
Miscellaneous receipts...... 33 35 42 45 50 52 53
-------------------------------------------------
Total receipts.............. 1,722 1,806 1,883 1,933 2,007 2,075 2,166
------------------------------------------------------------------------------
Notes: The revenues listed in this table do not include revenues from
the Governments business-like activities--i.e., the sale of electricity
and fees at 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 because of 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 and airports and airways--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
The United States and Japan have the lowest revenues as a percent
of GDP of the seven countries listed above.
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Spending
As we have said, the Federal Government will spend nearly $1.8
trillion\1\ and have a surplus of over $117 billion in 2000, which
we divided into nine large categories as shown in Chart 2-6.
The largest Federal program is Social Security,
which will provide monthly benefits to nearly 45 million
retired and disabled workers, their dependents, and survivors.
It accounts for 22 percent of your Federal dollar (or 23
percent of all Federal spending).
Medicare, which will provide health care coverage for
over 40 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-
Chart 2-6. The Federal Government Dollar--Where It Goes
*Means-tested entitlements are those for which eligibility is
based on income. The Medicaid program is also a means-tested
entitlement.
--------
\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 will total an estimated $216
billion in 2000. Without them, spending would total an estimated $2.0
trillion in 2000, not $1.8 trillion.
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growing share of spending. In 2000 it will comprise 11 percent of your Federal dollar (or 12 percent of all Federal spending).
Medicaid, in 2000, will provide health care services
to over 34 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 your Federal dollar (also six
percent of the 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 your Federal
dollar (also six percent of the budget).
The remaining mandatory spending, which mainly consists of
Federal retirement and insurance programs, unemployment
insurance, and payments to farmers, comprise six percent
of your Federal dollar (also six percent of the budget).
National defense discretionary spending will total an
estimated $275 billion in 2000, comprising over 15 percent
of your Federal dollar (and 16 percent of the budget).
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
187 percent in 2000. (or 17 percent of your Federal dollar).
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.
Since the budget is now is surplus, interest payments are
estimated 12 percent of the budget in 2000 (11 perceent of
your Federal dollar).
Six percent of your Fedral dollar (the budget surplus) will
not be spent. The President has proposed that any surplus be
reserved until a plan to save Social Security has been enacted.
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Table 2-2. Spending Summary
(Outlays, in billions of dollars)
----------------------------------------------------------------------------
Estimate
1998 ----------------------------------------
Actual 1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------
Budget Policy with Social Security
reform:
Outlays:
Discretionary:
Department of Defense....... 258 265 262 269 279 291 301
Non-DoD discretionary....... 19 19 19 19 19 19 19
Priority initiatives........ ... ... ... 2 4 7 10
-----------------------------------------------
Subtotal, discretionary... 555 581 592 612 623 636 649
Mandatory:
Programmatic:
Social security............ 376 389 405 424 444 465 487
Medicare and Medicaid...... 291 311 328 350 363 391 416
Means-tested entitlements
(except Medicaid).......... 99 107 112 118 124 129 134
Deposit insurance......... -4 -5 -2 -2 -1 -* 1
Other...................... 92 117 116 118 115 125 131
-----------------------------------------------
Subtotal, mandatory....... 855 919 959 1,007 1,044 1,110 1,170
Net interest................. 243 227 215 207 197 188 179
-----------------------------------------------
Subtotal, mandatory and
net interest.............1,098 1,146 1,174 1,214 1,241 1,297 1,349
-----------------------------------------------
Total outlays................1,653 1,727 1,766 1,826 1,863 1,934 1,998
Receipts.....................1,722 1,806 1,883 1,933 2,007 2,075 2,166
Resources contingent upon Social
Security reform:
Department of Defense..... ... ... ... -10 -17 -13 -15
Non-DoD discretionary..... ... ... ... -15 -20 -16 -9
Priority initiatives...... ... ... ... -2 -4 -7 -10
Related debt service...... ... ... ... -1 -2 -4 -6
-----------------------------------------------
Total.................... ... ... ... -27 -43 -41 -40
Reserve pending Social
Security reform.............. 69 79 117 134 187 182 208
Surplus................... 0 0 0 0 0 0 0
MEMORANDUM:
Discretionary totals if no Social
Security reform is enacted,
net of designated offsets.... 555 581 574 573 568 584 600
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*$500 million or less.
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Table 2-3. Spending by Function
(Outlays, in billions Of dollars)
------------------------------------------------------------------------------
Estimate
Function 1998 -----------------------------------
Actual 1999 2000 2001 2002 2003 2004
------------------------------------------------------------------------------
National defense:
Department of Defense-Military... 256 264 261 269 278 290 300
Other............................ 12 13 13 14 14 14 14
--------------------------------------------
Total, national defense........... 268 277 274 282 292 304 314
International affairs ............ 13 15 16 17 18 18 18
General science, space, and
technology....................... 18 19 19 19 19 19 19
Energy............................ 1 * -2 -1 -1 -1 -1
Natural resources and environment. 22 24 24 24 24 24 24
Agriculture....................... 12 21 15 13 11 10 10
Commerce and housing credit....... 1 * 6 8 9 10 10
Transportation.................... 40 43 46 49 50 52 53
Community and regional development. 10 10 10 10 10 9 9
Education, training, employment,
and social services.............. 55 60 63 68 67 69 70
Health............................ 123 143 152 163 173 185 197
Medicare.......................... 193 205 217 231 235 252 266
Income security.................... 233 243 258 267 275 282 291
Social security.................... 379 393 409 427 447 468 491
Veterans benefits and services.... 42 44 44 45 46 47 48
Administration of justice......... 23 24 28 29 28 28 28
General government................ 13 15 14 15 15 15 15
Net interest...................... 243 227 215 206 195 183 173
Allowances........................ ... 3 3 -27 -40 -34 -29
Undistributed offsetting receipts. -47 40 -46 -45 -51 -47 -48
--------------------------------------------
Total............................. 1,653 1,727 1,766 1,799 1,820 1,893 1,958
------------------------------------------------------------------------------
* $500 million or less.
Note: Spending that is shown as a minus means that receipts exceed outlays.
Numbers may not add to the totals because of rounding.
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Table 2-4. Spending by Agency
(Outlays, in billions of dollars)
----------------------------------------------------------------------------
Estimate
Agency 1998 -----------------------------------
Actual 1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------
Legislative Branch................. 2 2 3 3 3 3 3
Judicial Branch.................... 3 3 4 4 4 4 4
Agriculture........................ 16 17 16 15 15 15 15
Commerce........................... 4 5 7 5 5 5 5
Defense-Military................... 258 265 262 269 279 291 301
Education.......................... 26 29 32 35 35 35 35
Energy............................. 17 17 18 18 18 18 18
Health and Human Services.......... 35 39 42 43 43 43 43
Housing and Urban Development...... 33 33 34 34 32 31 30
Interior........................... 7 8 8 9 9 9 9
Justice............................ 15 16 19 20 19 19 19
Labor.............................. 10 11 11 11 11 12 12
State.............................. 5 6 6 7 7 6 7
Transportation..................... 37 4- 43 47 49 40 51
Treasury........................... 11 12 12 13 13 13 13
Veterans Affairs................... 18 19 19 19 19 19 19
Corps of Engineers................. 4 4 4 4 4 4 4
Other Defense Civil Programs....... * * * * * * *
Environmental Protection Agency.... 7 7 7 8 7 7 7
Executive Office of the President.. * * * * * * *
Federal Emergency Management Agency 3 3 3 3 2 2 2
General Services Administration.... 1 * * * * * *
International Assistance Programs.. 11 12 12 12 13 12 12
National Aeronautics and Space
Administration.................... 14 14 13 13 13 14 14
National Science Foundation........ 3 3 4 4 4 4 4
Office of Personnel Management..... * * * * * * *
Small Business Administration...... 1 1 1 1 1 1 1
Social Security Administration..... 5 6 6 6 6 6 6
Other Independent Agencies......... 6 6 6 6 7 7 7
Allowances ........................ .... 3 3 -24 -36 -29 -24
Undistributed offsetting receipts.. .... .... -3 1 1 -* -*
-----------------------------------------
Total............................ 555 581 592 586 582 600 615
----------------------------------------------------------------------------
* $500 million or less.
Note: Discretionary spending is appropriated by the Congress each
year, in contrast with mandatory spending, which is automatic
under permanent law. For a more complete discussion of
discretionary spending, see ``Action in Congress'' in Chapter 3.
Spending that is shown as a minus means that receipts exceed outlays.
Numbers may not add to the totals because of 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