You are on page 1of 1

‘Cliff’ cutscuts arecontext federal in a small part of overall ‘Fiscal cliff’ spending

spending but key in the ongoing debt debate
More than $500 billion in tax increases and spending cuts are scheduled to take effect early next year if Congress does not act. Most attention has been on tax increases, as this is the greatest area of disagreement between Democrats and Republicans. But the parties are also battling over spending cuts. The debate is not entirely unlike family members trying to balance the books, according to experts at the Bipartisan Policy Center: They’ve got to set priorities and look for ways to bring in more money. Though the federal government can afford to run a deficit, too much of this spending can have consequences. Summary of initial proposals by President Barack Obama and House Speaker John Boehner:

Obama’s initial offer
in cuts over 10 years

$600 billion
Includes $350 billion from health care entitlement programs and $250 billion from other spending, such as farm subsidies

$1.35 trillion
in cuts over 10 years
Includes $600 billion from health care, $300 billion from discretionary spending, an additional $300 billion in mandatory cuts and $135 billion in savings created by shifting the inflation calculator that is used to determine federal benefits such as Social Security

Boehner’s initial offer

$930 billion
in cuts over 10 years
Includes $400 billion from health care, $200 billion in mandatory cuts to nonhealth programs, and $200 billion in cuts to discretionary spending — to be split between defense and nondefense programs — plus $130 billion in savings from the inflation calculator shift

Obama’s counteroffer

There is an ongoing dispute over how — and whether — to count certain savings and spending; the White House argues that accounting for about $290 billion in lower interest costs from reduced deficits would bring its proposal’s total savings to $1.22 trillion; Republicans reject that assertion; Republicans argue that President Obama’s $930 billion offer is really worth only $850 billion because the president has also proposed $80 billion in new spending on infrastructure and unemployment benefits

Fuzzy math

A look at federal government spending as it relates to the “fiscal cliff” debate:

What the government taxes and spends
Tax revenue grew steadily until the 2001 tax cuts. Spending also has grown; tax and revenue figures are from the Office of Management and Budget, and projections for future years make a number of assumptions based on Obama’s proposals. The projected tax revenues assume that Congress avoids the cliff; tax cuts are extended to all filers except those making more than $250,000 annually

And how ‘cliff’ cuts compare
Dollar amounts from 2013 fiscal year The cuts and expiring tax cuts that compose the “fiscal cliff,” while worrisome in terms of the impact on the economy if no deal is reached, are a small part of the federal budget overall and would still leave a deficit in fiscal 2013

Annual tax revenue
4

In trillions of dollars

Projected

3

Other and excise taxes Corporate taxes Social insurance and retirement Individual taxes

$3.80 trillion
Total federal spending for fiscal 2013

2

1

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

$2.91 trillion
Total tax revenue for fiscal 2013

Annual revenue compared with spending
5

In trillions of dollars

Projected

$288 billion
This is the amount of revenue gained by letting the Bush-era tax cuts expire for those who make more than $250,000 annually and by adjusting the Alternative Minimum Tax for inflation, thereby decreasing the number of filers affected by the AMT

Annual tax revenue
4

Annual federal spending

3

2

$40 billion
This is the amount of decreased spending saved by enacting the automatic spending cuts to nondefense outlined in the Budget Control Act

1

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

$24 billion
This is the amount of decreased spending saved by enacting the automatic spending cuts to defense outlined in the Budget Control Act

Government spending by major spending area
5

In trillions of dollars

Projected

4

All other Treasury Defense Social Security Health and Human Services

3

$549 billion
Even if taxes are raised for the wealthy, the Office of Management and Budget’s projection still shows a $549 billion deficit

2

1

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Federal spending: 4 key areas
The departments that handle Medicare and Medicaid, Social Security, defense and the debt make up more than 80 percent of the 2013 budget. All spending-cut discussions start there:

Medicare and Medicaid
An aging population and rising health care costs make Medicare and Medicaid spending the fastest-growing area of the federal budget and one that will keep growing if nothing is done, according to Loren Adler, senior policy analyst at the Bipartisan Policy Center Many don’t realize Medicare and Medicaid are such a big chunk of government spending, said Alice Rivlin, senior fellow at the Brookings Institution, and costs will continue to grow for the federal government and for states Whether the Affordable Care Act addresses the longer-term issues remains to be seen; a fiscal cliff deal could be a way to buy time to fix the deeper issues, Adler said

Social Security
Social Security spending isn’t rising much, Brookings said, but could as baby boomers enter retirement age

Defense
With the wars in Iraq and Afghanistan ending and the caps on spending from the Budget Control Act, defense spending looks to flatten or possibly decrease in future years

4.0 3.5 3.0

Ratio of workers to social Security beneficiaries

Defense spending
2.5 2.0 1.5 1.0 0.5

As a percentage of GDP Military personnel Research, testing and evaluation

Operation and maintenance

Medicare and Medicaid spending
As a percentage of GDP
3.5 3.0 2.5 2.0 1.5 1.0
1976 1980 1984 1988 1992 1996 2000 2004

Projected

1970

1980

1990

2000

2010

1976

1981

1986

1991

1996

2001

2006

2011

Medicare

Interest on the debt
Spending to pay interest on the national debt is one of the larger chunks of the budget, but the impact is offset by low interest rates, Rivlin said; a deal on taxes could help by bringing in more revenue

Net interest paid on debt
600 400 200

In billions of dollars

Projected

Medicaid
2008 2012 2016

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

2016

Source: U.S. Department of the Treasury, whitehouse.gov, U.S. Department of Health & Human Services, U.S. Congressional Budget Office, U.S. Bureau of Labor Statistics, U.S. Census Bureau, Social Security Administration, MCT Photo Service Graphic: Kim Geiger, Carolyn Aler, Jonathon Berlin, Chicago Tribune

NOTE: Charts use data from the Office of Management and Budget; U.S. Treasury has released actual budget and spending data for 2012, but does not provide historical trends and the detailed breakdown by department or agency shown here © 2012 MCT