Slide 1Be Afraid. Be Very Afraid.17.1 How much does the govt. spend?Federal Budgetary ProcessIs the Government too Big?Number of Federal EmployeesUS Citizens per Federal EmployeeWhat we mean by Govt. SpendingU.S. Federal Govt. ExpendituresU.S. Federal Govt. ExpendituresWhere Does the Money Go?Total Govt. Spending, 2012, % of GDP17.2 How much does the govt. collect?U.S. Federal Govt. ReceiptsU.S. Federal Govt. ReceiptsSources of U.S. Govt. Revenue; 2013Total Tax Revenue,2012, % of GDP17.3 How much does the govt. owe?Important TermsU.S. Federal Revenues and OutlaysU.S. Federal Revenues and OutlaysU.S. Annual Govt. Surpluses/DeficitsHistorical Total U.S. Federal Govt. DebtWho Does the Govt. Owe?U.S. Total Debt, % of GDP2013 Debt / GDP Ratio, Selected CountriesShould you worry about the Debt?What to KnowTOPIC XVII:GOVT. BUDGET, DEFICITS & THE DEBTHow much does the govt. spend?How much does it owe?Should we worry?Be Afraid. Be Very Afraid.•The U.S. government owes a total of:$17,500,000,000,000or$55,200 per person•Is that a lot?•Should you be worried?•US Debt Clock•How did we get there?•Has the government become ‘too big’?•Where does our money go?17.1 HOW MUCH DOES THE GOVT. SPEND?Where do your tax dollars go?Is the Govt. ‘too big’?Does it spend ‘too much’?If you were going to cut spending, what would you cut?Federal Budgetary ProcessU.S. President submits The Budget of the United StatesCongressional Budget Office (CBO) advises CongressCongress approves overall budget outline: Budget ResolutionBudget passes Congress & signed by President•Federal budget runs on a different calendar (not Jan 1 – Dec 31)•Fiscal year runs from Oct 1 – Sept 30By end of JanFebruary MayBy end of Sept.Formation of Budget: February - DecemberIs the Government too Big?•Has the government gotten too big?•How do we measure that?•How do you measure ‘size; of the government?1. Number of federal employees•About 2,759,000 people work for the federal government •Is that a lot2. In terms of moneyIn 2013, us federal gov spent ...Number of Federal Employees1960196519701975198019851990199520002005201020152,0002,2002,4002,6002,8003,0003,200Numbers in thousands; source: www.opm.govUS Citizens per Federal Employee196019651970197519801985199019952000200520102015404550556065707580What we mean by Govt. Spending•Recall G from AD (C, I G, NX)•G represents govt. spending on new goods and services•Federal Government Spending here does NOT mean G•Govt. spends lots of money on things that are NOT new goods and services•So, how much does the U.S. government spend per year?•And what does the government spend its (your) money on?•Where does it go?U.S. Federal Govt. Expenditures1960197019801990200020102020$0$500$1,000$1,500$2,000$2,500$3,000$3,500$4,000Total Govt. Outlays1012141618202224262830G Outlays (% of GDP)Source: Economic Report to the President; numbers in billionsU.S. Federal Govt. Expenditures19601970198019902000201020201012141618202224262830Govt. Outlays (% of GDP)Source: Economic Report to the PresidentWhere Does the Money Go?27.67%23.38%22.18%6.39%7.29%2.70%2.70%2.40%1.30%1.00%0.90%2.10%National Defense - weapons, soldiers & ben-efitsSocial SecurityHealth - medicare, med-icaid, otherInterestSocial Aid - unemp ins., food stamps, housing asst, SSITransportationCivilian fed retirementRefundable creditsEducationForeign aidAgricultureOtherSource: Committee for a Responsible Federal Budget; www.crfb.orgTotal Govt. Spending, 2012, % of GDP202530354045505560Source: OECD, StatExtracts; % includes federal, state and local govt. spending17.2 HOW MUCH DOES THE GOVT. COLLECT?Where does the govt. get its money from?Do we pay ‘too much’ in taxes?U.S. Federal Govt. Receipts$0$500$1,000$1,500$2,000$2,500$3,000Total Fed. Govt. Receipts0510152025Fed Receipts, % of GDPSource: Economic Report to the President; numbers in billionsU.S. Federal Govt. Receipts196019701980199020002010202010121416182022Federal Receipts, % of GDPSource: Economic Report to the President; numbers in billionsWhen economy is expanding, govt. typically collects more money (tax revenues go up)When economy goes into recession, govt. typically collects less money (tax revenues go down)Avg: 17.3%Sources of U.S. Govt. Revenue; 2013Income Tax; $1,316 Corporate Tax; $274 Social Security; $948 Excise Taxes; $84 Fed Reserve; $75 Tariffs/Customs; $32 Other; $46 16Source: White House; Office of Management and Budget, Historical Tables, Table 2.1 and 2.5Total Tax Revenue,2012, % of GDP20253035404550Source: OECD, StatExtracts; % includes federal, state and local govt. tax receipts17.3 HOW MUCH DOES THE GOVT. OWE?What kind of a mess are we in exactly?How much does the government owe?Who does the government owe?Should we be worried?Important TermsBudget Surplus: •When yearly government tax receipts are greater than expendituresBudget Deficit: •When yearly government tax receipts are less than expenditures•Government must borrow (sell govt. bonds) to make up the differenceNational Debt (Gross Public Debt):•The total accumulation since beginning of the U.S. of each annual deficit or surplus•The total amount the U.S. govt. owes to bondholders•Includes amount owed to itself, foreigners, and private U.S. holdingsDebt Ceiling:•The maximum legal limit of the U.S. Debt, as set by CongressU.S. Federal Revenues and Outlays1975 1985 1995 2005 2015$0$500$1,000$1,500$2,000$2,500$3,000$3,500$4,000Total Revenues & OutlaysRe-ceiptsOutlaysAmount coming in every year Amount spent ev-ery year1975 1985 1995 2005 2015101214161820222426Revenues & Outlays% of GDPRe-ceiptsU.S. Federal Revenues and Outlays1975 1980 1985 1990 1995 2000 2005 2010 2015101214161820222426Federal Revenues and Outlays; % of GDPRe-ceiptsDeficitsSurplusGovernment must borrow this much to make up the differenceU.S. Annual Govt. Surpluses/Deficits196019631966196919721975197819811984198719901993199619992002200520082011-$1,600-$1,400-$1,200-$1,000-$800-$600-$400-$200$0$200$400Returns to deficits in 2002•Increased spending for war•Increased spending during recession•Increased spending on Medicare expansion•Large tax cuts Several consecutive years of surplusHistorical Total U.S. Federal Govt. Debt1970197219741976197819801982198419861988199019921994199619982000200220042006200820102012 $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $18.00 $20.00 Source: U.S. Dept. of Treasury; www.treasurydirect.gov ; numbers in trillions$17.5