budget is central to Congress’s ability to exercise its “power of the purse.”
Over the last several fiscal years the imbalance between spending and
revenues has grown as a result of the economic downturn and policies
enacted in response to financial turmoil. In FY2011, the U.S. government
spent $3,598 billion (24.1% of GDP) and collected $2,302 billion in revenue
(15.4% of GDP), resulting in a budget deficit of $1,296 billion (8.7% of
GDP). The FY2012 deficit is currently estimated at $1,079 billion (7.0% of
The Obama Administration released its FY2013 budget on February 13, 2012. In
FY2013, the President’s budget projects that the deficit will reach $901
billion. Budget deficits are projected throughout the 10-year budget
window. The President’s budget proposes a variety of short-term tax and
spending measures aimed at job creation, largely drawn from the American Jobs
Act submitted to Congress in September 2011. These proposals amount to
nearly $350 billion in additional spending and tax cuts, including
immediate funding for roads, rails, and runways; aid to states and local
governments for teachers and first responders; school modernization; and a full-year
extension of the Social Security payroll tax reduction and unemployment
In August 2011, the Budget Control Act of 2011 (BCA) placed limits on spending
via discretionary spending caps and included provisions for additional
spending cuts in the amount of $1.2 trillion. In January 2013, the
additional cuts are scheduled to take effect via an automatic process. In
his FY2013 budget, President Obama proposes replacing the automatic cuts with prescribed
spending cuts and tax increases. The largest of these proposals includes
allowing the 2001/2003/2010 tax cuts for singles making over $200,000 and
households making over $250,000 to expire; savings generated from changes
to Medicare, Medicaid, agriculture, and other mandatory programs; and
placing caps on spending on Overseas Contingency Operations (OCO).
The FY2013 budget also included other tax proposals including changes in the
estate tax parameters, limits to the value of itemized deductions for
married taxpayers with incomes over $250,000 and single taxpayers with
incomes over $200,000, and eliminating various tax expenditures. The
Administration also released a framework for corporate tax reform, which included
a reduction in the corporate tax rate combined with an elimination of certain
corporate tax expenditures. The Administration is committed to reform that
would not add to the deficit.
On March 21, 2012, the House Budget Committee reported the budget resolution
(H.Con.Res. 112, 112th Congress) by a vote of 19-18. The resolution
provided for revenue levels of $2,734 billion and outlays of $3,530
billion in FY2013 for a deficit of $797 billion, or approximately 5.0% of
GDP. By FY2022, the deficit is projected to fall to $287 billion or 1.2% of
GDP. Like the President’s budget proposal, the House budget resolution
specifies a replacement of the BCA’s automatic cuts. The budget resolution
replaces the majority of the cuts in FY2013 with $261 billion in deficit
reduction over 10 years to be achieved via reconciliation.
CBO, GAO, and the Administration agree that the current mix of federal fiscal
policies is unsustainable in the long term. The nation’s aging population,
combined with rising health care costs per beneficiary, seems likely to
keep federal health costs rising faster than per capita GDP.
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny
Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American
Express, or Discover card number, expiration date, and name on the card.
Indicate whether you want e-mail or postal delivery. Phone orders are preferred
and receive priority processing.