The Budget Components and Impact on the US Economy, BY KIMBERLY AMADEO
In Fiscal Year 2019, the federal budget will be $4.407 trillion. The U.S. government estimates it will receive $3.422 trillion in revenue. That creates a $985 billion deficit for October 1, 2018 through September 30, 2019.
Medicare is already underfunded. Medicare taxes don't pay for all benefits, so this program relies on general tax dollars to pay for a portion of it. Medicaid is 100 percent funded by the general fund
Military Spending - Military spending was budgeted at $886 billion. The biggest expense is the Department of Defense base budget at $597.1 billion. Overseas Contingency Operations will cost $88.9 billion.
Spending is in three categories: Mandatory, which is at $2.739 trillion; Discretionary at $1.305 trillion; and Interest on the National Debt, $363 billion. This article provides a detailed breakdown of each. You can also find links to past budgets at the end.
Revenue - The federal government will receive $3.422 trillion
in revenue. Most of the taxes are
paid by you, either through income or payroll taxes: Income taxes contribute $1.622 trillion or 49 percent of total receipts.
Social Security, Medicare, and other payroll taxes add $1.238 trillion or 36 percent.
Corporate taxes supply $225 billion or 7 percent.
Excise taxes and tariffs contribute $152 billion or 4 percent.
Earnings from the Federal Reserve's holdings add $55 billion or 2 percent. Those are interest payments on the U.S. Treasury debt the Fed acquired through quantitative easing.
Estate taxes and other miscellaneous revenue supply the remaining 2 percent.
It's estimated that each taxpayer works until late April each year to pay for all federal revenue collected. That's Tax Freedom Day. Can you think of any other purchase you make for which you've worked as hard and long?
Spending - The government will spend $4.407 trillion.
Most of this, about 62 percent of expenditure, pays for mandated benefits such
as Social Security, Medicare, and Medicaid.
Interest on the U.S. debt is $363 billion. The U.S. Treasury must pay it to avoid a U.S. debt default. The United States has been fortunate because interest rates have been low. A worldwide flight to safety increased demand for Treasury notes, lowering rates. Now that the global economy is strengthening, Treasury yields are rising. So will interest payments. Interest on the $21 trillion debt is already the fastest growing federal expense.
The remaining 38 percent of the budget pays for everything else. It's called discretionary spending. The U.S. Congress changes this amount each year. It uses the president's budget as a starting point.
Mandatory Spending - Mandatory spending is
$2.739 trillion. Social Security is by far the biggest expense at $1.046
trillion. Medicare is next at $625 billion, followed by Medicaid at $412 billion.
Social Security costs are currently covered 100 percent by payroll taxes and interest on past payroll taxes that have been invested. Until 2010, there was more coming into the Social Security Trust Fund than being paid out. Thanks to interest on investments, the Trust Fund is still running a surplus. But, the Trust Fund’s Board estimates that this surplus will be depleted by 2036. Social Security revenue, from payroll taxes and interest earned, will cover only 77 percent of the benefits promised to retirees.
Discretionary Spending - The discretionary budget is
$1.203 trillion. More than half goes toward military spending,
including the Department
of Veterans Affairs and other defense-related departments. The rest
must pay for all other
domestic programs. The largest are Health and Human Services, Education, and
Housing and Urban Development.
There is an emergency fund of
$111.4 billion that's not included in the budget process. Most of that,
amounting to $88.9 billion, goes to Overseas Contingency Operations to pay for
wars.
Military spending also includes $181.3
billion for defense-related departments. These include Homeland Security,
the State Department, and Veterans Affairs. These
departments also receive emergency funding of $18.7 billion. That pays for
the war on terror costs triggered by the 9/11 attacks. These include ongoing costs from
the war in Iraq and the Afghanistan war.
Congress approved a spending bill of
$892.7 billion. It includes $616.9 billion for the DoD base budget, $69 billion
for the OCO, and $21.9 billion for the National Nuclear Security Administration
within the Department of Energy.
The Deficit - The budget deficit will be $985 billion. That's the difference between $3.422 trillion in revenue and $4.407 trillion in spending. The article on “Deficit by President” shows which U.S. president racked up the highest expenses. A look at the deficit by year will reveal trends in the country’s annual deficits.
Each year, the deficit adds to the U.S. debt. This anticipated tax slows economic growth. It’s like driving a car with the
brakes on. It raises interest rates, as investors demand more return. They
become hesitant to purchase Treasury Bills because they fear not being repaid.
Now that the economy has
recovered, deficit spending is not necessary. Congress
should create a budget surplus to reduce the national debt
burden. But it isn’t being done because politicians, who slice popular
programs, usually find themselves cut out from the next election.
Most important, the deadline for budget
approval is September 30. If it isn't approved, the government can shut down, as it did in January 2018 and in 2013.
To avoid that, Congress usually passes a continuing resolution. It keeps the
government running at spending levels of the last budget. Since the FY 2010 budget, Congress has only followed the budget
process twice.
Norb Leahy, Dunwoody
GA Tea Party Leader
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