Federal Budget 2011-2012

1. Federal Budget 2011-2012 http://www.treasurydirect.gov/NP/BPDLogin?application=np

2. 2. How did the US debt get so bad?http://www.bbc.co.uk/news/business-14760684 What could we cut from the budget? http://www.nytimes.com/imagepages/2010/02/07/weekinreview/07calmes-grfk.html 3. You need to know the difference between Regressive and Progressive taxes: http://www.laits.utexas.edu/txp_media/html/pec/features/0400_01/slide3.html

3. A budget is comprised of two things: what comes in and what goes out

4. What goes out . . . . pie chart representing spending by category for the US budget for 2009

5. If every year, you spend more than you take in . . .you have a Deficit

6. Mid 90’s Surplus- economic growth (more taxes) combined with spending cuts (even during divided gov’t!

9. If you take in more than you spend, each year, you have a : We tend to have ______, not ________

10. And, if you have a bunch of deficits you get a . . . HUGE________ • http://www.brillig.com/debt_clock/

17. Public debt percent gdp world map.PNG

18. GNP (Gross NATIONAL Product): all goods and services produced by the nationals of a country. This means that whatever Americans produce around the world counts, even if it is in Japan or France. We add that stuff in and subtract out goods made by foreign nationals here in the States.  That was a confusing system and not that representative of globalization and its impact on all our economies.  GDP (Gross Domestic Product) is the more up-to-date term. Its basic meaning is the value of all final goods and services produced within a national boundary (ie within our DOMESTIC borders) . For example, the Toyotas produced by USA Toyota in KY. Often seen as per capita (per person) though misleading.

19. The money is borrowed from buyers of Treasury securities -- which are basically a big batch of IOUs that are auctioned off every three months. As the auction date approaches, the Treasury figures out how much it will need to pay off old debt and cover the government’s latest round of overspending. When the auction day comes, buyers submit bids in the form of the interest rate they’re willing to accept. You can choose to make a competitive bid (you ask for a specific rate) or a non-competitive bid (you agree to accept the average rate of other winning bids.) When all the bids are in, the Treasury starts at the bottom, taking the lowest bids until it has collected enough money to cover that round of borrowing. The money flows in from all over the place: from individual investors and corporations, pension funds and governments, both in the U.S. and around the world. Basically, anyone with a large amount of cash looking for a safe place to put it is a good candidate for holding U.S. Treasury debt. Who owns the national debt

20. http://www.guardian.co.uk/news/datablog/2009/sep/28/federal-deficit-us-america-debthttp://www.guardian.co.uk/news/datablog/2009/sep/28/federal-deficit-us-america-debt

23. So just who are these lenders? As of last June (2006) the biggest holder of Treasury debt was the U.S. government itself, with about 52 percent of the total $8.5 trillion in paper that's out there. Most of the government’s holdings are massive savings accounts for programs like Social Security and Medicare. Just as you may prefer to keep your Individual Retirement Account in the safe Treasury bonds, the folks who manage the Social Security Trust Fund are looking for a secure investment, too. That’s leaves a little over $4 trillion in public hands. The biggest chunk (about 25 percent of the $8.5 trillion total) is held by foreign governments. Japan tops the list (with $644 billion), followed by China ($350 billion), United Kingdom ($239 billion) and oil exporting countries ($100 billion). Other big holders of Treasury debt include state and local governments ($467 billion); individual investors, including brokers ($423 billion); public and private pension funds (319 billion); mutual funds ($243 billion); holders of US savings bonds ($206 billion); insurance companies ($166 billion) and banks and credit unions ($117 billion.) Once issued at auction, Treasury securities enjoy a healthy second life when they’re traded in the so-called “secondary market” (aka the “bond market.”) The prices of bonds bought on the open market go up and down as the market reacts to changes in demand and news about the economic outlook like inflation. But no matter what you pay for a bond, if you hold it until it matures, the government has to pay back the full amount that was borrowed when the debt was first auctioned and issued.

24. 1Saudi Arabia, Venezuela, Libya, Iran, Iraq, the United Arab Emirates, Bahrain, Kuwait, Oman, Qatar, Ecuador, Indonesia, Algeria, Gabon, and Nigeria 2Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, British Virgin Islands and Panama China and US debt: http://money.cnn.com/2009/09/16/markets/thebuzz/index.htm

26. Without this increase in foreign ownership of U.S. debt, interest rates and inflation would have been higher; real private investment, and the growth of real GDP and employment, would have been lower. In an important recent working paper of the National Bureau of Economic Research, Francis and Veronica Warnock of the University of Virginia estimate that if foreign governments had not bought additional treasury securities from May 2004 to May 2005, the interest rate on 10-year treasury bonds would have been nearly one percentage point higher. That would have raised the interest rate on business loans and mortgages by roughly the same amount

27. You must be able to distinguish between mandatory and discretionary spending to get the budget: MANDATORY SPENDING:spending that the govt is forced to pay through priorobligation—in most cases these issues are not debated in Congress and are automatically included in the budget. They refer to (a) ENTITLEMENTS: b/c congress has promised to pay they are not subject to annual authorizations and (b) interest on the debt.

31. Entitlement programs: A federal program under which individuals, businesses, or units of government that meet the requirements or qualifications established by law are entitled to receive certain payments if they seek such payments. Major examples include Social Security, Medicare, Medicaid, unemployment insurance, and military and federal civilian pensions. . . .. Congress cannot control their expenditures by refusing to appropriate the sums necessary to fund them because the government is legally obligated to pay eligible recipients the amounts to which the law entitles them, and recipients can take legal action if the government fails to do so. . . . Ent Programs are gov’t sponsored programs providing mandated/guaranteed/required benefits to those who meet eligibility requirement/qualifications

34. Social Security President Roosevelt signing Social Security Act of 1935 in the Cabinet Room of the White House. Provisions of the SSA of 1935: Insurance program: for unemployed and elderly to which workers would contribute and from which they would benefit Assistance program: for blind, dependent children (poor) and aged Who qualifies?—with exception of dependent children, no means test—(you do not have to prove you lack the means to qualify) --if fit one of categories, even if upper income, you qualify Should S.S. be means tested? i.e. Should the rich don’t receive S.S. benefits?

35. It is paid for by a “payroll tax” which is collected from current workers, put into a “trust fund” and then used to pay out to retired workers Technically, the funds credited to these accounts are restricted by law to their designated programs or uses and are not available for the general purposes of government. Nevertheless, the Treasury borrows from them for that purpose and the borrowings become part of the public debt.

36. But . . .

38. Is it bankrupt?Now it is not—it still takes in more than it pays out—so when will the it start to reverse: From “Factcheck” there are two official projections -- one by the Social Security Administration (SSA) and a somewhat less pessimistic projection by the Congressional Budget Office (CBO). The President referred to the SSA projection, which calculates that the system's trust fund will be depleted in 2042. After that, the system would have legal authority to pay only 73 percent of currently promised benefits -- and that figure would decline each year after, reaching 68 percent in the year 2075.The CBO doesn't project trust-fund depletion until a decade later, in 2052, and figures that the benefits cuts wouldn't be so severe, a reduction to 78% of promised benefits. But either way, even a "bankrupt" system would continue to provide most of what's promisedcurrently.

41. President Johnson signing the Medicare amendment. Harry Truman and his wife, Bess, are on the far right Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are either age 65 and over, or who meet other special criteria. It was originally signed into law on July 30, 1965 by President Lyndon B. Johnson as amendments to Social Security legislation. At the bill-signing ceremony President Johnson enrolled former President Harry S. Truman as the first Medicare beneficiary and presented him with the first Medicare card

43. And now you have . . . . The Medicare Prescription Drug, Improvement, and Modernization Act (Pub.L. 108-173, 117 Stat. 2066, also called Medicare Modernization Act or MMA) is a law of the United States which was enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history. The MMA was signed by President George W. Bush on December 8, 2003, after passing in Congress by a close margin.