Government BudgetDo Deficits & Debt Matter?

Federal Gov’t Taxes

• Federal Income Tax– Progressive Tax: tax rate increases as income increases

• Social Security Tax-– 6.2% of salary on first $110,000 income– Why: Gov’t pension starting at 65 (or older)

• Medicare Tax– 1.45% of entire salary– Why: Gov’t health insurance starting at 65

Federal Income Tax

• Progressive Income TaxAs income % Tax Rate

2013 TAX BRACKETS

Federal Marginal Tax Rate Single Person

10% $0 – $8,925

15% $8,926 – $36,250

25% $36,251 – $87,850

28% $87,851 – $183,250

33% $183,251 – $398,350

35% $398,351 – $400,000

39.6% $400,001+

The Government BudgetGovernment SpendingGovernment Revenue

Taxes All Gov’t Expenses

2014 Budget Summary• Spending: $3.651 Trillion dollars

• Revenue $3,002Trillion (from taxes)

• Deficit: $649 Billion

• Debt: $17.9 Trillion

Government Spending

• Social Security 22.0%

• Medicare 14.0%

• Medicaid 7.0%

• Interest on Debt 6.0%

• Defense Spending 18.0%

• Homeland Security 1.0%

• Education 2.0%

• Other 26.0

• Total 100.0%

43% of Budget

24% of Budget

THANK YOU!

US Demographics

• America’s population is aging– smaller young (echoboomer) generation

– Babyboomers beginning to retire

– By 2040 1 in 4 Americans will be over 65

• Average life span has risen– 77 years men, 81 years women

– why: advances in medical technology, nutrition, etc…

• This FACT ensures that entitlement spending will increase a rapidly growing rate

Entitlement Spending• Includes- Social Security, Medicare & Medicaid

– Citizens are “entitled” to benefits at 65 years of age

• Largest part of Government budget– Consumes approximately 40% of budget in 2011!

• Projected to 60%-70% by 2040!

Not Enough Workers?• The ratio of workers to retirees is falling

– This means less money coming in => more going out

Wake-Up Call Video

http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml

Deficit & Debt relative to GDP

• Current Deficit = $649 Billion (2014 numbers)

• Current Debt = $17.9 Trillion• Current GDP = $17.0 Trillion

• Deficit as % of GDP = 3.8% of GDP– Highest since World War II– Recent high (1983) 6% of GDP

• Debt as % of GDP =105.0% of GDP– Highest ever (1946) was 120% of GDP

NATIONAL DEBT AS % OF GDP

Debt:17.9 Trillion

GDP17.0 Trillion

105 % GDP

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Growth of Entitlements

*Current services estimate.

Source: Budget of the United States Government, FY 2005, Office of Management and Budget.

Defense Social Security

Net interest

Medicare & Medicaid

All other spending

1964 1984 2004*

9% 19%

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Entitlement Reform?

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Balancing the Budget?“The only real question” is whether adjustments to taxes and spending will come from a “careful and deliberative process” or from a “rapid and painful response to a looming or actual fiscal crisis,” Ben Bernanke

2010

Changing EntitlementsSocial Security, Medicare & Medicaid

Social Security Medicare

$470 Billion spent per year

$50 Billion stolen?

Medicare Fraud Video

U.S. Debt in Comparison

• Japan: 190% of GDP (1970: 10% of GDP)

– $56,000 per person

• France 80% of GDP– Deficit 7.5% of GDP

• Italy 115% of GDP– Deficit 8.0% of GDP

• European Union (EU) debt limit of 60%– Deficit limit: 3.0% of GDP

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Debt as a % of GDP