The US Budget: Deficit, a bottomless pit By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran


This is an ongoing conversation between Joe and Swami.

Joe       : I know that you are interested in analyzing budgets of different countries. What     can you say about the US budget?

Swami: The striking future is the size of the defense budget. For example, in 2012 it was 677.852 billion dollars. In 2013, it is expected to be 638.385 billion dollars. In 2014, it is expected to be 620.562 billion dollars.

Joe       :  What do they do that requires this amount of money?

Swami: To save the world obviously. The US already has weapons to destroy the world a 1000 times. There is no end to insecurity. The US foreign policy is if there is no insecurity, create one.

Joe       : What will they do if there is no war?

Swami: That will never be the case. Every country has to have a war. See China and Vietnam are fighting over an Island which has oil, the Sunnis of ISIS have almost captured Baghdad, continuous tension in Iran regarding the development of nuclear weapon, war in Syria, Russian invasion of Ukraine and annexing Crimea and waiting to take over Georgia to name a few. If necessary tension can always be created between any two countries. With the kinds of money US spends on defense poverty, could be wiped out of the world many times over.

Joe       : As a proportion of federal outlay what percentage would the defense budget amount to?

Swami: Outlay and amounts: 2012 – 3537.127 bln (19.14%), 2013 – 3454.605 bln (18.32%), 2014 – 3650.526 bln (16.58%).

Joe       : You mean to say that 1/6th of the budget involves outlay for defense?

Swami: Currently there is a civil war raging in Iraq. The Sunnis are having a field day destroying everything that the Shias and the others have. The civil war will eventually spread to Iran as the Shias in the country will go after the Sunnis. There is really no limit to the hatred practiced by the two moslem sects. The US intervention is inevitable. Look at it in another way. There are hundreds of thousands of employees working for Lockheed Martin, General Dynamics, Northrop Grummen, Boeing etc who engage in the manufacture of war weapons. So you see that this is a vicious cycle. The US budget would remain balanced but for the bloated defense budget.

Joe       : What about the budget deficit?

Swami: I will give you the data.

Year Revenue Outlays Deficit
2012 2450.164 bln $ 3537.127 bln $ -1086.963 bln$
2013 2775.103 bln $ 3454.605 bln $ -679.502 bln $
2014 3001.721 bln $ 3650.526 bln $ -648.305 bln $

 

You see that the US is trying to bring down the deficits. Already the debt levels have crossed more than 100 percent of GDP.

Joe       : Is it bad?

Swami: It depends. You see the US government has to pay interest on the borrowed monies.

Net interest payment on debt

2012 220.408 bln $ 6.21 % of outlay
2013 220.885 bln $ 6.36 % of outlay
2014 223.450 bln $ 6.10 % of outlay

 

While the amount is significant, as a percentage of outlay, it is OK.

Joe       : I understand that one of the worries the US government will face is the size of social security payment.

Swami: This is the biggest single item in the US budget.

2012 $ 773.290 bln $ 21.8 % of outlay
2013 $ 813.551 bln $ 23.5 % of outlay
2014 $ 857.319 bln $ 23.47 % of outlay

 

US is one of the countries in the world where people above their retirement age of 65 could lead a life without financial support from the families. In India, especially if you had worked in unorganized sector you need the family support otherwise it is difficult to survive.

Joe       : What about health, medicare and income security?

Swami: A significant portion of the money is allocated to these expenditure heads.

Health

Year Outlays Percentage of total outlays
2012 $ 346.74 bln 9.78%
2013 $ 358.315 bln 10.36%
2014 $ 450.795 bln 12.32%

 

You can clearly see that the Obama care is going to add to the total costs. It is a clear message that the government cares.

Medicare

Year Outlays Percentage of total outlays
2012 $ 471.793 bln 13.31%
2013 $ 497.826 bln 14.38%
2014 $ 519.027 bln 14.21%

 

Joe, be assured that the government will take care of your medical bill when you reach the retirement age. Here in India we need to save a significant chunk of money to pay for the medical expenses.

Income Security

Year Outlays Percentage of total outlays
2012 $ 541.344 bln 15.29%
2013 $ 536.511 bln 15.51%
2014 $ 542.237 bln 14.84%

 

The unemployment rate is around 6.5 percent. If and when the economy picks up this expenditure may come down.

Joe       : I don’t want to hold you for too long. Can you give me a picture of source and use of funds for the last 3 years?

Swami: Sure.

Receipts 2012 2013 2014
Individual income tax $ 81132.206 bln $ 1316.405 bln $ 1386.068 bln
Corporate income tax $ 242.289 bln $ 273.506 bln $ 332.740 bln
Social insurance and Retirement receipts $ 845.314 bln $ 947.820 bln $ 1021.109 bln
Excise taxes $ 79.061 bln $ 84.007 bln $ 93.528 bln
Others $ 159.294 bln $ 153.365 bln $ 168.276 bln

 

Outlays 2012 2013 2014
Defense $ 677.852 bln $ 633.385 bln $ 620.562 bln
Physical resource $ 215.463 bln $ 89.997 bln $ 99.018 bln
Net interest $ 220.408 bln $ 220.885 bln $ 223.450 bln
Other function $ 178.353 bln $ 185.174 bln $ 177.233 bln

 

Joe       : I am amazed as to how much you know about my country. I least expected you to have this amount of data and information. I am really impressed. Thanks.

Swami: Not at all. I advise people in trading currencies. I need to have all these data to make my decisions data supported. Believe me, it helps. Please keep in touch. By the way I am attaching the data sheet which I downloaded from your government website.

 

 

 

 

 

 

 

 

U.S.A. Budget

Receipts by source (in millions of $)

Fiscal Year Individual Income Taxes Corporate Income Taxes1 Social Insurance and Retirement Receipts2 Excise Taxes2 Other3 Total Receipts
Total (On-Budget) (Off- Budget) Total (On-Budget) (Off-Budget)
2012 1,132,206 242,289 845,314 275,813 569,501 79,061 151,294 2,450,164 1,880,663 569,501
2013 1,316,405 273,506 947,820 274,546 673,274 84,007 153,365 2,775,103 2,101,829 673,274
2014 1,386,068 332,740 1,021,109 288,777 732,332 93,528 168,276 3,001,721 2,269,389 732,332

 

Summary of Receipts, Outlays and Surpluses or Deficits (in millions of $)

Year Total On – Budget Off – Budget
Receipts Outlays Surplus or Deficit (-) Receipts Outlays Surplus or Deficit (-) Receipts Outlays Surplus or Deficit (-)
2012 2,450,164 3,537,127 -1,086,963 1,880,663 3,029,539 -1,148,876 569,501 507,588 61,913
2013 2,775,103 3,454,605 -679,502 2,101,829 2,820,794 -718,965 673,274 633,811 39,463
2014 estimate 3,001,721 3,650,526 -648,805 2,269,389 2,939,299 -669,910 732,332 711,227 21,105

 

 

 

 

 

 

 

 

 

Outlays by Super function and function

Super function and Function 2012 2013 2014 estimate
National Defense 677,852 633,385 620,562
Human resources 2,348,587 2,417,949 2,621,003
Education, Training, Employment and Social Services 90,823 72,808 100,460
Health 346,742 358,315 450,795
Medicare 471,793 497,826 519,027
Income Security 541,344 536,511 542,237
Social Security 773,290 813,551 857,319
(On-Budget) 140,387 56,009 26,204
(Off-Budget) 632,903 757,542 831,115
Veterans Benefits and Services 124,595 138,938 151,165
Physical resources 215,463 89,997 99,018
Energy 14,858 11,042 13,375
Natural Resources and Environment 41,631 38,145 39,102
Commerce and Housing Credit 40,823 -83,199 -82,283
(On-Budget) 38,153 -81,286 -78,331
(Off-Budget) 2,670 -1,913 -3,952
Transportation 93,019 91,673 95,519
Community and Regional Development 25,132 32,336 33,305
Net interest 220,408 220,885 223,450
(On-Budget) 332,801 326,535 323,689
(Off-Budget) -112,393 -105,650 -100,239
Other functions 178,353 185,174 177,233
International Affairs 47,189 46,418 48,472
General Science, Space, and Technology 29,060 28,908 28,718
Agriculture 17,791 29,492 22,659
Administration of Justice 56,277 52,601 53,102
General Government 28,036 27,755 22,407
Allowances
Undistributed offsetting receipts -103,536 -92,785 -90,740
(On-Budget) -87,944 -76,617 -75,043
(Off-Budget) -15,592 -16,168 -15,697
Total, Federal outlays 3,537,127 3,454,605 3,650,526
(On-Budget) 3,029,539 2,820,794 2,939,299
(Off-Budget) 507,588 633,811 711,227
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