Build A Better Budget “Notes and Sources”

 

In preparing this exercise, we primarily used four sources. The first is the Office of Management and Budget's (OMB) “Adjusted Baseline” budget for Fiscal Year (FY) 2013. The adjusted baseline budget is a “current services” budget – that is, it estimates what it would cost for the government to continue to provide exactly the same level of service it currently provides, and adjusts funding levels to keep pace with inflation. In other words, the adjusted baseline budget says, in effect, “keep things just the way they are.”

 

The second source is the Obama Administration’s Fiscal Year 2013 budget request, which was released by the Office of Management and Budget on February 13, 2012.

 

The third source is “Path to Prosperity,” the draft budget resolution for FY2013 by House Budget Committee Chairman Paul Ryan (R-WI), which was adopted by the full House in March 2012. The fourth source is “The People's Budget,” drafted by the Congressional Progressive Caucus (CPC) in response to Rep. Ryan's proposal. Taken together, these two proposals represent more than just competing sets of numbers. They are also very different visions for our nation.

 

As you move through the game, you will be invited to “Learn More.” Scroll down for additional information on important topics you’ll encounter along the way.


“BUILD A BETTER BUDGET” MAIN PAGE

 

Getting You Started – How to spend $99 billion dollars” Getting You Started – How to Spend $99 Billion" – There are certain categories of federal activity that are either essential to the function of government ["General government," Function 800] or must be paid regardless of choices we make in the future, like payments on the national debt [Function 900]. Likewise, there are areas of federal activity that are tracked primarily for accounting purposes ["Allowances," Function 920 and "Undistributed offsetting receipts" Function 950]. As a first step, we deduct this amount from the "total available" to cover the costs of these "must spend" categories.

 

Borrowing – Without a massive overhaul of the federal budget, there is no way to eliminate our current $1 trillion-plus deficit in a single year, so a certain amount of borrowing is inevitable. Participants whose budgets result in an overall reduction in the deficit will see the amount of borrowing reduced.

 

#1 REVENUES

 

Rep. Ryan Option

 

Reduces the top marginal tax rate for individuals from 35 percent (individuals making $379,151 or more) to 25 percent, and the top rate for corporations from 35 percent to 25 percent.

 

OMB Option

 

Assumes no changes in current law, and that the Bush-era tax cuts remain in place.

 

President Obama option

 

Assumes that the Bush tax cuts for the wealthiest two percent of taxpayers (individuals making more than $200,000 or families making more than $250,000) are not extended into FY2012, and that all corporations pay taxes at the full 35 percent marginal rate.

 

CPC option

 

End Bush tax cuts for individuals making over $200,000 per year and families making more than $250,000 annually; create five millionaire and billionaire tax rates of between 45 and 49 percent. Allows the Social Security payroll tax holiday to expire on schedule on January 1, 2013, and replaces it by reinstating the Making Work Pay (MWP) tax credit for FY2013–2015. Although the CPC proposal creates a number of new revenue sources not included in any of the other options – 45-49 percent marginal rates, a carbon tax – it also provides generous new tax breaks, particularly in the area of job creation. As a result, the CPC budget generates lower net revenue levels than the Obama proposal in FY2013.

 

NOTE: Without a massive overhaul of the federal budget, there is no way to eliminate the deficit in a single year, so a certain amount of borrowing is inevitable in each of the four options. Participants whose budgets result in an overall reduction in the deficit will see the amount of borrowing reduced.

 

#2 MILITARY

 

This includes "National defense" [Function 050] which funds the Defense Department’s annual budget, war costs and the nuclear weapons work of the Department of Energy, and “Veterans benefits and services” [Function 700].

 

Rep. Ryan Option

 

Representative Ryan's plan provides $785 for the military ($562 billion for “National defense [050]” and $88.5 billion for “Global War on Terrorism” [970]). It also includes $134.6 billion for “Veterans Services” [700].

 

OMB Option

 

Projects spending at the levels included in OMB's adjusted baseline budget for the Pentagon’s annual “base” budget, war costs and Veterans services.

 

President Obama Option

 

This FY2013 request includes a 2.5 percent reduction in the Pentagon’s annual “base” budget [050] and $88.5 billion for military operations in Iraq and Afghanistan. It also includes $137.7 billion for “Veterans services” [700].

 

CPC Option

 

The CPC budget plan does not include specific FY2013 funding levels for the military, so the figures listed here cannot be attributed to the CPC. To determine the Defense Department funding used here, we started with the CBO March baseline [$617 billion], from which we subtracted the FY2013 war funding level [$88.5 billion]. This figure was then reduced by $16 billion, the amount included in the CPC budget under "Base DoD Cuts." We then added $117.3 billion, the Pentagon's share of the CPC's proposed $128.7 billion for "Overseas Contingency Operations" in FY2013. These calculations leave us with an estimated $629.8 billion for the Department of Defense under the CPC budget. While the CPC plan calls for cumulatively less spending on the military over 10 years, it calls for a funding increase in FY2013. That increase would provide greater funding for veterans benefits, which the CPC would increase by $15 billion (roughly 10 percent) in FY2013, plus an additional $28 billion for war costs in FY2013. The additional funding would cover the upfront costs of ending the war in Afghanistan in FY2013. The CPC budget includes no war-related funding after FY2013.


#3 SOCIAL SECURITY, MEDICARE, AND MEDICAID

 

This includes Social Security [Function 650], Medicare [Function 570] and Medicaid (under Health [Function 550]).

 

Making More Income Subject to the Social Security Tax – In 2012 payroll taxes on income which go into Social Security are paid only on earnings up to $110,100. According to a report last year by the Congressional Budget Office (CBO) raising the amount of taxable income would generate billions of dollars in new revenues for the Social Security program. Currently, 83 percent of income earned by workers in jobs covered by Social Security is subject to the maximum, which was $106,800 in 2011 when the report was written. Raising that percentage to 90 percent of Social Security-covered income ($170,000 in 2012) would result in an immediate net increase in revenues of $8.6 billion in FY2012, a five-year increase of $180 billion, and a ten-year increase of $457 billion. These are the most recent figures available.

 

CBO's "Reducing the Deficit: Spending and Revenue Options," March 2011.
Revenues—Option 16, Increase the Maximum Taxable Earnings for the Social Security Payroll Tax (pg. 169)

 

GENERAL NOTES FOR FUNDING CATEGORIES #4 THROUGH #10

 

OMB’s revised baseline “current services” budget, the Obama Administration’s budget request and Chairman Ryan’s budget plan include specific funding levels for each federal spending function. The CPC proposal does not. Instead, for most of the federal functions (but not all,) the CPC plan indicates a proposed total increase for Non-Defense Discretionary (NDD) spending for each year. For example, the CPC plan includes a $150 billion proposed increase in FY2013 and $200 billion in FY2014. The CPC then also assigns percentage increases for specific spending categories: 10 percent for Veterans services, 15 percent for Education, Training, Employment, and Social Services, etc. The CPC plan then allocates this percentage of the total for a given fiscal year to that program. So, for example, veterans’ programs would receive an additional $15 billion in FY2013 and $20 billion in FY2014 – 10 percent of $150 billion and $200 billion, respectively.

 

The CPC plan does not, however, provide the base funding figures to which the additional funds would be added. For the purposes of this exercise, funding levels were determined using the OMB "current services" baseline, increased by the dollar figures calculated using the CPC allocation formula in each fiscal year. By using the OMB baseline and adding to it, each category designated by the CPC budget to receive additional funding would receive a real (inflation-adjusted) increase in funding. Where no percentages are indicated, the OMB figures were used, assuming that spending would keep pace with inflation.

 

For additional information, see "The Budget For All: A technical report on the Congressional Progressive Caucus budget for Fiscal Year 2013," a working paper by the Economic Policy Institute, page 8.


“JUST A SNAPSHOT”

 

The Obama Administration’s request, the Congressional Progressive Caucus “Budget for All” and Rep. Ryan’s budget plan contain significant policy shifts that unfold over a decade. Showing a single-year snapshot of their proposed ten-year budgets simply cannot convey the complexities of some of the recommended changes. For example, while Rep. Ryan's proposal provides slightly less funding for Medicare in FY2013 than what is called for by the Office of Management and Budget’s adjusted baseline, looking just at FY2013 does not reveal that Rep. Ryan's plan proposes a voucher system for new Medicare beneficiaries starting in 2023.

 

Likewise, the CPC budget provides $117.3 billion for “Overseas Contingency Operations” (the wars in Iraq and Afghanistan) in the FY2013 Department of Defense budget, a number that is significantly higher than the $88.5 billion for Pentagon war costs requested by the Obama administration and included in Rep. Ryan's plan. This does not show, however, that there is no war funding in the CPC budget for FY2014, because it assumes a withdrawal of U.S. forces from Iraq and Afghanistan in FY2013.

 

For additional information, see “A Longer Term Look at Some Critical Issues.”