The Budget Components and Impact on the US Economy: Under President Trump’s proposal, the federal budget would be a record $4.829 Trillion. The US government estimates it will receive $3.863 million in revenues. That creates a $966 Billion deficit for October 1, 2020 through September 30, 2021. (www,thebalance.com)
Government spending is broken down into three categories: Mandatory spending, budgeted at $2.96 Trillion; discretionary spending, forecasted to be $1.485 trillion and interest on the national debt, estimated to be $378 Billion. Each category of spending has different subcategories, outlined below.
01 Revenue: The federal government estimated that it would receive $ 3.864 Trillion in revenue in FY 2021. Most of the revenue is in the form of taxes, paid by taxpayers, either through income or payroll taxes. Income taxes contributed $1.932 trillion or 50% of total receipt. <> Income Taxes contribute $1.932 trillion or 50% of the total receipts. <> Social Security, Medicare, and other payroll taxes add $1.373 trillion or 36%. <> Corporate taxes supply $284 trillion or 7%. <> Excise taxes and tariff contribute $141 billion or 4% <> Earnings from the Federal Reserve holdings add $71 billion or 2%. Those are interest payments on the US Treasury debt the Fed acquired through quantitative easing. <> Estate taxes and other miscellaneous revenue supply the remaining 1%.
It’s estimated that each taxpayer works until late April each year to pay for all federal revenue collected. This day is known as Tax Freedom Day, in which taxpayers finally work for themselves after having worked for four months to pay taxes.
02 Spending. The government expects to spend $4.829 trillion in 2021. Almost 60% of that pays for mandated benefits such as Social Security, Medicare and Medicaid. Discretionary spending will be $1.485 trillion. It pays for everything else. The US Congress appropriates this amount each year , using the president’s budget as a starting point. Interest on the US debt is estimated to be $378 billion. Interest on the approximate $23 trillion debt is the fastest growing federal expense, expected to do double by 2028.
03 Mandatory Spending: Mandatory spending is estimated at $2.966 trillion in FY 2021. This category includes entitlement programs such as Social Security, Medicare and unemployment compensation. It also includes welfare programs such as Medicaid. Social Security will be the biggest expense, budgeted at $1.151 trillion. Its followed by Medicare at $722 billion and Medicaid at $448 billion.
Social Security costs are currently 100% covered by payroll taxes and interest on investments. Until 2010, there was more coming into the Social Security Trust Fund than being paid out. Thanks to its investments, the Trust Fund is still running a surplus.
The Trust Fund Board estimates that this surplus will be depleted by 2034, Social Security revenues, from payroll taxes and interest earned, will cover only 79% of the benefits promised to the retirees. Medicare is already underfunded because taxes withheld for the program don’t pay for a portion of it. Medicaid is 100% funded the general fund, also known as America’s checkbook. This account is used to finance daily activates and long term operations of the government.
04 Discretionary Spending. The discretionary budget for 2021 is $1.485 trillion. More than half goes to military spending, including Homeland Security, the Dept. of Veteran Affairs and other defense related departments. The rest must pay for all other domestic programs. The largest of these programs are Health and Human Services, Education and Housing and Urban Development.
There is also the Overseas Contingency Operations fund that pays for wars or continuing military actions. A growing portion of the discretionary budget is set aside for disaster relief such as hurricane and wildfire relief.
05 Military Spending. Military spending was included in the budget, under discretionary spending. The biggest expenses for the military was the Dept of Defense base budget estimated at $636 billion.
Overseas Contingency Operates are estimated to cost approximately $69 Billion. It pays for the war on terror costs triggered by the 9/11 attacks. They include ongoing costs from the wars in Iraq and Afghanistan. Military spending includes $228 billion for defense related departments. These include Homeland Security, the State Department, and Veterans Affairs. All of the military costs combined equal $705 billion.
06 The Deficit. The Deficit is estimated at $966 billion. That’s the difference between $3.863 trillion in revenues and $4,829 trillion in spending. The shortfall is added to the existing national debt. Each president and their administration is credited (or blamed) with increases in national debt due to the budgets their administration proposes. The approval of the budget is delegated to Congress. In other words, it’s not the president alone who bears the burden of deficit creation and national debt generation. Other elected officials do so as well/.
07 National Debt. Each year, the deficit adds to the this US debt. To raise funds to cover the deficit, the government issues securities such as Treasury notes, which are purchased by many investors. Japan and China are two countries whose governments have purchased large amounts of US Debt, in a manner of speaking “owning the US debt.”
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