the federal budget outlook and aid to states
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Associate Director for Economic Analysis Jeffrey R. Kling's presentation to the National Lieutenant Governors AssociationTRANSCRIPT
C O N G R E S S I O N A L B U D G E T O F F I C E
The Federal Budget Outlook and
Aid to States
Presentation to the National Lieutenant Governors Association
Jeffrey R. Kling
Associate Director for Economic Analysis March 21, 2012
1
C O N G R E S S I O N A L B U D G E T O F F I C E 2
Deficits or Surpluses, 1972 to 2011 (Percentage of GDP)
C O N G R E S S I O N A L B U D G E T O F F I C E
-12
-10
-8
-6
-4
-2
0
2
4
1972 1977 1982 1987 1992 1997 2002 2007
Deficit for 2011: 8.7% of GDP
C O N G R E S S I O N A L B U D G E T O F F I C E
What Policy Assumptions Underlie the Baseline and the Alternative Fiscal Scenario?
Baseline Projections: Generally, current law.
Alternative Fiscal Scenario: - All expiring tax provisions (other than the payroll tax reduction) are
extended. - The alternative minimum tax (AMT) is indexed for inflation after 2011. - Medicare’s payment rates for physicians’ services are held constant at
current level. - The automatic spending reductions required by the Budget Control
Act do not take effect (although the original caps on discretionary appropriations remain in place).
3
C O N G R E S S I O N A L B U D G E T O F F I C E 4
Deficits or Surpluses, Actual and Projected (Percentage of GDP)
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012).
-12
-10
-8
-6
-4
-2
0
2
4
1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022
Actual
CBO's Baseline Projection
Projected
Alternative Fiscal Scenario
C O N G R E S S I O N A L B U D G E T O F F I C E
0
20
40
60
80
100
120
140
1940 1950 1960 1970 1980 1990 2000 2010 2020
Projected
CBO's Baseline
Projection
Alternative Fiscal
Scenario
Actual
Federal Debt Held by the Public (Percentage of GDP)
C O N G R E S S I O N A L B U D G E T O F F I C E 5
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012).
C O N G R E S S I O N A L B U D G E T O F F I C E 6
Components of the Federal Budget as Shares of GDP: 1972-2011 Average and 2022 Projection Under the Alternative Fiscal Scenario (Percentage of GDP)
C O N G R E S S I O N A L B U D G E T O F F I C E
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012).
7.3
11.4
2.2
21.0
17.9
3.0
12.8
7.8
3.7
24.3
18.5
5.9
0
5
10
15
20
25
30
Net Interest Total Outlays Total Revenues Deficit
1972-2011 Average
2022 Projection Under theAlternative Fiscal Scenario
All Other Programs
Social Security and Major Federal
Health Care Programs
C O N G R E S S I O N A L B U D G E T O F F I C E 7
Selected Tax Expenditures Providing Support for State and Local Governments
2012 2015 Percent Change
Deductibility of Property Taxes on Owner-Occupied Homes Deductibility of Nonbusiness State and Local Taxes Other than on Owner-Occupied Homes Exclusion of Interest on State and Local Bonds
} 0.6 0.8 +36%
Source: Joint Committee on Taxation. The temporarily higher exemption amounts that have limited the impact of the AMT since 2001 expired at the end of December 2011; if relief from the AMT were extended, the amounts shown here would be slightly higher.
Percentage of GDP
C O N G R E S S I O N A L B U D G E T O F F I C E 8
Federal Grants-in-Aid to State and Local Governments (Percentage of GDP)
0
1
2
3
4
1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022
Projected Actual
Average, 1972-2011
ARRA
Note: Preliminary estimates using the framework of the National Income and Product Accounts, including grants-in-aid and excluding most transportation spending. ARRA = American Recovery and Reinvestment Act (the source of the increase in 2009 and 2010).
C O N G R E S S I O N A L B U D G E T O F F I C E 9
Projected Federal Spending Aiding State and Local Governments, by Type of Aid (Percentage of GDP)
0
1
2
3
4
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Discretionary Aid Other Mandatory Aid Medicaid & CHIP
Note: Preliminary estimates using the framework of the National Income and Product Accounts, including grants-in-aid and capital transfers (most transportation spending). Derived from CBO’s March 2012 baseline projections of federal expenditures. CHIP = Children’s Health Insurance Program.
C O N G R E S S I O N A L B U D G E T O F F I C E 10
Projected Spending on Medicaid and CHIP
2012 2022 Percent Change
Medicaid Children’s Health Insurance Program
} 1.7 2.5 +47%
Percentage of GDP
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012). Amounts do not include the state share of spending on these programs.
C O N G R E S S I O N A L B U D G E T O F F I C E 11
Projected Spending on Selected Income Security Programs
2012 2022 Percent Change
Child Nutrition Programs Temporary Assistance to Needy Families SNAP Administration Foster Care and Permanency Child Support Enforcement
} 0.8 0.5 -35%
Percentage of GDP
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012).
C O N G R E S S I O N A L B U D G E T O F F I C E 12
How will the Budget Control Act (BCA) Affect Federal
Spending?
The BCA established caps on certain types of discretionary funding, called
for a process to achieve additional deficit reduction, and set up automatic
enforcement procedures. The BCA:
Limits cuts in most Medicare benefits to 2 percent;
Exempts many mandatory programs—including Social Security,
and Medicaid, CHIP, SNAP, child nutrition, and other income
security programs;
Exempts most transportation programs; and
Cuts most defense and nondefense discretionary programs—
including education, housing and others.
C O N G R E S S I O N A L B U D G E T O F F I C E 13
Under current law for 2013, cuts for most discretionary programs
will be achieved by automatically canceling a portion of their
budgetary resources (in an action known as sequestration) starting in
January of that year.
Cuts will be across-the-board, proportional reductions in
budgetary resources for most discretionary programs in the
appropriations bills for 2013.
Cuts are scheduled to occur regardless of the amount of
funding that Congress chooses to appropriate for 2013.
CBO projects that nondefense discretionary spending will be 5
percent lower in 2013 than if discretionary funding grew from 2012
amounts at the rate of inflation.
Sequestration of Discretionary Programs in 2013
C O N G R E S S I O N A L B U D G E T O F F I C E 14
Automatic cuts will be achieved by lowering the caps on discretionary
budget authority as specified in the Budget Control Act.
Appropriations committees and Congress will then decide how to
allocate funding within those newly reduced caps.
CBO projects that nondefense discretionary spending will be 10
percent lower in 2021 than if discretionary funding grew from 2012
amounts at the rate of inflation.
Cap Reductions for Discretionary Programs from 2014 to 2021
C O N G R E S S I O N A L B U D G E T O F F I C E
2012 2022 Percent Change
Transportation Education Housing Other Programs Not Aiding States
} 4.1 2.6 -35%
15
Nondefense Discretionary Spending in CBO’s Baseline
Percentage of GDP
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012).
C O N G R E S S I O N A L B U D G E T O F F I C E 16
Nondefense Discretionary Spending, Actual and Projected (Percentage of GDP)
Estimates from CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012).
0
1
2
3
4
5
6
1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022
Projected Actual
CBO's Baseline Projection
Funding Grows at the Rate of Inflation
Lowest Level over the 1972-2011 Period: 3.2%