2011 Budget Chart Book

entitlementsA Product of the Entitlements Initiative
  

Federal Spending

Federal Spending per Household Is Skyrocketing The federal government is spending more per household than ever before. Since 1965, spending per household has grown by nearly 162 percent, from $11,431 in 1965 to $29,401 in 2010. From 2010 to 2021, it is projected to rise to $35,773, a 22 percent increase.

Federal Spending Is Growing Faster Than Federal Revenue Since 1965, spending has risen constantly. Federal revenues have dropped recently due to the economic recession, but spending has reached a record high.

Federal Spending Grew More Than Ten Times Faster Than Median Income When federal spending grows faster than Americans' paychecks, the burden on taxpayers becomes greater. Over the past few decades, middle-income Americans' earnings have risen only 27 percent, while spending has increased 299 percent.

Federal Spending Is Outpacing Inflation Prices of goods and services normally rise year to year, but federal spending has risen even faster. Although spending grew substantially after 9/11, less than half of the increase can be attributed to defense and homeland security spending.

Total Government Spending Has More Than Doubled Since 1965 State and local government spending per household imposes a significant, and growing, burden on taxpayers on top of federal spending. In 1970, median household income was $17,839 greater than total government spending per household, compared to only $2,431 in 2009.

Mandatory Spending Has Increased Five Times Faster Than Discretionary Spending Only one-third of the federal budget, discretionary spending, is subject to annual budgets. The remainder, mandatory spending, is set on autopilot without congressional debate and has increased more than five times faster than discretionary spending. Most of the current increase is due to entitlement spending.

Defense Spending Has Declined While Entitlement Spending Has Increased Spending on national defense, a core constitutional function of government, has declined significantly over time, despite wars in Iraq and Afghanistan. Spending on the three major entitlements—Social Security, Medicare, and Medicaid—has more than tripled.

Obama's Budget Would Reduce National Defense Spending Adequate funding for the core defense program is crucial for the military to fulfill its constitutional duty to provide for the common defense. Yet defense spending has fallen below its 45-year historical average despite ongoing operations in Iraq and Afghanistan.

More Than Half of the President's Budget Would Be Spent on Entitlement Programs In combination with other entitlements, such as food stamps, unemployment, and housing assistance, Medicare, Medicaid, and Social Security constitute the lion's share of President Obama's 2012 budget. In contrast, spending on foreign aid represents 2 percent.

Total Welfare Spending Is Rising Despite Attempts at Reform Total means-tested welfare spending (cash, food, housing, medical care, and social services for the poor) has increased 17-fold since the beginning of Lyndon Johnson's War on Poverty in 1964. Though the current trend is unsustainable, the Obama Administration plans to increase future welfare spending rather than enact true policy reforms.

Runaway Spending, Not Inadequate Tax Revenue, Is Responsible for Future Deficits The main driver behind long-term deficits is government spending—not low revenues. While revenue will surpass its historical average of 18.0 percent of GDP by 2021, spending will shoot past its historical average of 20.3 percent, reaching 26.4 percent in the same year.

Federal Revenue

Taxes per Household Have Risen Dramatically Though the economic downturn has temporarily lowered overall tax revenues, the tax burden on Americans is still high.

The Top 10 Percent of Earners Paid 70 Percent of Federal Income Taxes Top earners are the target for new tax increases, but the U.S. tax system is already highly progressive. The top 1 percent of income earners paid 38 percent of all federal income taxes in 2008, while the bottom 50 percent paid only 3 percent. Forty-nine percent of U.S. households paid no federal income tax at all.

Federal Revenues Have More Than Tripled Since 1965 Overall tax revenues have risen despite a recent decline due to the recession. Congress cut income taxes and the death tax in 2001 and capital gains taxes and dividends in 2003, yet revenues continued to surge even after the tax cuts were passed.

Federal Revenues by Source Most federal revenues come from individuals. Personal income taxes provide the largest portion of total tax revenues, though some of this is small-business income. Social Security and Medicare payroll taxes are the second-largest source.

Tax Receipts Return to Historical Average The overall tax burden on Americans is measured as a share of gross domestic product (GDP). Since World War II, tax receipts have averaged around 18 percent of GDP. Receipts have fallen due to the recession, but as the economy recovers, they will rise above the average level by the end of the decade.

Increasing Tax Rates Does Not Necessarily Lead to Higher Income Tax Receipts Tax cuts can create incentives for individuals to generate more income, which can generate more revenue. The most dramatic decline in the top individual income tax rate, from 70 percent to 28 percent, occurred during the Reagan Administration, during which tax receipts remained relatively constant as a share of the economy.

U.S. Corporate Tax Rate Is Uncompetitive High U.S. federal and state corporate tax rates make it difficult for businesses to compete internationally. While other countries are reducing corporate tax rates, the U.S. is virtually tied with Japan for the highest and has maintained rates significantly and consistently higher than the average of industrialized nations.

Total Tax Burden Is Rising to Highest Level in History Taxes are projected to increase rapidly under various policy scenarios. If the 2001 and 2003 tax cuts expire and more middle-class Americans are required to pay the alternative minimum tax (AMT), taxes will reach unprecedented levels. The tax burden will climb even if those tax breaks are extended. President Obama's budget, which cuts some taxes and raises others, also increases the overall tax burden.

Debt and Deficits

National Debt Set to Skyrocket In the past, wars and the Great Depression contributed to rapid but temporary increases in the national debt. Over the next few decades, runaway spending on Medicare, Medicaid, and Social Security will drive the debt to unsustainable levels.

Each American's Share of National Debt Is Growing As Washington continues to spend more than it can afford, future generations of taxpayers will be on the hook for increasing levels of debt. The amount of debt per citizen will skyrocket.

Obama's Budget Would Send Federal Debt to Levels Not Seen Since World War II In 2008, publicly held debt as a percentage of the economy (GDP) was 40.3 percent, nearly four points below the postwar average. Since then, the debt has increased more than 50 percent, and the President's FY 2012 budget would more than double it to 87.4 percent by 2021.

Obama's Budget Worsens Debt Problem, but The Heritage Plan Solves It Spending in the President's budget proposal for 2012 would drive the debt to 87 percent of the economy by 2021. In contrast, Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity solves the debt problem through strong budget reforms, lowering debt to 58 percent of GDP in just 10 years.

Obama's Budget Would Deepen Already Unprecedented Deficits The President is responsible for submitting an annual budget to Congress and has the authority to veto legislation, including irresponsible spending. Most Administrations have run small but manageable deficits, but President Obama's unprecedented budget deficits pose serious economic risks.

Federal Budget Deficits Will Reach Levels Never Seen Before in the U.S. Recent budget deficits have reached unprecedented levels, but the future will be much worse. Unless entitlements are reformed, spending on Medicare, Medicaid, and Social Security will drive deficits to unmanageable levels.

Rising Deficits Drive U.S. Debt Limit Higher, Faster Congress first placed a statutory limit on total federal debt in 1917, in the Second Liberty Bond Act. Since 1962, Congress has altered the debt limit through 74 separate measures, raising it 10 times since 2001. Since 1990, the debt limit has been raised a total of $10.1 trillion, but nearly half of that increase has occurred since September 2007.

U.S. Debt on Track to Fuel Economic Crisis Countries like Greece and Portugal have suffered or are anticipating financial crises as a result of mounting debt. If the U.S. continues federal deficit spending on its current trajectory, it will face similar economic woes.

Net Interest Spending Will More Than Triple Over the Next Decade As the national debt grows, interest payments will consume more and more of the federal budget, even without interest rate increases. Under the President's budget, the national debt would double and real net interest costs would more than triple over the next decade.

In One Year, Spending on Interest on the National Debt Is Greater Than Funding for Most Programs In 2010, the U.S. spent more on interest on the national debt than it spent on many federal departments, including Education and Veterans Affairs.

Entitlements

Medicare, Medicaid, and Social Security Will Consume All Tax Revenues in 2049 If the average historical level of tax revenue is extended, spending on Medicare, Medicaid and the Obamacare subsidy program, and Social Security will consume all revenues by 2049. Because entitlement spending is funded on autopilot, no revenue will be left to pay for other government spending, including constitutional functions such as defense.

Entitlement Spending Will More Than Double by 2050 Spending on Medicare, Medicaid and the Obamacare subsidy program, and Social Security will soar as 78 million baby boomers retire and health care costs climb. Total spending on federal health care programs will triple.

Medicare Spending Is Adding to Future Deficits Faster Than Other Program Spending Entitlement spending is the main cause of long-term runaway deficits. While reform must address spending within each program, Medicare is the largest driver due to the effects of an aging population and rising health care costs.

Without Entitlement Reform, Federal Spending Could Consume One-Half of the Economy by 2056 The major entitlements—Medicare, Medicaid, the Obamacare subsidy program, and Social Security— are on track to push spending to unsustainable levels. These programs must be reformed in order to improve the long-term budget outlook.

Letting Tax Cuts Expire Will Not Balance the Budget Some argue for allowing the 2001 and 2003 tax cuts to expire, including subjecting the middle class to the alternative minimum tax in order to balance the budget. Under this scenario, unaffordable deficit spending would still continue, and economic growth and job creation would suffer.

Hiking Taxes to Pay for Entitlements Would Require Doubling Tax Rates The cost of Medicare, Medicaid, and Social Security is rising substantially. Paying for this spending solely through federal income tax increases would require more than a twofold increase of current tax rates, even for the lowest tax bracket.

Taxing the Wealthy to Cover Future Deficits Won't Work Some argue for taxing only the wealthy to raise revenues and reduce federal deficits. However, hiking taxes on these taxpayers would increase their tax rates to mathematically impossible levels. To close the 2035 deficit, the top two rates would increase to 139 percent and 150 percent, and in 2050 they would reach 206 percent and 223 percent.

Balancing the Budget Without Cutting Spending Would Cause Taxes to Skyrocket America is running massive deficits, and a balanced budget requirement is often considered a way to rein in red ink. Without serious entitlement and other spending reforms, the level of taxes required to balance the federal budget would reach economically stagnating levels.

Discretionary Spending Cuts Alone Are Not an Adequate Substitute for Entitlement Reform Annual spending on entitlement programs is massive compared to other federal spending priorities. Cutting discretionary spending is a necessary step, but cuts to foreign aid alone or pulling out of Afghanistan will not close the deficit. Entitlement spending must be reined in.

Even Eliminating Vital Defense Spending Completely Would Not Solve the Entitlement Spending Problem Long-term deficits are the result of unsustainable levels of spending on entitlement programs. Rather than tackle them directly, some would cut defense. But even if spending on this crucial national priority was eliminated completely, entitlements would continue to drive deficits to unmanageable levels.

The Alternative: Saving the American Dream By rapidly lowering total federal spending, Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity would balance the budget by 2021 and keep it there permanently, without raising taxes.

The Heritage Plan Would Reverse Trajectory of Unsustainable Debt Without significant spending reforms, the national debt is projected to reach 185 percent of GDP by 2035. Under the Heritage plan, federal spending would be reduced by about half, which would dramatically lower the debt to 30 percent.

The Heritage Plan Keeps Spending Low and Ends Deficits Without Raising Taxes Bold, transformational reforms are needed to solve America's spending crisis. The Heritage Plan achieves this through spending, entitlement, and tax reforms. It reduces the size of government, encourages personal fiscal responsibility, and fosters economic growth. It balances the federal budget by 2021 and keeps revenue at 18.5 percent of the economy.

Technical Notes

The charts in this book are based primarily on data available as of March 2011 from the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The charts using OMB data display the historical growth of the federal government to 2010 while the charts using CBO data display both historical and projected growth from as early as 1940 to 2084. Projections based on OMB data are taken from the White House Fiscal Year 2012 budget.

The charts provide data on an annual basis except where calculations are made for Administration averages. Debt limit data are based on the limit in effect at the end of the calendar year. All spending and revenue data are based on a fiscal year. For simplicity, these are displayed as calendar years in the charts. Prior to 1976, the fiscal year was from July 1 to June 30. Following that year, the current format of October 1 to September 30 was implemented. In the charts, the transition is omitted for clarity. Also, in all charts in which spending or revenue is measured by taxpayer, taxpayers are counted as the number of individual income tax returns filed (according to data from the Internal Revenue Service) per year. Thus, married couples that both work but file a joint return are counted as a single combined-income unit. Most of the data are adjusted for inflation in 2010 dollars. Specific information regarding data sources is indicated at the bottom of each chart.

Charts designating Presidential Administrations begin with the fiscal year in which the Administration presented its first budget. In the case of 2012, an atypical year in which much was spent before the Administration’s first fiscal year budget (FY2011), all revenue and spending up to the CBO January 2012 "Budget and Economic Outlook" is attributed to President Bush. All revenue and spending thereafter is attributed to President Obama.