Charting a Course for the Federal Budget and the National Debt PDF

Charting a Course for the Federal Budget and the National Debt Federal Budget Fiscal Ship Game  The Fiscal Ship Part #1 – Understanding Challenges of the Federal Budget Federal Budget Fiscal Ship Game  FY 2023...

Charting a Course for the Federal Budget and the National Debt Federal Budget Fiscal Ship Game  The Fiscal Ship Part #1 – Understanding Challenges of the Federal Budget Federal Budget Fiscal Ship Game  FY 2023 3.2 28.6 8.4 1.0 14.2 9.9 1.4 15.8 1.8 15.7 Federal Budget Fiscal Ship Game Misconceptions about the budget: Source: Office of Management and Budget, Congressional Budget Office Federal Budget Fiscal Ship Game  Federal Budget The taxing and spending plan of the national government A budget deficit occurs in years the government's outlays (spending) are greater than its revenues (tax receipts) Budget deficits increase the National Debt (the total unpaid borrowed funds, carried by the federal government). A budget surplus occurs in years the government spending is less than its revenues. This would decrease the size of the National Debt. Answer #1-3 Now Federal Budget Fiscal Ship Game  Mandatory Spending Spending on certain programs required by existing law. Not dependent on an annual or periodic appropriation bill Social Security, Medicare, Medicaid, some veteran’s benefits, food stamps and interest on our national debt. “Entitlements” – if you meet eligibility requirements then you are entitled to Federal government benefits or services. About 70% of total spending Federal Budget Fiscal Ship Game  Discretionary Spending Congress can adjust on a yearly basis. (Under the discretion of Congress) Department of Defense (DoD), Health and Human Services, Veterans Administration, State Department, Homeland Security, etc. Roughly half of our Discretionary budget goes to defense, but remember - discretionary spending is only 30 percent of the total budget. Federal Budget Fiscal Ship Game Video: The Federal Budget: Where the Money Comes From and Where it Goes https://www.youtube.com/watch?v=z6ohGMgkYeE Answer #4 Now Federal Budget Fiscal Ship Game  2022 Federal Budget Outlays for student loan programs were unusually high in 2022, largely as a result of the student loan forgiveness plan announced by the Administration and recorded in the budget in September 2022. The Administration recorded the present-value costs of that plan, which it estimated to be $379 billion, as an increase in outlays. (A present value expresses the flow of future Source: Congressional Budget Office payments in terms of an equivalent lump sum paid today.) Federal Budget Fiscal Ship Game The federal government has run a deficit for much of the last century. Debt as a % of GDP Countries with the largest National Debt Burden as a % of GDP  US PUBLIC DEBT – Who holds the IOUs? Dec. 2020 Federal Budget Fiscal Ship Game Federal Budget Fiscal Ship Game Federal Budget Fiscal Ship Game Looking at the Federal Budget from Multiple Perspectives Federal Budget Fiscal Ship Game National income will be greater tomorrow than it is today because Government has had the courage to borrow idle capital and put it and idle labor to work.... Our national debt after all is an internal debt owed not only by the Nation but to the Nation. If our children have to pay interest on it they will pay that interest to themselves. A reasonable internal debt will not impoverish our children or put the Nation into bankruptcy. —President Franklin D. Roosevelt, May 22, 1939 17 Federal Budget Fiscal Ship Game I have long argued that paying down the national debt is beneficial for the economy: it keeps interest rates lower than they otherwise would be and frees savings to finance increases in the capital stock, thereby boosting productivity and real incomes. —Federal Reserve Board Chairman Alan Greenspan, April 27, 2001 18 Federal Budget Fiscal Ship Game  The U.S. Public Debt Interest charges on debt Main burden of the debt US has to pay the interest on the debt in order to remain in good credit standing. 1.9% of GDP in 2023 9.9% of budget in 2023 LO4 Federal Budget Fiscal Ship Game 13-1  The U.S. Public Debt False Concerns Bankruptcy Burdening Future Generations Real Concerns Unequal income distribution Foreign Owned debt Crowding out Effect LO4 Federal Budget Fiscal Ship Game 13-2  The U.S. Public Debt False Concerns Bankruptcy? US is not going bankrupt any time soon. Increase taxes Borrow (sell new bonds) –Corporations do this – almost always have outstanding debt LO4 Federal Budget Fiscal Ship Game 13-2  The U.S. Public Debt False Concerns Burdening future generations We owe this debt to ourselves. Paying it off pays it back to ourselves in a giant transfer payment. Purchasing power won’t change. If excess spending is used to increase productivity – allows growth/GDP LO4 Federal Budget Fiscal Ship Game 13-2  Substantive Issues Real Concerns Income distribution Foreign-owned public debt Crowding-out effect Future generations Public investment LO4 Federal Budget Fiscal Ship Game 13-2  Substantive Issues Real Concerns Income distribution Repayment of the debt affects income distribution. If working taxpayers will be paying interest to the mainly wealthier groups who hold the bonds, this increases income inequality. LO4 Federal Budget Fiscal Ship Game 13-2  Substantive Issues Real Concerns Foreign-owned public debt This can increase the burden since payments leave the country. But Americans also own foreign bonds and this could offset the concern. LO4 Federal Budget Fiscal Ship Game 13-2  Substantive Issues Real Concerns Crowding-out effect Future generations Public investment LO4 Federal Budget Fiscal Ship Game 13-2  MRU Fiscal policy review https://mru.org/courses/principles-economics-macroeconomics/fis cal-policy-crowding-out 4 minutes - good review of crowding out Federal Budget Fiscal Ship Game Challenge #1: Growing Budget Deficits Source: Congressional Budget Office Federal Budget Fiscal Ship Game Challenge #2: Population Aging Source: Social Security Administration Image credit: Vivien Lee (Senior Research Assistant- Hutchins Center on Fiscal and Monetary Policy, The Brookings Institution) Federal Budget Fiscal Ship Game Challenge #2: Population Aging Source: Congressional Budget Office Federal Budget Fiscal Ship Game Challenge #3: Increased Costs for Major Health Care Programs Source: Congressional Budget Office Federal Budget Fiscal Ship Game Federal Budget Fiscal Ship Game What consequences do a large and growing federal debt have? Significant negative consequences of a large and growing federal debt: Reduce national savings and income in long-term Increase the government’s interest costs, putting more pressure on the rest of the budget Limit lawmaker’s ability to respond to unforeseen events Increase the likelihood of a fiscal crisis, a situation in which the interest rate on federal debt rises abruptly, dramatically increasing the cost of government borrowing. Federal Budget Fiscal Ship Game  The Fiscal Ship Part #2 – Determining Values and Evaluating Policy Options Federal Budget Fiscal Ship Game  See Handout #2: Select Your Governing Goals Before we begin the game, you’ll select your governing goals. The goals are your aspirations and values – the ones that shape the kind of country we live in. Select 3 of the 10 goals. Federal Budget Fiscal Ship Game  Fiscal Ship Governing Goals Select 3 out of the 10 Reduce Inequality: The disparity between Americans who have the most and the least income is growing, mirrored by disparities in education, health, and family structure. You want to narrow the widening gaps in incomes and well-being at the top and the bottom. Strengthen National Defense: Projections of current policies show defense spending, measured as a share of the economy, falling over the next decade and then plateauing. You’d bolster the U.S. military by providing it with more personnel and more arms. (To reach fiscal sustainability, you’ll have to pay for these somehow.) Fight Climate Change: You want to use government policies to promote a cleaner, healthier environment, reduce greenhouse gas emissions and avoid the damage that could be caused by global climate change. Strengthen Social Safety Net: You believe it’s important for the federal government to give a hand up to those in poverty and protect those at risk of falling down the income ladder when times are tough. You want to expand and protect programs that protect the vulnerable. More Goals to Select from on the next two slides… Federal Budget Fiscal Ship Game  Fiscal Ship Governing Goals Select 3 out of the 10 Tax Cutter: You believe lower taxes will boost economic growth and want to allow Americans to keep more of what they earn. Your goal is to substantially reduce federal tax revenues as a share of the economy. (To reach fiscal sustainability, you’ll have to cut spending, too.) Shrink Government: You believe that we’re better off with a leaner federal government, shifting responsibilities to the private, non-profit and state and local sectors. Spending on general government operations and federal programs (other than health and retirement benefits) is projected under current policy to decline over the next decade. You’d reduce it more. Shield the Elderly: Under current policy, about 60% of the increase in federal spending over the next decade will go to Social Security, Medicare, Medicaid and other major health programs, much of that for the growing number of people who will be over age 65. You want to protect benefits for senior citizens. More Goals to Select from on the next slide… Federal Budget Fiscal Ship Game  Fiscal Ship Governing Goals Select 3 out of the 10 Invest in the Future: You believe in planting seeds today that will be harvested in years to come. You want policies to increase, above what’s currently projected, government and private investment in children and young adults and in education, infrastructure and research that will pay off in the future. (To reach fiscal sustainability, you’ll have to pay for these somehow.) Fiscal Hawk: You’re not satisfied with restraining the projected increase in the federal debt so that in 25 years it’s roughly where it is today, measured as a share of the overall economy. To put the government and the economy on a sounder footing, you want to reduce it substantially below today’s levels. Rein in Entitlements: Spending on retirement, health and other government benefits, much of that for the elderly, account for two-thirds of non-interest spending today and threaten to squeeze out spending on everything else—from equipping soldiers with modern gear to repairing old bridges to pursuing cures for cancer. You want to restrain this spending to make room for other priorities. Federal Budget Fiscal Ship Game  Your governing goals – Pair-and-Share Turn to a neighbor and discuss the following questions… Partner #1 Explain: Which goals did you choose? Why did you choose these goals? Partner #2 Explain: Which goals did you choose? Why did you choose these goals? Discuss together and record your answers on Handout #3, question #3. A) Do your goals work together so achieve a common objective? B) Do they balance both revenues and expenditures so that you will be able to put the country on a sustainable fiscal path? C) Are there any inherent contradictions in your selected goals that make policy-making difficult during the game? Federal Budget Fiscal Ship Game Evaluate Policy Options in the Game Policy Options on the Fiscal Ship Based on your personal beliefs as stated in your three governing goals, highlight options you agree with in GREEN (good) and those you absolutely disagree with in YELLOW (yucky), or simply place a ‘+’ or ‘—’ by the policies if they do (or do not) align with your three governing goals. Federal Budget Fiscal Ship Game Completely Evaluate Policies for all Categories Next Stop… Game Time! Federal Budget Fiscal Ship Game The Fiscal Ship Part #3 – Playing the Game Federal Budget Fiscal Ship Game  You need to captain the U.S.S. Federal Budget to avoid the stormy seas of debt. Your mission is to pick from a menu of tax and spending options to reduce the debt from projected levels over the next 25 years and keep the debt level no higher than it is today. But budget decisions aren’t only about fiscal sustainability. They also shape the kind of country we live in. To win the game, you need to find a combination of policies that match your values and priorities AND set the budget on a sustainable course. Federal Budget Fiscal Ship Game Federal Budget Fiscal Ship Game  Watch how to play the game (clip length 1:38) https://www.youtube.com/watch?v=QSWUcaT4GGA Federal Budget Fiscal Ship Game  Post-Game Class Discussion How difficult was it to pursue your goals while also hitting the debt target? Which of your goals were most difficult to achieve? Which of your policy choices had the largest impact on your fiscal target? Which barely moved the line? Were you surprised by the magnitude of any policy choices? What do you think the political obstacles would be to hitting the debt target? What do you think would be the impact on the American middle class of the choices you made? Did the game make you reevaluate your initial governing goals? Federal Budget Fiscal Ship Game