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Teacher professional development and classroom resources across the curriculum
In its 2009 report, “Red Ink Rising,” the Peterson-Pew Commission on Budget Reform recommends we stabilize the U.S. Debt at 60% of GDP by 2018. Use this exercise to explore ways you can accomplish this goal.
The U.S. is currently over $14 trillion in debt. To provide some perspective on just how immense this figure is, the U.S. Gross Domestic Product (GDP) was $14.7 trillion in Fiscal Year (FY) 2010. This means that the overall gross U.S. debt equals about 95% of U.S. GDP.
A “deficit” is defined by the Peterson-Pew Commission as “the difference in a given fiscal year between federal revenue and spending,” and “debt” is defined as “the amount owed to creditors who have financed the government’s borrowing.”
Each year that the United States suffers a deficit in relation to GDP, the debt grows. Thanks to deficits in FY 2009 and FY 2010, the public debt alone has risen from 41% to 69% of the GDP. The “public” debt (as opposed to “gross” debt) is defined by the Peterson-Pew Commission as “a measure of the total debt held by individuals, corporations, and governments, domestic and foreign.” Gross debt includes all of that, plus what it has borrowed from its various trusts (such as Social Security).
This exercise will focus exclusively on public debt, which is measured as a ratio to overall GDP. Such a calculation allows for the ability to measure yearly economic growth while still keeping track of debt, thereby providing a lens through which one can see just how much debt we can afford to carry. Hypothetically, if debt exceeds GDP, then the debt has become completely unsustainable by all interpretations. In order to eventually balance its debt, the U.S. will have to drastically cut back on expenses and increase revenue if only to bring it back down to manageable levels, so that we can begin to pay it off at a more leisurely pace in future years. Ideally, and for the purposes of this exercise, we would like for our debt to be even lower than GDP; in this case, 60%.
Broad policy backdrops set the stage for refined budget choices.
The starting path you choose will have an impact on the budget and, in turn, on society. For this activity, broad policy comprises three sections: Major Foreign Wars; Tax Cuts of 2001/2003; and Discretionary Spending Growth.
A choice must be made for each of these three categories in order to advance, and only one choice may be made per category.
Defense, security, and foreign relations made up about 66% of the U.S. Discretionary Budget in 2010. To take funding away from any of these programs is to (to some degree) compromise U.S. economic and military influence in global affairs. However, some argue that federal government could be more well-rounded (and thriftier) when it comes to discretionary spending. It is important to find a balance in accordance with domestic needs, while still accounting for international affairs.
Programs under this category make up a little bit more than 20% of the president’s budget proposal for FY2012. In past years, funding has been even higher for such programs. Some economists believe that effective government programs can both enhance the productivity of the economy and open opportunities for those of lower socioeconomic status. By the same token, it is noted that funding for some programs significantly outweighs the social utility of those programs and must be adjusted to account for general waste in addition to the existing national debt.
Social Security weighs in at 20% of the federal budget; it is the largest federal government program. The “baby boomer” population is rapidly approaching retirement, and the costs well outweigh revenues. Reducing Social Security benefits would put a significant dent in the outstanding debt.
Both Medicare and Medicaid are expensive. In fact, they sap more out of the federal budget than any other programs. Private health care is growing exponentially. With so many uninsured despite recent reform, health care is far from perfect. Cutting out unnecessary expenditures and investing in productive aspects of health care would help keep the U.S. from succumbing to a large deficit.
Our debt is so massive. Some spending programs appear as luxuries. As of 2011, we are faced with the trial of discerning necessary spending (programs that better our global economic position and keep us domestically healthy) from spending that does not fulfill our national agenda. Some examples of “miscellaneous” spending are: NASA missions, farm subsidies, and earmarks. What spending should we reduce, increase, or not change at all?
Taxes strengthen our nation's economy by providing essential public goods and services. Ideally, they contribute to national saving while funding programs. However, the U.S. has a history of spending faster than its ability to raise taxes.
Tax expenditures are revenue losses attributable to tax provisions that often result from the use of the tax system to promote social goals without incurring direct expenditures. The government spends (or "loses," depending on one's perception) almost $900 billion on deductions, credits, exclusions, exemptions, and other forms of tax-code expenditures. Some of these expenditures have a greater utility than others, and (according to proponents) some simply cost too much to maintain.
Neither President Obama nor Congress appeared to be near a solution on how to control the U.S. debt. Use this exercise to show them how to do it.