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2010

Budget
Chart
Book
The Federal Budget in Pictures
2010 Budget Chart Book
The Federal Budget in Pictures

The Thomas A. Roe Institute for Economic Policy Studies

214 Massachusetts Avenue, NE • Washington, D.C. 20002 • (202) 546-4400 • heritage.org


About the Budget Chart Book iii

The federal budget is on an unsustainable course the debt to skyrocket as Debt and Deficits Chart 3
with red ink as far as the eye can see, so it is especially (National Debt Set to Skyrocket, p. 26) illustrates.
important for Americans to understand spending, The main reason America finds itself on a
Federal taxes,Spending
and debt. perThe Household
HeritageIsFoundation’
Skyrocketing s Budget precipice of disastrous deficits is from spending
The federal government is spending more on a per-household basis than ever before.
Chart Book is a user-friendly way to learn about the on the three major entitlements—Social Security,
federal budget in pictures.
INFLATION-ADJUSTED DOLLARS (2009)
Medicare, and Medicaid. As Entitlements
$40,000
As Federal Spending Chart 1 (Federal $31,088 $36,139 Chart 2 (Entitlement Spending Will More
$35,000Spending per Household Is Skyrocketing, Than Double by 2050, p. 35) shows, these
$30,000
p. 2, at right) shows, spending has been programs will double in size in a few
on the rise—even before the recession decades. But Chart 10 (Spending Cuts
$25,000
and stimulus bill—and will continue to Alone Will Not Pay for Rising Entitlement
Actual Projected
$20,000climb steeply under President Obama. Spending, p. 43) explains spending cuts
$11,337
Washington is planning to pay alone can’t pay for entitlements, and the
$15,000
Federal Spending Chart 1
for this and more spending with level of taxes, shown in Chart 8
$10,000tax hikes, but as Federal Revenue Charts 1 and (Paying for Entitlements with Tax Increases Would Cause
$5,0009 (Taxes per Household Have Risen Dramatically, p. Tax Rates to Double, p.41), required to pay for the
14; and Total Tax Burden Is Rising to Highest LevelsActual programs would devastate the economy.
in Projected
0
History,
1965
p.
1970
22) reveal,
1975 1980
taxes1985
are already
1990 1995
a hefty
2000
burden
2005 2010
Tough
2015 2020
policy choices and strong entitlement
and will reach unprecedented levels in the future.
Source: U.S. Census Bureau, White House Office of Management and Budget, and Congressional Budget Office.
reforms are necessary to get the budget back on
Yet spending continues to grow
Inflation-Adjusted Dollars (2009)

federal-spending-per-household
far faster than track,
Federal Spending Chart 1 • 2010 Budget Chart Book
and
heritage.org
the Budget Chart Book will help you
revenues, creating record deficits. President Obama’s appreciate the size and scope of the decisions
annual deficits will add more to the federal debt than policymakers must enact to protect America’s
every other president before him combined, causing fiscal future.
Table of Contents v

Page
FEDERAL SPENDING
Federal Spending per Household Is Skyrocketing..................................................................................................2
Federal Spending Is Growing Faster Than Federal Revenue..................................................................................3
Recent Spending Hikes Are Not Limited to Temporary Emergencies.....................................................................4
Federal Spending Grew More Than Eight Times Faster Than Median Income......................................................5
Federal Spending Is Outpacing Inflation................................................................................................................6
Mandatory Spending Has Increased Nearly Five Times Faster Than Discretionary Spending................................7
Entitlement Spending and Interest Payments Are Squeezing Out Other Programs . .............................................8
Total Government Spending Has More Than Doubled Since 1965........................................................................9
Defense Spending Has Declined While Entitlement Spending Has Increased......................................................10
Obama’s Budget Would Reduce National Defense Spending . .............................................................................11
Earmark Spending Continues Despite Change in Congressional Leadership.......................................................12

FEDERAL REVENUE
Taxes per Household Have Risen Dramatically....................................................................................................14
The Top 10 Percent of Earners Paid 71 Percent of Federal Income Tax...............................................................15
Federal Government Revenues Have More Than Tripled Since 1965..................................................................16
Federal Revenues by Source.................................................................................................................................17
Recession Pushes Current Tax Receipts Below Historical Average........................................................................18
Income Tax Receipts Stay Constant Even as Tax Rates Decline............................................................................19
Corporate Income Tax Receipts Stay Constant Even as Tax Rates Decline...........................................................20
U.S. Top Corporate Tax Rate Exceeds the OECD Average....................................................................................21
Total Tax Burden Is Rising to Highest Level in History.........................................................................................22
vi Table of Contents
Page
DEBT AND DEFICITS
Obama’s Budget Would Send Federal Debt to Levels Not Seen Since World War II............................................24
Debt in Obama’s Budget Exceeds Congressional Budget Office Baseline..............................................................25
National Debt Set to Skyrocket.............................................................................................................................26
Obama’s Budget Would Create Unprecedented Deficits.......................................................................................27
Federal Budget Deficits Will Reach Levels Never Seen Before in the U.S.............................................................28
Entitlement Reform Would Eliminate Long-Term Deficits...................................................................................29
Net Interest Spending Will Quadruple over the Next Decade..............................................................................30
The Monthly Interest Payment on the National Debt Is More Than Most Program Spending.............................31

ENTITLEMENTS
Entitlements Will Consume All Tax Revenues by 2052........................................................................................34
Entitlement Spending Will More Than Double by 2050......................................................................................35
Social Security Spending Will Soon Rise Rapidly.................................................................................................36
Medicare and Medicaid Spending Will Rise with Increasing Health Care Costs...................................................37
Entitlement Debt Dwarfs Other Spending, Including Bailouts ............................................................................38
Without Entitlement Reform, Federal Spending Could Consume More than Two-Fifths of GDP by 2055.........39
Repealing Tax Cuts and Not Fixing AMT Will Not Balance the Budget...............................................................40
Paying for Entitlements with Tax Increases Would Cause Tax Rates to Double ..................................................41
Balancing the Budget Would Cause Taxes to Skyrocket ......................................................................................42
Spending Cuts Alone Will Not Pay for Rising Entitlement Spending...................................................................43
The Roadmap for America’s Future Could Solve the Long-Term Budget Problem...............................................44
Federal Spending
The government is spending at unprecedented levels, posing an
expensive threat to limited government.
Page
2
Federal Spending per Household Is Skyrocketing
The federal government is spending more on a per-household basis than ever before.
INFLATION-ADJUSTED DOLLARS (2009)
$40,000
$31,088 $36,139
$35,000

$30,000

$25,000

$20,000
$11,337
$15,000

$10,000

$5,000
Actual Projected
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: U.S. Census Bureau, White House Office of Management and Budget, and Congressional Budget Office.
Inflation-Adjusted Dollars (2009)

federal-spending-per-household Federal Spending Chart 1 • 2010 Budget Chart Book heritage.org


Federal Spending Is Growing Faster Than Federal Revenue Page
3
Since 1965, taxes and spending have been rising. Federal revenues have dropped recently due to
the economic recession while spending has reached a record high.
INFLATION-ADJUSTED DOLLARS (2009)

$4 trillion
$3.69 trillion
Est. 2010
$3 trillion Spending deficit:
$1.54
trillion

$2 trillion

$2.15 trillion
Revenue
$1 trillion

0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget.
Inflation-Adjusted Billions of Dollars (2009)

growth-federal-spending-revenue Federal Spending Chart 2 • 2010 Budget Chart Book heritage.org


Page
4
Recent Spending Hikes Are Not Limited to Temporary Emergencies
The overall increase in base spending is a significant budgetary concern. Recent bailouts and the stimulus were
expensive, but they are a modest fraction of the total budget. Even the global war on terrorism is just a small
sliver of spending.
INFLATION-ADJUSTED DOLLARS (2009)
$5 trillion $4.0 trillion $4.3 trillion
Financial Bailouts
$4 trillion 2009 Stimulus Bill
Global War on Terrorism
$3 trillion $1.9 trillion $2.3 trillion

$2 trillion Base Spending


(43% real growth
from 2009 to 2019)
$1 trillion

0
1990 1995 2000 2005 2010 2015 2019

Source: Heritage Foundation calculations based on White House Office of Management and Budget data.
Inflation-Adjusted Billions of Dollars (2009)

federal-spending-hikes-not-temporary Federal Spending Chart 3 • 2010 Budget Chart Book heritage.org


Federal Spending Grew More Than Eight Times Faster Page
5
Than Median Income
When federal spending grows faster than people’s paychecks, the government’s burden on taxpayers becomes
greater. Over the past few decades, middle-income Americans’ earnings have risen 29 percent, while spending has
increased 242 percent.
PERCENTAGE CHANGE OF INFLATION-ADJUSTED DOLLARS (2009)
1970 $883 billion
250% 2008 $3,018 billion
+242%
200%

150%
Total Federal
Spending
100% 1970 $39,403
2008 $50,893
Median
50% Household +29%
Income
0
1970 1975 1980 1985 1990 1995 2000 2005 2008

Source: U.S. Census Bureau and White House Office of Management and Budget.
Inflation-Adjusted Dollars (2009)

growth-federal-spending Federal Spending Chart 4 • 2010 Budget Chart Book heritage.org


Page
6
Federal Spending Is Outpacing Inflation
Prices normally rise year to year, but federal spending has risen even faster, making it more costly than ever.
Although spending grew substantially after 9/11, less than half of the increase is due to defense and homeland
security spending.
+17.9%
YEAR-TO-YEAR PERCENTAGE CHANGE

15%

Federal Spending
Inflation
Average Change Average
10% in Federal Change in +9.3%
Spending: Inflation: +7.9% +7.8%
+5.6% +2.6% +7.4% +7.4%
+6.2%

5%

0 –0.4%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: White House Office of Management and Budget and Bureau of Labor Statistics.
Year-to-Year Percentage Change

federal-spending-inflation Federal Spending Chart 5 • 2010 Budget Chart Book heritage.org


Mandatory Spending Has Increased Nearly Five Times Faster Page
7
Than Discretionary Spending
Only one-third of the federal budget, discretionary spending, is subject to required annual congressional debate.
The remainder, mandatory spending, grows on autopilot and has increased nearly five times faster than
discretionary spending. Most of the current increase is due to stimulus and entitlement spending.
INFLATION-ADJUSTED DOLLARS (2009)

$3.5 trillion $3.5 trillion

$3.0 trillion

$2.5 trillion

$2.0 trillion
$604 billion
$1.5 trillion
Mandatory
$1.0 trillion Spending

$0.5 trillion Discretionary


Spending
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget.
Inflation-Adjusted Billions of Dollars (2009)

mandatory-discretionary-spending Federal Spending Chart 6 • 2010 Budget Chart Book heritage.org


Page
8
Entitlement Spending and Interest Payments
Are Squeezing Out Other Programs
One way to control spending is to cap it as a share of GDP. Because interest must be paid and if entitlement
spending increases automatically, caps would squeeze other spending. Even if defense spending is reduced,
entitlement reform is necessary for more budgetary flexibility.
PERCENTAGE OF GDP
25% Current 25%
Spending
Spending
20% 20% Capped at
22% GDP
Mandatory Mandatory
15% Spending 15% Spending

10% 10%
Net Interest
Net Interest
5% 5%
Discretionary Defense
Spending 6.6% 3.5%
Other Discretionary 1.0%
0 0
2012 2015 2020 2012 2015 2020

Source: Heritage Foundation calculations based on White House Office of Management and Budget data.
Percentage of GDP

entitlement-interest-spending-squeezes-federal-spending Federal Spending Chart 7 • 2010 Budget Chart Book heritage.org


Total Government Spending Has More Than Doubled Since 1965 Page
9
State and local government spending imposes a significant additional burden on taxpayers on top of federal spending.
PER-HOUSEHOLD SPENDING, IN INFLATION-ADJUSTED DOLLARS (2009)
$50,000
$47,000

$40,000

$30,000
$17,440
State and Local
Spending
$20,000
Federal
Spending
$10,000

0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2009

Source: U.S. Census Bureau, White House Office of Management and Budget, and 2010 Economic Repor t of the President.
Inflation-Adjusted Dollars (2009)

total-government-spending Federal Spending Chart 8 • 2010 Budget Chart Book heritage.org


Page
10
Defense Spending Has Declined While Entitlement Spending
Has Increased
Spending on national defense, a core constitutional function, has declined significantly over time, despite wars in
Iraq and Afghanistan. Meanwhile, spending on the three major entitlements—Social Security, Medicare, and
Medicaid—has more than tripled and is rapidly crowding out other programs.
PERCENTAGE OF GDP
10%
1976 was Entitlements
the first year (Social Security,
entitlement Medicare, Medicaid)
8% spending 9.9%
99.9
9%
9%
exceeded
defense
spending
6% 7.4%
77.4
.44%
%

National
Defense
4% 2.5%
22.
.55%
5%
4.9%
.9%
%

2%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget.
Percentage of GDP

defense-entitlement-spending Federal Spending Chart 9 • 2010 Budget Chart Book heritage.org


Obama’s Budget Would Reduce National Defense Spending Page
11
Adequate funding 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.
DEFENSE SPENDING AS A PERCENTAGE OF GDP

10% 9.5%

8%
6.2%

6% 4.9%
44.9
.9%
9% 33.5%
.5%
45-Year Average: 5.3%

4% 3.0%

Actual Projected
2%

0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: White House Office of Management and Budget.


Percentage of GDP

obama-budget-defense-spending Federal Spending Chart 10 • 2010 Budget Chart Book heritage.org


Page
12
Earmark Spending Continues Despite Change
in Congressional Leadership
Despite pledges from President Obama and congressional leaders to curtail earmark spending, the practice has
continued at previous levels. The most recent spending bills included nearly 10,000 pork projects costing
taxpayers nearly $16 billion.
NUMBER OF EARMARKS COST OF EARMARKS
15,000 $30 billion
$29 billion $15.9
13,997 earmarks 9,499
billion
2,658 $25
12,000 $13.2
billion
$20
9,000
$15
6,000
$10

3,000
$5

0 0
1991 1995 2000 2005 2010 1991 1995 2000 2005 2010

Source: Citizens Against Government Waste and Taxpayers for Common Sense.
Billions of Dollars and Numbers of Projects

pork-barrel-earmarks Federal Spending Chart 11 • 2010 Budget Chart Book heritage.org


Federal Revenue
The tax burden in America is climbing and will reach record levels
without policy changes.
Page
14
Taxes per Household Have Risen Dramatically
American households are sending more of their income to Washington, despite the economic downturn.
INFLATION-ADJUSTED DOLLARS (2009)

$25,000 $23,947
$23,947 $16,543

$20,000

$11,202 $16,357 Current levels higher than 1992


$15,000

$10,000

$5,000

0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2009

Source: White House Office of Management and Budget.


Inflation-Adjusted Dollars (2009)

taxes-per-household Federal Revenue Chart 1 • 2010 Budget Chart Book heritage.org


The Top 10 Percent of Earners Paid 71 Percent Page
15
of Federal Income Tax
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 40 percent of all federal income taxes in 2007, while the bottom 50 percent
paid only 3 percent. More than one-third of U.S. earners paid no federal income tax at all.
PERCENTAGE OF TOTAL INCOME TAXES (2007) Bottom
50%

26%–50%
This Level 11%–25%
of Income Top 1% 2%–5% 6%–10%
Earners ...

... Paid This 40% 20% 11% 15% 11% 3%


Proportion of
the Federal
Income Tax
in 2007.

Source: Internal Revenue Service.


Percentage of Total Income Taxes (2007)

top10-percent-income-earners Federal Revenue Chart 2 • 2010 Budget Chart Book heritage.org


Page
16
Federal Government Revenues Have More Than Tripled Since 1965
Tax revenues have been rising historically despite a recent decline due to the recession. Income, capital gains,
and corporate tax cuts in 2001 and 2003 helped revenues surge.
INFLATION-ADJUSTED DOLLARS (2009)
$3.0 trillion
$2.15 trillion

$2.5 trillion

$2.0 trillion

Total Revenue
$1.5 trillion $927.4 billion

$1.0 trillion Individual


Income Taxes
$0.5 trillion $155.3 billion
Corporate Taxes
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget.
Inflation-Adjusted Billions of Dollars (2009)

federal-government-revenues Federal Revenue Chart 3 • 2010 Budget Chart Book heritage.org


Federal Revenues by Source Page
17
Most federal revenues come from individuals. Personal income taxes provide the largest portion of total tax
revenues. Social Security and Medicare payroll taxes are the second-largest source.
PERCENTAGE OF TOTAL FEDERAL REVENUE (2009)

Individual Social
($915.3 billion) Insurance
($890.9 billion)

43.5% 42.3%

Corporate: 6.6% ($138.2 billion)


Customs Duties, Misc.: 3.5% ($74.2 billion)
Excise: 3.0% ($62.5 billion)
Estate and Gift: 1.1% ($23.5 billion)

Source: Congressional Budget Office.


Percentage of Total Federal Revenue (2009)

federal-revenue-sources Federal Revenue Chart 4 • 2010 Budget Chart Book heritage.org


Page
18
Recession Pushes Current Tax Receipts Below 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. Due mainly to the recession, tax receipts have fallen slightly
but are expected to surpass historical levels soon.
TAX RECEIPTS AS A PERCENTAGE OF GDP
22% 20.6%
20.4%
20% Tax
Revenue

18%

30-Year
16% Average:
18.2%

14%
14.4%
14.8%

12%
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget.
Percentage of GDP

current-tax-receipts Federal Revenue Chart 5 • 2010 Budget Chart Book heritage.org


Income Tax Receipts Stay Constant Even as Tax Rates Decline Page
19
Tax cuts can create incentives for individuals to generate more income, which generates more revenues. The most
dramatic decline in the top individual income tax rate, from 70 percent to 28 percent, occurred during the Reagan
Administration, yet tax receipts remained relatively constant as a share of the economy.
TAX RATES AND RECEIPTS AS A PERCENTAGE OF GDP
100%
91%
Top Individual
80% Tax Rate
70%

60%
50%
39.6%
40% 35%

Individual
20% Tax Receipts
7.8% as % of GDP 9.4% 9.2% 7.7% 6.4%

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget and the Tax Foundation.
Tax Rates and Receipts as a Percentage of GDP

income-tax-receipts Federal Revenue Chart 6 • 2010 Budget Chart Book heritage.org


Page
20
Corporate Income Tax Receipts Stay Constant Even as
Tax Rates Decline
Tax cuts create incentives for businesses to create more income, which generates more revenues. The top corporate
tax rate was reduced sharply under President Reagan, from 46 percent to 34 percent, yet receipts actually rose as a
share of the economy.
TAX RATES AND RECEIPTS AS A PERCENTAGE OF GDP
60%
52%
50% 46%
Top Corporate
40% Tax Rate 35%
34%
30%

20% Corporate
Income Tax
10% Receipts as
4.1% % of GDP
1.4% 1.8% 1.1%
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: White House Office of Management and Budget and the Tax Foundation.
Tax Rates and Receipts as a Percentage of GDP

corporate-income-tax-receipts Federal Revenue Chart 7 • 2010 Budget Chart Book heritage.org


U.S. Top Corporate Tax Rate Exceeds the OECD Average Page
21
High U.S. corporate tax rates make it difficult for businesses to compete internationally. While other countries
are reducing corporate tax rates, the U.S. has maintained a rate of 35 percent, the highest of any nation in the
Organisation for Economic Co-operation and Development (OECD).
CORPORATE TAX RATES
36%
35%
34% United States: 35%
33% 32.4%
2.4%
4
32%
31%
30%
29%
28%
27% 6.3%
26.3%
26%
25% A
Averag
Average
e 4.4
.4%
24.4% 4.2%
.
24.2%
24%
23%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Organisation for Economic Co-operation and Development.


Corporate Tax Rates

corporate-tax-rate Federal Revenue Chart 8 • 2010 Budget Chart Book heritage.org


Page
22
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.
TAX REVENUE AS A PERCENTAGE OF GDP
24%

Tax Cuts Expire Obama’s


22% Budget
Highest Tax Burden in
U.S. History: 20.6%
20%

18%
Extend Tax Cuts
30-Year Historical and Fix AMT
16% Tax Burden: 18.2%

14%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055

Source: Heritage Foundation calculations based on Congressional Budget Office and White House Office of Management and Budget data.
Percentage of GDP

total-tax-burden Federal Revenue Chart 9 • 2010 Budget Chart Book heritage.org


Debt and Deficits
Excessive spending has created record levels of deficits and debt,
and the worst is yet to come.
Page
24
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 40.8 percent, nearly five points below the
post-war average. Under President Obama’s budget, this figure would more than double to 90 percent by 2020.
Continued structural debt poses serious economic risks.
DEBT AS A PERCENTAGE OF GDP
120%
108.6%
100%
90.0%
80%

60% 400.
440.8%
00.888%
%

40%

20% Obama’s
Budget
0
1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Congressional Budget Office and White House Office of Management and Budget.
Percentage of GDP

obama-budget-skyrocketing-debt Debt and Deficits Chart 1 • 2010 Budget Chart Book heritage.org
Debt in Obama’s Budget Exceeds Page
25
Congressional Budget Office Baseline
Debt as a share of the economy is rising. Whether current law continues or Obama’s budget is passed,
the debt will be more than two-thirds of annual GDP in just 10 years.
DEBT AS A PERCENTAGE OF GDP
90.0%
90%
Obama’s
80% Budget
70%

60% Current
Average, 1980–2009: 39.4% Law 67.5%
50%
26.1%
40%

30%
Actual Projected
20%
1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office and White House Office of Management and Budget.
Percentage of GDP

obama-debt-increase-above-CBO Debt and Deficits Chart 2 • 2010 Budget Chart Book heritage.org
Page
26
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 Social Security, Medicare, and Medicaid will drive the debt
to unsustainable levels.

DEBT AS A PERCENTAGE OF GDP

200% 180.6%

150%
World
War II
108.6%
110
00888.666%
08. %
100%
War on
W
World
r h Great
The Terrorism
Te m
Warr I Depression
e
50%

0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Source: Heritage Foundation compilations of data from U.S. Depar tment of the Treasury, Institute for the Measurement of Wor th
(Alternative Fiscal Scenario), Congressional Budget Office, and White House Office of Management and Budget.
Percentage of GDP

national-debt-skyrocket Debt and Deficits Chart 3 • 2010 Budget Chart Book heritage.org
Obama’s Budget Would Create Unprecedented Deficits Page
27
The President is responsible for submitting an annual budget to Congress and has the authority to veto legislation
including irresponsible spending. Most Administrations ran small but manageable deficits, but President Obama's
unprecedented budget deficits pose serious economic risks.
BUDGET DEFICITS AS A PERCENTAGE OF GDP, BY ADMINISTRATION

Kennedy Johnson Nixon Ford Carter Reagan Bush Clinton Bush Obama
0
– 0 .1%
–1%
–1.0% – 0 .9%
–2% –1.6%
–3% –2.4%
–4% –3.5% –3.2%
–5% – 4.3% – 4 .3%
–6%
–7%
–8%
–7.8%
(est.)
Source: White House Office of Management and Budget.
Percentage of GDP

budget-create-deficits Debt and Deficits Chart 4 • 2010 Budget Chart Book heritage.org
Page
28
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 Social Security, Medicare, and Medicaid will drive deficits to unsustainable levels.
PERCENTAGE OF GDP
50%
45.3%
40%
%

30%
%
Average
Historical
20%
% 11.0%
111.0
1.00%
0% Deficit: 2.9%

10%
%

–2.2%
2 2%
–10%
1962 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Source: Congressional Budget Office (Alternative Fiscal Scenario).


Percentage of GDP

federal-budget-deficits Debt and Deficits Chart 5 • 2010 Budget Chart Book heritage.org
Entitlement Reform Would Eliminate Long-Term Deficits Page
29
In January 2010, Representative Paul Ryan (R–WI) re-introduced the Roadmap for America’s Future, legislation that
would improve America’s long-term budget situation by reforming entitlements. Compared to the current trajectory,
the bill would eliminate long-term deficits.
SURPLUS/DEFICIT AS A PERCENTAGE OF GDP
10%
+5%
+1.9%
2009 2010 2020 2030 2040 2050 2060 2070 2080 2009 2010 2020 2030 2040 2050 2060
0
–0.6% 2070 2080
–2.6%
–3.8% –4.8% –4.5%
–10% –7.6% –7.4% –7%
–11% –12.1% –11%

–20% –17.2%
–22.3% Rep. Ryan’s Roadmap
for America’s Future
–30% –28%

–34.9%
–40%
Current –42.8%
Projections
–50%

Source: Congressional Budget Office.


Percentage of GDP

entitlement-reform-eliminates-deficits Debt and Deficits Chart 6 • 2010 Budget Chart Book heritage.org
Page
30
Net Interest Spending Will Quadruple over the Next Decade
As the national debt grows, interest payments will consume more and more of the federal budget. Under the
President’s budget, the national debt would nearly double and real net interest costs would quadruple over the
next decade.
INFLATION-ADJUSTED DOLLARS (2009)
$800 billion $768.2 billion

$600 billion

$400 billion $280.1


$280
$280
280.
0 1 bbillion
bilillion
$186.9 billion

$200 billion

Actual Projected
0
1990 1995 2000 2005 2010 2015 2020
Source: White House Office of Management and Budget.
Inflation-Adjusted Billions of Dollars (2009)

budget-net-interest-spending Debt and Deficits Chart 7 • 2010 Budget Chart Book heritage.org
The Monthly Interest Payment on the National Debt Page
31
Is More Than Most Program Spending
In 2009, the U.S. spent more on interest payments on the debt in one month than it spent on some federal
departments for the entire year.
2009 SPENDING, IN BILLIONS OF DOLLARS

$50 $46.8
$43.6 $42.6
$40
$31.9
$30 $27.0
$20
$14.3
$10
$10.0

0
Department Department Department Average Department Department Environmental
of Education of Housing of Homeland Monthly of Agriculture of Labor Protection
and Urban Security Interest Agency
Development Payment

Source: U.S. Depar tment of the Treasury and White House Office of Management and Budget.
Billions of Dollars

interest-spending Debt and Deficits Chart 8 • 2010 Budget Chart Book heritage.org
Entitlements
Social Security, Medicare, and Medicaid spending is about to
explode, placing enormous pressure on the budget.
Page
34
Entitlements Will Consume All Tax Revenues by 2052
If future taxes are held at the historical average, spending on Medicare, Medicaid, and Social Security will consume
all revenues by 2052. Because entitlement spending is funded on autopilot, no revenue will be left to pay for other
government spending, including constitutional functions such as defense.
PERCENTAGE OF GDP

25% 2052: Entitlements 18.2% of GDP


24.0%
Tax 30-Year Average Tax
20% Revenue Revenue: 18.2%

15% Social
Security
10%

2.7% Medicare
5%

Medicaid
0
1965 1975 1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2083
Source: Congressional Budget Office.
Percentage of GDP

entitlements-historical-tax-levels Entitlements Chart 1 • 2010 Budget Chart Book heritage.org


Entitlement Spending Will More Than Double by 2050 Page
35
Social Security, Medicare, and Medicaid spending will soar as 78 million baby boomers retire and health care
costs climb. Medicaid spending will more than double, and Medicare spending will more than triple.
PERCENTAGE OF GDP
20%
17.9% Total
16.5%
15% 14.3% 5.7% Social
Security
5.9%
11.4%
5.9%
10%
9.8% 3.2% Medicaid
8.1% 5.3% 2.9%
4.8% 2.5%
5% 4.2% 2.1% 9.0% Medicare
1.9% 7.7%
1.5% 5.9%
3.1% 4.0%
2.4%
0
2005 2010 2020 2030 2040 2050

Source: Congressional Budget Office.


Percentage of GDP

entitlement-spending-double Entitlements Chart 2 • 2010 Budget Chart Book heritage.org


Page
36
Social Security Spending Will Soon Rise Rapidly
Although Social Security spending has remained relatively constant since the early 1980s, the approaching wave of
retiring baby boomers will cause Social Security spending to skyrocket.
PERCENTAGE OF GDP

7% 6.0% 6.2%

6%
4.4%
1.7 percentage point
increase from
5% 2009 to 2031

4%
4.3%
3%

2%

1%
Actual Projected
0%
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080

Source: Congressional Budget Office.


Percentage of GDP

social-security-spending Entitlements Chart 3 • 2010 Budget Chart Book heritage.org


Medicare and Medicaid Spending Will Rise Page
37
with Increasing Health Care Costs
Health care costs are rising rapidly and have been growing faster than the economy over the past few decades.
As 78 million baby boomers retire, rising costs will cause Medicare and Medicaid spending to skyrocket.
PERCENTAGE OF GDP
20% 17.2%

15%
2.9%

3.5%
Medicaid
10% Medicare
4.7%

5% All Other 10.8%


Health Care

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(est.)
Source: Congressional Budget Office.
Percentage of GDP

medicare-medicaid-spending Entitlements Chart 4 • 2010 Budget Chart Book heritage.org


Page
38
Entitlement Debt Dwarfs Other Spending, Including Bailouts
The nation cannot afford the Medicare and Social Security benefits that have been promised to future retirees. These
long-term unfunded obligations dwarf spending on other expensive government programs, including the Troubled
Asset Relief Program (TARP) and the 2009 economic stimulus bill, and vastly outweigh the entire national debt.
UNFUNDED OBLIGATIONS

Medicare
$37.9 trillion

National
Total Stimulus Defense TARP
National Debt
Social Security $862 $714 $700
$12.4 trillion
$7.7 trillion billion billion billion

Source: U.S. Depar tment of the Treasury, U.S. Government Accountability Office, and Congressional Budget Office.
Billions of Dollars

unfunded-liabilities-entitlements Entitlements Chart 5 • 2010 Budget Chart Book heritage.org


Without Entitlement Reform, Federal Spending Could Consume Page
39
More than Two-Fifths of GDP by 2055
If taxes are held at the historical average in the future, the three major entitlements—Social Security, Medicare, and
Medicaid—will push spending levels to unsustainable levels. These programs must be reformed in order to improve
the long-term budget outlook.
PERCENTAGE
ENTAGE OF GDP
40% 41.0%

30-Year Historical Net


Tax Revenue: Interest
30% 18.2%
Deficit
spending Other
20% Defense
Social
Security
10% Medicaid

Medicare
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055

Source: Heritage Foundation calculations based on Congressional Budget Office data.


Percentage of GDP

entitlements-consume-economy Entitlements Chart 6 • 2010 Budget Chart Book heritage.org


Page
40
Repealing Tax Cuts and Not Fixing AMT
Will Not Balance the Budget
Even if the 2001 and 2003 tax cuts expire and middle-class taxpayers fall prey to the alternative minimum tax, the
budget would not balance because spending is skyrocketing. Medicare, Medicaid, and Social Security are the main
drivers of future spending and must be reformed in order to improve the long-term budget outlook.
PERCENTAGE OF GDP
35% 30-Year Tax Total
Historical Revenue Spending
30% Tax Revenue: Net
Interest
18.2% Deficit spending
25% Other

20% Defense

15% Social
Security
10%
Medicaid

5% Medicare

0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Source: Congressional Budget Office (Extended Baseline Scenario).
Percentage of GDP

repealing-tax-cuts Entitlements Chart 7 • 2010 Budget Chart Book heritage.org


Paying for Entitlements with Tax Increases Would Cause Page
41
Tax Rates to Double
The costs of Medicare, Medicaid, and Social Security are rising substantially. Paying for this spending solely through
federal income tax increases would require more than doubling current tax rates, even for the lowest tax bracket.
MARGINAL INCOME TAX RATES

100%
88% 88%
80%

63% 66% 66%


60%
47%
40% 35%
5%
% 35%
5%
%
25% 25%
20%
19%
%
10%
%
0
2010 2050 2082 2010 2050 2082 2010 2050 2082 2010 2050 2082
Lowest Bracket Middle Bracket Highest Bracket Corporate Taxes

Source: Congressional Budget Office.


Marginal Income Tax Rates

entitlements-double-tax-rates Entitlements Chart 8 • 2010 Budget Chart Book heritage.org


Page
42
Balancing the Budget 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 spending cuts or entitlement reforms the level of taxes required to balance the budget would
reach European levels.
PERCENTAGE OF GDP
30% 29.9%
Actual Spending With Balanced
Budget Net
25% Interest
All Other
20% Spending

Social
15% Security
Revenue
Medicaid
10%

5% Medicare

0
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055

Source: Heritage Foundation calculations based on Congressional Budget Office data (Alternative Fiscal Scenario).
Percentage of GDP

balancing-budget Entitlements Chart 9 • 2010 Budget Chart Book heritage.org


Spending Cuts Alone Will Not Pay for Rising Entitlement Spending Page
43
Spending cuts are often considered as a way to pay for unaffordable Social Security and Medicare benefits. But
annual spending on entitlements is massive compared to other programs, including defense. Entitlements must be
reformed to become affordable.
ANNUAL SPENDING (2010)

Entitlements
Global War (Social Security,
on Terrorism Medicaid, Medicare)
$130 $1.4 trillion
Pork billion
earmarks NASA
$15.9 $18.3
billion billion

Source: White House Office of Management and Budget.


Billions of Dollars

spending-cuts Entitlements Chart 10 • 2010 Budget Chart Book heritage.org


Page
44
The Roadmap for America’s Future Could Solve
the Long-Term Budget Problem
In January 2010, Representative Paul Ryan (R–WI) re-introduced the Roadmap for America’s Future, a
comprehensive bill that would reform entitlements. According to the non-partisan Congressional Budget Office,
this bill would eliminate long-term deficits and place the budget on a sustainable course.
PERCENTAGE OF GDP
30%

25% Tax
Revenue
20%

Net
15% Interest
All Other
10% Spending

5% Entitlements

0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080
Source: Congressional Budget Office.
Percentage of GDP

long-term-entitlement-spending Entitlements Chart 11 • 2010 Budget Chart Book heritage.org


Authors

Nicola Moore
Assistant Director
Thomas A. Roe Institute for Economic Policy Studies

Steve Keen
Research Assistant
Thomas A. Roe Institute for Economic Policy Studies

John Fleming
Senior Data Graphics Editor
Technical Notes
The charts in this book are based primarily on data available as of March 2010 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 2009 while the charts using CBO data display
both historical and projected growth from as early as 1940 to 2083. Projections utilizing OMB data are
taken from the White House FY 2011 budget.

The charts provide data on an annual basis except where computations are made for Administration
averages. As a corollary, all spending and revenue data are based on a fiscal year. However, for the purpose
of simplicity, they are treated 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 mea-
sured 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 2009
dollars. Furthermore, specific information regarding data is indicated at the bottom of each chart.

Charts designating Presidential Administrations begin with the fiscal year in which the Administra-
tion presented its first budget. In the case of 2009, an atypical year in which much was spent before the
Administration’s first fiscal year budget (FY 2010), all revenue and spending up to the CBO January 2009
“Budget and Economic Outlook” was attributed to President Bush. All revenue and spending thereafter is
attributed to President Obama.
The Entitlements Initiative is one of 10 Transformational Initiatives making up The Heritage
Foundation’s Leadership for America campaign. For more products and information related to this initia-
tive or to learn more about the Leadership for American campaign, please visit heritage.org.

The Heritage Foundation is a research and educational institution—a think tank—whose mission is
to formulate and promote conservative public policies based on the principles of free enterprise, limited
government, individual freedom, traditional American values, and a strong national defense.
Our vision is to build an America where freedom, opportunity, prosperity, and civil society flourish. As
conservatives, we believe the values and ideas that motivated our Founding Fathers are worth conserving.
As policy entrepreneurs, we believe the most effective solutions are consistent with those ideas and values.
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