FY 2013 U.S. Federal Budget and Spending
The president's FY 2013 budget was designed to guide U.S. government spending for that fiscal year (October 1, 2012 - September 30, 2013). Instead, tea party Republicans resisted the normal budget process, so it was never approved. Here's what happened instead.
January 24, 2012 - President Obama outlined his budget priorities in the 2012 State of the Union Address. The theme was to reduce income inequality by extending the 2010 tax cuts to everyone except those making $250,000 a year or more.
February 13, 2012 - President Obama submitted his budget to Congress.
March 20, 2012 - House Budget Committee Chairman Paul Ryan submitted the House budget proposal, Path to Prosperity. It suggested repealing Obamacare, privatizing Medicare and changing Medicaid to state block grants. This was a no-go for the Senate.
September 22, 2012 - Congress passed a continuing resolution that funded the government from October 1, 2012, to March 2013 at a level just slightly higher than the FY 2012 budget.
March 2013 - Congress passed another continuing resolution to fund government operations through the end of that fiscal year (September 30, 2013).
The Budget Control Act of 2011 also impacted FY 2013 spending. Congress passed this Act to end the 2011 debt ceiling crisis. It used sequestration to cut Federal spending by $1.2 trillion over 10 years. It cut $85 billion from the FY 2013 budget as follows:
- A 7.5 percent cut in military spending, totaling $54.7 billion.
- A 2 percent cut to Medicare provider reimbursements.
- An 8 percent cut to all other Mandatory budgets.
- An 8.4 percent cut to all other non-military Discretionary budgets.
The FY 2013 Budget
As a result of the government shutdown and sequestration, the proposed budget and what actually happened are very different. Here's an easy way to compare the two. The actual is taken from the FY 2015 budget.
Revenue (in billions)
|Source||Budget Request (FY2013 Budget)||Revenue (Actual From FY2015 Budget)|
|Social Security payroll taxes||$677||$673|
|Medicare payroll taxes||$214||$209|
|Other payroll taxes||$68||$65|
|Interest on Federal Reserve holdings||$80||$76|
The OMB estimated the Federal government would spend $3.803 trillion by the end of FY 2013. Instead, the cuts from sequestration kicked in, and only $3.455 was spent. Since government spending is a component of GDP, these spending cuts slow economic growth. This is very risky at this phase in the business cycle, which is just starting to expand after the 2008 financial crisis.
Mandatory - Sixty percent, or $2.086 trillion, was spent to fulfill mandatory programs. This spending is mandated by law, and cannot be changed without a literal act of Congress. Since it's just an estimate, there's no need to compare spending to the budget projections.
It includes Social Security ($808 billion), Medicare ($492 billion) and Medicaid ($265 billion). All other mandatory programs total $521 billion. These include programs like Food Stamps, Unemployment Compensation, and Supplemental Security for the Disabled. Interest on the national debt was $221 billion, and it must also be paid. (Source: OMB, FY 2015 Budget, Table S-4)
Discretionary - Just over a third of spending, or $1.147 trillion, went toward Discretionary programs. Even without sequestration, this is significantly lower than in prior years, when around 40 percent of the budget was discretionary. That's important because that's the only portion of the budget that the President and Congress can negotiate each year. Just under half of that ($522 billion) is being spent on all Federal government activities not related to defense. The President cut every department's budget except for Education, which rose to $69.8 billion from $67.4 billion in FY 2012.
However, Congress cut that, to $65.7 billion. Here's the budget and actual spending for all major departments:
FY 2013 Discretionary Department Budget and Actual Spending (in billions)
|Department||Budgeted (FY 2013 Budget Request)||Spent (Actual From FY 2015 Budget)|
|Department of Defense||$525.4||$495.5|
|Health and Human Services||$71.7||$74.3|
|(includes National Nuclear Security Administration)||$11.5||$10.6|
|Housing and Urban Development||$35.3||$22.8|
|State Department (includes Foreign Aid)||$48.0||$39.6|
Military - The other half of the Discretionary budget, or $735.4 billion, is military spending. This obviously includes the Department of Defense base budget ($495.5 billion), but should also count the other departments that support our nation's defense efforts ($157.8 billion). These include the Department of Veterans Affairs ($61.1 billion), the State Department ($39.6 billion), Homeland Security ($38.1 billion), the National Nuclear Security Administration ($10.6 billion) and the FBI ($8.2 billion).
In addition, there's the Overseas Contingency Operations ($82.1 billion) for the War in Afghanistan. This is additional spending, appropriated by Congress, that's outside the normal budget process. (Source: "FY 2015 Budget, Table S-11," OMB. FBI is from FY 2016 Appendix)
The Budget Deficit Is Dropping
In FY 2013, the budget deficit was estimated to be $902 billion, but thanks to sequestration, it only came in at $679 billion. This was the first time it was less than $1 trillion since Obama took office. To compare U.S. budget deficits through history, see Deficit by President and Deficit by Year.
Paul Ryan's FY 2013 Budget Alternative
U.S. Congressman Paul Ryan (R-Wisconsin) was Chairman of the House Budget Committee. He submitted an FY 2013 budget proposal to counter the President's plan. It was passed by the House but was defeated by the Senate. It built on Ryan's FY 2012 budget proposal, known as the Road Map, which had followed a similar fate.
On August 13, 2012, Republican Presidential Candidate Mitt Romney picked Ryan as his Vice-Presidential nominee. Although Romney didn't formally adopt Ryan's budget, he wouldn't have picked Ryan if he didn't fundamentally agree with the plan.
Ryan's budget, named the Path to Prosperity, would cut $5 trillion from the Federal Budget over the next 10 years. That's a good thing. Obama's FY 2013 budget would add $901 billion to the heavily groaning $15 trillion Federal debt.
Ryan's plan addresses five broad areas:
- Social Safety Net - Follow the recommendations in the Simpson-Bowles plan to stabilize Social Security.
- Health and Retirement Security - Repeal Obamacare. Privatize Medicare. Change Medicaid to state block grants.
- Defense - Cut spending to $554 billion in FY 2013.
- Tax Reform - Lower income taxes to 10 percent and 25 percent by cutting all tax deductions. Repeal the Alternative Minimum Tax. Reduce the corporate tax rate to 25 percent.
- Spending - Reduce spending to 20 percent of GDP by 2015. Privatize Fannie Mae and Freddie Mac. Freeze federal workers pay.
However, this mix of spending and tax cuts would not balance the budget or begin paying down the federal debt until 2040. (Source: "Path to Prosperity," Paul Ryan, March 20, 2012)
Ryan Would Change Medicare and Social Security: The plan achieves cost savings by converting the current Medicare program to one where seniors receive payments to buy their own health insurance policies. The payments grow over time with consumer prices. Ryan's Medicare changes would only affect those who turn 65 in 2023 or later. At that time, it also raises the age of eligibility for Medicare by two months per year until it reaches 67 in 2033. Similar to the Simpson-Bowles plan, it also allocates more funds to go after the health care fraud that adds $115 billion to the budget.
To keep Social Security solvent, Ryan's plan suggests the President and Congress adopt the recommendations in the Simpson-Bowles plan.
What About Medicaid and Education? Ryan's budget plan converts the Federal payments for Medicaid and food stamps (SNAP program) into state block grants that are indexed for inflation and population growth. This would begin in 2013, with fixed dollar amounts that grow with overall consumer prices and population growth. Food stamp aid would be contingent upon work or job training.
Ryan proposes to limit education lending and Pell grants, and consolidate overlapping Federal job training programs into a "streamlined workforce development system." Any type of welfare payment would be tied to education and job training programs, and their progress would be tracked for five years. This makes sense since many of the long-term unemployed are losing the job skills needed to compete.
Replacing Obamacare With Nothing: The budget plan repeals some key provisions of Obamacare that dealt with insurance coverage. Health care spending for the government would be reduced to 6 percent of GDP in 2030. However, critics argue that it simply transfers health care costs from the government to those who aren't covered by health insurance at work. These are exactly the people that health care reform was trying to protect.
What About Defense Spending? Ryan's plan cuts defense spending to $554 billion. Total security spending in the FY 2013 Military Budget was $851 billion and is the single largest budget category.
Dismantles Fannie Mae and Freddie Mac: Ryan's plan would eventually privatize Fannie Mae and Freddie Mac. It proposes limiting the two government insurance programs to smaller home values. It blames Fannie and Freddie for "monopolizing" 97 percent of the housing market. This statistic is true, but it's simply because banks won't issues mortgages without government insurance. Before the financial crisis, Fannie and Freddie only had 50 percent of the market. Ryan's plan calls for more privatization of the mortgage market but doesn't specify how.
Previous attempts by former Treasury Secretary Hank Paulson and Treasury Secretary Tim Geithner have all failed because banks aren't willing to take on the risk. Eliminating Fannie and Freddie without a solid replacement would cripple the struggling housing recovery.
Ryan also proposes to cut farm subsidies, saving $30 billion over the next decade. Many of these subsidies go to corporate agri-businesses that no longer need them to safeguard the nation's food supply.
Cut Federal Workers' Pay and Benefits: Ryan would freeze salaries until 2015, increase benefit contributions and allow attrition to reduce the workforce by 10 percent over the next three years. This makes sense, since the non-partisan Congressional Budget Office recently reported that federal workers are compensated, on average, 16 percent higher than their private-sector counterparts. This would save $368 billion over the next ten years.
In addition, Ryan proposes that all Congressional Oversight Committees annually submit recommendations to the Budget Committee to cut waste, as outlined by the GAO. He also suggests the Federal government sell unused property and equipment.
Eventually Reduces the Deficit: The biggest problem with Ryan's budget is that it pushes a lot of the substantial changes 20 years into the future. The plan reduces the budget deficit to 2 percent of gross domestic product by 2020, but wouldn't result in a budget surplus until 2040.
Second, it does so by taking away benefits such as Medicare from future generations by forcing them to use private sector insurance. Third, the idea to lower tax rates by simplifying the tax code is a good one. Everyone agrees that the tax code, with all its deductions, is too complex and mainly benefits corporations and the wealthy. However, Ryan's plan reduces taxes more than even the most severe Simpson-Bowles alternative. In other words, the numbers may not work out.
However, if successful, Ryan's budget would reverse deficit spending, which has been ongoing since 2002. By reducing the deficit and debt, Ryan's budget plan would allow the dollar to strengthen, lowering the price of imports. However, it would also increase the price of exports, reducing the competitiveness of U.S. companies.