Posts Tagged ‘U.S. revenue’

Captain Rick: Federal grants are a good thing when they are funded by real money … but the fact is many of America’s federal grants come from money that does not exist and adds directly to the U.S. national debt. Many federal grants are robbing the future of our children and grandchildren by burdening them with monumental debt.

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U.S. Budget Facts

U.S. Tax Revenue: $2.5 trillion
U.S. Spending: $3.6 trillion
U.S. Deficit: $1.1 trillion

U.S. Budget Details

Obligated expenses (backed by U.S. law)
Social Security: $781 billion (dedicated funded from the Social Security 6.2% payroll tax)
Medicare: $419 billion (dedicated funding from the Medicare 1.45% payroll tax)
Medicaid: $400 billion (a social welfare program, using money from the federal general fund)
Interest on National Debt: $223 billion (mandatory debt payment to prevent U.S. default)
Federal Pensions: $216 billion (includes civilian and military retirement benefits and veteran benefits)
Sub total: $2 trillion (this leaves only $500 billion for all other expenses before consuming all U.S. tax revenue)

Discretionary expenses:
Defense/Wars: $664 billon
Income Security: $352 billion (incudes unemployment compensation, various welfare programs such as family support and nutrition programs and earned income credits)
Other (including Federal Grants): $500 billion
Grand total: $3.6 trillion (a deficit of $1.1 trillion)

Conclusion: it is obvious that unless America wants to totally eliminate all money spent on defense, wars, unemployment, family welfare, etc. there is no tax revenue left to spend on any federal grant of any kind.

U.S. National Debt

America’s debt is now at a staggering $16.8 trillion and rising at a high rate of speed.
America’s debt represents a debt of $53,277 for every person in America…$148,265 for every tax payer.

Its time for everyone in America realize the seriousness of America’s debt crisis … including local and state politicians who love to accept those federal grant dollars that come from the ‘black hole’ and add directly to the U.S. National Debt.

Federal Grants 101

In the United States, federal grants are economic aid issued by the United States government out of the general federal revenue. A federal grant is an award of financial assistance from a federal agency to a recipient to carry out a public purpose of support or stimulation authorized by a law of the United States.

Some federal grants like those from the U.S. Department of Transportation for roads and transportation projects are partially funded by dedicated fuel and tire taxes, however the balance (about 1/3) comes from the general fund which is supported primarily by federal income taxes via tax returns. On the other hand, federal grants like community development block grants (CDBG) from the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Homeland Security (DHS), have little or no dedicated tax funding and are mostly paid for by money in the general fund. Because the U.S. general fund runs a negative balance of $1.1 trillion each year…in essence, all federal grants not specifically funded by special taxes are adding directly to the U.S. national debt.

Federal grants are defined and governed by the Federal Grant and Cooperative Agreement Act of 1977, as incorporated in Title 31 Section 6304 of the U.S. Code.

A Federal grant is a
legal instrument reflecting the relationship between the United States Government and a State, a local government, or other entity when
1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and
2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.”

Types of grants
Block grants are large grants provided from the federal government to state or local governments for use in a general purpose.
Project grants are grants given by the government to fund research projects, such as a research project for medical purposes.
Formula grants provide funds as dictated by a law. Categorical grants may be spent only for narrowly defined purposes and recipients often must match a portion of the federal funds.
33% of categorical grants are considered to be formula grants. About 90% of federal aid dollars are spent for categorical grants.
Earmark grants are explicitly specified in appropriations of the U.S. Congress.
They are not competitively awarded and have become highly controversial because of the heavy involvement of paid political lobbyists used in securing them.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Federal Grants: https://atridim.wordpress.com/category/federal-grants/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Captain Rick: The U.S. Legislature has failed to balance America’s budget almost forever. If it compromised by using the economic common sense rule of 20% of GDP for both revenue and spending, its budget crisis would end and a much brighter future would await the children of our world.

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Record Tax Revenue: I am glad to see we have hit a new record of $2.7T in revenues, just a tick above the previous record of $2.6T in 2007. As population grows, we better hope our tax revenue keeps going up every year. Things went far astray during the ‘Bush War and Tax Cut’ era, the Great Recession that followed and ‘Obamas Record Spending Spree’ to try to fix it, including a reckless 2 point payroll tax cut. Thankfully, it and some other irresponsible tax cuts vanished on Jan 1 as a result of the Fiscal Cliff and helped bring us closer to sanity. Unfortunately this new revenue record leaves America with a very anemic tax revenue of only 16.9% of GDP. The 40 year average is 18%. A healthy economy achieves revenue equal to 20% of GDP…so America is still far short of needed revenue…and part of the reason why America’s finances are in such terrible shape.

Record Spending: The other part of the reason America’s finances are in such terrible shape is because America’s spending is too high. America is currently spending $3.55T or 22.2% of GDP. That percentage is higher than almost every year since 1986. A healthy economy limits  spending equal to 20% of GDP…so America is still far over the limit for spending…the other part of the reason why America’s finances are in such terrible shape.

Republicans, Democrats, Conservatives and Liberals debate: Republicans and conservatives argue that taxes are too high and do not agree to any further increases. They say the entire answer lies in cutting spending. Democrats and liberals argue that spending levels should be held. They say the entire answer lies in tax increases. Its easy for me to see why our legislature is in gridlock. Both sides are stubborn and illogical. Neither side possesses the the solution. The solution resides in compromise. 

Captain Rick’s proposal of compromise: I propose that the U.S. Legislature uses the economical common sense guideline of 20% of GDP as a target for revenue and spending to achieve a balanced budget. 20% has proven to be workable figure for successful governments in the past. The figure can be argued…19 v 21…but 20% is a good starting point. Diminishing America’s national debt is a story for another day. It would require the balance to shift to more revenue and less spending…perhaps 21% of GDP revenue and 19% of GDP spending. Real compromise needs to begin soon … in order to protect the future of our children.  

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

Captain Rick: Here we go again. Treasury Secretary Tim Geithner warned Congress in a letter that U.S. borrowing will hit the debt ceiling on Monday, and that Treasury will begin using ‘extraordinary measures’ to prevent government spending from exceeding the legal limit of $16.394 trillion. On Monday, debt subject to the limit was just $95 billion below the $16.394 trillion debt ceiling. That allows for spending over $13 billion a day through next Monday. It makes my head spin thinking about how fast the U.S. spends money and that over $1 trillion of what it spends each year is borrowed money (deficit spending) that adds to the U.S. National Debt.

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The extraordinary measures include suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds. All told, the extraordinary measures can create about $200 billion of headroom under the limit — normally about two months worth of borrowing.

If America begins going over the ‘Fiscal Cliff’ on Tuesday, January 1, as all indications point to now, $600 billion in annual spending cuts and tax revenue increases will kick in and slow the generation of debt to half speed. This would double the period of time to 4 months remaining before extraordinary measures would be exhausted.

After the extraordinary measures run out, Treasury won’t be able to pay all the country’s bills in full and on time. At that point, the United States will run the very real risk that it could default on some of its obligations, such as making interest payments on America’s National Debt which total a staggering $260 billion per year. This would have a severe negative impact on America’s credit rating which would have a ripple effect of making it more costly for the U.S. Treasury to borrow money. At some point foreign governments, like Japan and China, which hold large sums of American debt, would slow lending or even curtail it. The American economy would grind to a halt and be thrust into a deep recession, dragging all world economies along with it.

Other solutions could be to default on Social Security, Medicare, Medicaid and other government program payments. We all can comprehend the immediate, massive, destructive effect that would have on society.

Thus, we can conclude that default of any kind  is not an acceptable solution. The only immediate solution will be to increase the national debt again. Those who have studied Captain Rick’s FISCAL CLIFF Course 101, know that its just a matter of time before raising the national debt ceiling will no longer be a workable option. This is why it is so important that the ‘Fiscal Cliff’ spending cuts and tax revenue increases take effect on January 1.

Captain Rick’s Dream for America

I find the manner in which the President and Republicans and Democrats in Congress are trading off fiscal ‘trinkets’, in an effort to fool America that they can come up with a better solution than the ‘Fiscal Cliff’ to solve America’s serious problem of thirst for debt … almost laughable.

The President and Congress should stop playing fiscal games. The current members of Congress should stay home on vacation for the rest of the year. A new slate of legislators will be sworn in on January 3, hopefully with a work ethic that is void of politics (I am holding my breath), and work towards raising the debt ceiling along with the creation of Fiscal Cliff 2 … another painful round of spending cuts and tax revenue increases that would finally balance America’s budget and eliminate deficit spending. Ideally, it would start on January 1, 2014, when the next raise of the national debt ceiling will most likely be required. Hopefully that would be the last need to raise the America’s National Debt Ceiling.

Perhaps Fiscal Cliff 3 could kick in on January 1, 2015 with another round of spending cuts and tax increases that would begin reducing America’s National Debt and its interest on the debt which will be well over $300 billion per year by then.

If America were to follow this painful fiscal road, our children and grandchildren could have a realistic chance to make a descent living and recapture some of the Great American Dream that kids growing up in America back in the 1950’s and 1960’s once had. I was one of them. They were great times that are ‘long gone’, but can be rekindled if we, the generations who helped create America’s fiscal ‘nightmare’, accept some sacrifices. I urge everyone in America to accept the ‘Fiscal Cliff’ with a ‘grain of salt’ as it becomes effective on January 1, 2013 and urge your legislative representatives to work towards achieving Fiscal Cliff 2.

View Captain Rick’s entire FISCAL CLIFF Course 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Captain Rick: The term “Fiscal Cliff” is a newly coined term that represents the effect of a number of laws that become effective in January 2013 that will cause $600 billion in spending cuts and tax increases, meant to reduce the U.S. deficit beginning in 2013. The deficit (the negative difference between what the government receives in revenue and what it spends) is expected to be reduced about 50% in 2013. That’s a good start, but lots more effort is needed to get America back on track to a balanced budget, so that America’s monumental debt is not just “kicked like a can down the road” for our younger generations to manage.
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America is currently spending $1.1 trillion more each year than it receives in revenue. This continues to increase the U.S. national debt, that stands at a staggering $16.2 trillion. America’s debt is financed by other countries like China and Japan. Interest on the national debt is $259 billion per year … an alarming 16% of the U.S. GDP … growing at a reckless rate of speed. Each year the foreign debt holders own a larger hunk of America.
The “Fiscal Cliff” is a “baby step”, but an important one, towards curbing the growing fiscal catastrophe that will face America’s future generations.
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America’s fiscal problems need to be addressed now, while the American dollar is still recognized by world investors as a strong currency. The value of the dollar will continue to degrade over the next few years if this fiscal crisis is not addressed appropriately. If not, at some point the American Dollar will no longer be recognized as a strong currency. When that day comes, America will have no more “cards left to pull out of the hat”. It will be too late to save America from economic destruction. I believe the “Fiscal Cliff” needs to happen as current law provides, without interference from legislators. America can handle the “Fiscal Cliff”. The economy might slow a bit, but that is far better than the ugly economic consequences that will assuredly result if this serious fiscal problem is not addressed now.
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FISCAL CLIFF Course 101 EXTRA CREDIT: The economic math in support of the “Fiscal Cliff”
Many economists pick 20% of GDP to be a respectable point to balance America’s budget for revenue and spending. I agree!
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Current U.S. annual fiscal situation:
Value of the economy (GDP): $15.5 Trillion
Revenue: $2.4 trillion (15.5% of GDP…needs to be raised 4.5% to 20% of GDP to balance the budget and be equal to expenses)
Expenses: $3.5 trillion (22.6% of GDP…needs to be lowered 2.6% to 20% ($403 billion) to balance to budget and be equal to revenue)
Deficit: $1.1 trillion (this is the amount added to the national debt each year)
National debt: $16.2 trillion ($52,000 per citizen / $142,000 per tax payer)
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U.S. Revenue:
Income Tax: $1.129 trillion
Payroll Tax: $843 billion
Corporate Tax: $238 billion
Total revenue: $2.438 trillion (15.5% of GDP…needs to be raised 4.5% to 20% ($698 billion) to balance the budget and be equal to expenses)
Required revenue to reach 20% of GDP and balance budget: $3.1 trillion
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U.S. Expense:
Medicare/Medicaid: $728 billion
Social Security: $759 billion
Defense: $653 billion
Interest on national debt: $259 billion
Federal Pensions: $212 billion
Other expenses: $889 billion
Total expenses: $3.5 trillion (22.6% of GDP…needs to be lowered 2.6% to 20% ($403 billion) to balance to budget and be equal to revenue)
Required expenses to reach 20% of GDP and balance budget: $3.1 trillion
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Revisions required to reach a balanced budget (based on above figures):
$698 billion increase in revenue
add
$403 billion decrease in expenses
$1.1 trillion total increase in revenue and decrease in spending required to balance the budget
subtract
$600 billion – increase in revenue and decrease in spending produced by “Fiscal Cliff”
$500 billion – amount of correction needed beyond “Fiscal Cliff” to balance the budget
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Bottom Line: The “Fiscal Cliff” is a “baby step” … but, a good one  towards fixing America’s monumental fiscal problem. The “Fiscal Cliff” is monumental legislation that all Americans need to embrace in an effort to save America from inevitable fiscal ruin. Any action by legislators to reduce tax increases or cuts established by the “Fiscal Cliff” legislation will be counter productive. Let’s all hope our legislators in Washington go home for the holidays with no agreement to “water down” the “Fiscal Cliff”. Hopefully, they will start working on “Fiscal Cliff 2” when they return in January 2013.
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