The Bear is in the Federal Budget Details

Unlike most family budgets, the federal budget has more zeros can be funded with tax increases or additional taxes and fees.  The budget announced today is approximately $3,778 Trillion and nearly 2,500 pages thick.  That is a 3 with twelve zeros. Included in the budget is tax increases of nearly $1 Trillion and a .94 tax increase on cigarettes.

The Obama budget has projected that over the next 10 years  the amount of growth in Social Security and Medicare spending will be slowed to allow a savings of approximately $130 billion in  the Social Security program and approximately $370 billion in Medicare program.  The Medicare program savings would be achieved through cutting payments to providers and increasing medicare premiums.  The Social Security program savings comes from changes in the method of calculating the annual cost-of-living increases.  In other words, the inflation will be calculated using a different method and assumptions that results in a lower inflation rate-thus the savings.

By lowering the inflation rate, does the government under-estimate the real inflation rate?  Currently, two methods to calculate inflation is being used.  One with energy and food prices and one without food and energy prices.

While the administration’s budget is a starting point, it does offer insight as to how Congress will view the budget.  The Democrats are not happy with the Medicare and Social Security spending and the Republicans are not happy with the proposed tax increases within the budget.  What is most surprising to me is the amount of interest payments ten years out and the amount of debt to the economy.  Next year in 2014, the debt is expected to 78%  as a percentage of the economy.  In corporate terms, highly leverage as percentage of the economy.  Even ten years out in 2023, the debt is estimated to 73% of the economy.  The interest payment is expect to grow to more than $804 Billion in 2023.  In other terms, coming close to a trillion give or take a couple of hundred billion.

As budgets go, is it realistic to have a budget forecast ten years out with projected spending cuts?  Can we expect more tax and fee increases?  The bear is in the details.  Weigh in with your comments.




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