Fiscal Policy Taxes Spending and the Federal Budget

Figure 1 Federal Government Purchases as a Percentage of GDP 14% Total Government Purchases 10% 8% Military Purchases 6% 4% 2% 19 84 19 88 19 92 19 96 20 00 20 03 19 80 19 76 19 72 19 68 Nonmilitary Purchases 19 64 19 60 Purchases/ GDP 12%

Figure 2 Major Federal Transfer Programs, 2003 Retirement Benefits $478 billion Health (Medicare and others) $468 billion Income Security $330 billion

Figure 3 Federal Transfer Payments as a Percentage of GDP 14% Transfers/ GDP 12% Over the last several decades, federal transfers have trended significantly upward. 10% 8% 6% 4% They also rise temporarily during recessions, such as in the early 1980 s, 1991, and 2001. 2% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2003

Figure 4 Federal Government Interest Payments as a Percentage of GDP 4% 2% 20 00 20 03 19 96 19 92 19 88 19 84 19 80 19 76 19 72 19 68 19 64 1% 19 60 Interest/GDP 3%

Figure 5 Total Federal Outlays as a Percentage of GDP Federal Outlays/GDP 25% 20% 15% They also tend to rise during defense buildups or recessions. . . Total federal outlays have trended slightly upward relative to GDP. and fall during strong expansions. 10% 19601964196819721976198019841988199219962000 2003

Table 1 Sources of Federal Revenue, 2003 (Estimated)

Table 2 The 2002 Personal Income Tax for a Married Couple with Two Children

Figure 6 Federal Government Revenue as a Percentage of GDP 25% Federal Government Revenue 15% Income, Profit and Excise Taxes 10% Social Security Taxes 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 03 19 72 19 68 19 64 5% 19 60 Revenue/GDP 20%

Figure 7 a The Federal Budget Deficit or Surplus as a Percentage of GDP (a) 20% 15% Outlays Deficit Revenue 10% 19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 03 Federal Outlays and Revenue, Percent of GDP 25%

Figure 7 b The Federal Budget Deficit or Surplus as a Percentage of GDP (b) 4% 2% 1% -3% -4% -5% -6% 7% 20 00 20 03 19 96 19 92 19 88 19 84 19 80 19 76 19 72 -2% 19 68 -1% 19 64 0% 19 60 Surplus (+) or Deficit (-), Percent of GDP 3%

110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0 6 19 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 03 0 4 19 19 44 19 48 19 52 19 56 Debt/GDP Figure 8 Federal Debt as a Percentage of GDP

Figure 9 Countercyclical Fiscal Policy Real Aggregate Expenditure ($ Billions) A AE 1 AE 2 B 45° Real GDP ($ Billions) $9, 000 $10, 000 (Recession (Full-Employment Output)

Table 3 Projected Budget Deficits and the Rising National Debt