Content Tagged: spending

Are Tax Breaks a Good Thing?

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April 2, 2012

Which costs the federal government more: a $2,100 check from Uncle Sam or a tax break worth $2,100?

Jeanne Sahadi for CNN Money begins her article about the national government’s “hidden” spending by asking this question. In reality, $2,100 is the same cost for both, but the tax break does not count towards the federal budget. Fiscal experts are troubled by these tax breaks because they could end up causing the government to lose billions of dollars. The government, however, uses these breaks as ways to get certain goals accomplished without spending “physical” money. Sahadi provides two examples:

Congress wants to foster homeownership, so it lets homeowners deduct their mortgage interest. Lawmakers want to reduce greenhouse gas emissions, so they offer a tax credit to companies that produce biofuels such as ethanol or biodiesel.


If these tax breaks were considered government spending, a major topic of discussion for politicians and presidential candidates, then the government’s spending as GDP would be much higher. According to Sahadi, other unreported expenditures and fees help the government maintain a lower percentage of GDP spending. The article states that, “In all, if they were also recategorized in the budget, government spending in 2007 would have to be reported as 25.4% of GDP — or a nearly a third more than advertised.”

Reevaluating the tax code would allow policymakers to see how much the government actually spends. Donald Marron, director of the Tax Policy Center, asserts that limiting tax cuts would increase the revenue of the federal government, hopefully bringing in billions of dollars. Nonetheless, a debate on the tax breaks must occur because many passed breaks go unevaluated after their acceptance. Marron states, “hidden spending should get the same scrutiny — and inspire the same enthusiasm for cuts — as the spending on entitlements, domestic programs, and defense that is targeted by today’s fiscal hawks.”

Teachers can use this article to discuss tax breaks and the many different types that exist. Possible areas to investigate: environment, industry, real estate, nongovernmental organizations (NGOs), etc. A possible activity is to research the presidential candidates tax plans and see the different areas in which they propose tax breaks. Students could discuss whether or not these breaks would be popular if citizens had to pay for them outright.


New Plan to Reduce Deficit Continues

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March 28, 2012

A proposal closely resembling the Simpson-Bowles Plan from the 2010 deficit-reduction commission continues to move forward in Congress, reports Damian Paletta for the Wall Street Journal.  Though many expect the plan to fail any vote in Congress, it signifies the possibility of new bipartisan effort.

Reps. Steve LaTourette (R., Ohio) and Jim Cooper (D., Tenn.), have sponsored the new bill that plans “to reduce the federal budget deficit by more than $4 trillion over 10 years through a combination of spending cuts and tax increases,” Paletta explains.  This plan joins a number of budget proposals made in the past few weeks, though this one is the first with any bipartisan support.

This proposal cuts the deficit in a number of ways.  First, it would lower tax rates while simultaneously eliminating or limiting tax breaks.  These changes would account for almost $1 trillion in deficit reduction over 10 years.  With regards to social insurance, the plan would set a limit on the long-term growth of federal health care spending, as well as make large changes to Social Security and other entitlement programs.  The plan also would ask congressional panels to make cuts to federal programs that would amount to $300 billion.

Paletta reports that, thus far, at least three Republicans and four Democrats in the House support this plan.  This bipartisan support is one instance of a new effort from both parties to negotiate the budget ahead of the November elections.  Even so, both the White House and the Republican leadership have offered alternatives to this plan. The projections of the plans are given the graph below.

The Republican budget proposal, presented by Rep. Paul Ryan (R., Wis.) last week, restructures Medicare and Medicaid and does not include any tax increases.  Mr. Ryan, commenting on both plans, said: “I applaud my colleagues for working in a bipartisan manner in an effort to address Washington’s fiscal crisis.  Unfortunately, the proposal fails to confront the key driver of the debt: the explosive growth of government spending on health care.”

A White House official, in response to the Ryan Budget, said that it “protects massive tax cuts for millionaires and billionaires… [it was] understandable that some members of the Republican Party appear to want to take a more reasonable approach.”

Bringing the Article into Your Classroom

This article raises a number of interesting questions to discuss with your students: First, what do they think about the newest, bi-partisan budget proposal? Second, why do they think the Republican Party leadership will not support a plan proposed by House Republicans (with Democrats)? In the same vein, why has the White House given its own proposal, rather than supporting the Democrats who have helped create this plan?  As students, do they support one plan over another? Why?


Campaigning and Cutting the Deficit

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February 23, 2012

In less than one year, this country will vote to elect a new President.  As the Republican candidates spar in frequent debates, campaign advertisements, and other modes of publicity (as well as through the formal primary elections), Obama’s campaign team also has entered the public eye.  Rather than differentiating Obama from the Republican candidates through his stance on social issues, the Obama campaign has decided to look at which candidate would cut the deficit the most, reported Devin Dwyer for ABC News.

The Obama campaign recently released a memo that analyzed the budget proposals of Mitt Romney and Rick Santorum, the two frontrunners in the Republican primaries.  Dwyer reports:

Obama aides, citing studies from the Tax Policy Center and Center on Budget and Policy Priorities, conclude Romney’s public budget proposals would add $175 billion a year to the deficit.  They claim his proposed tax cuts and increased defense spending would not be adequately offset by as yet unspecified spending cutes the size of which are deemed ‘simply not plausible.’  The memo also claims Santorum’s plan would add $990 billion to the deficit in 2015.

In contrast to this memo’s conclusions, both Romney and Santorum have stated that they planned to cut government spending as President.  In an email to ABC News, Dwyer reports, Romney campaign spokeswoman Andrea Saul “did not directly refute” this memo’s analysis.  Rather, she highlighted the fact that, during the Obama presidency, the deficit has grown by over $5 trillion.

Bringing This Article into the Classroom

Dwyer’s article points to the fact that Obama’s campaign has decided to attack both Romney and Santorum for their proposed budgets and their effect on the federal deficit.  In a class discussion, you may ask your students why they think the Obama campaign is choosing to focus on the federal deficit as a campaign strategy rather than simply focusing on social issues?

This article also lends itself to a discussion on the different approaches Republicans and Democrats take to taxing and spending.  By examining the general philosophical differences of small vs. big governments, students will have a greater appreciation for why the Obama campaign sees their memo as an effective attack on the Romney and Santorum campaigns.


Ben Bernanke Talks Deficit Reduction

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February 8, 2012

Ben Bernanke, the Federal Reserve Chairman, expressed concern to legislators over the spending cuts and tax increases scheduled for 2013, reports Suzy Khimm for the Washington Post.  In his testimony on Tuesday, Bernanke discussed the current economic climate and gave his projections for the coming year.  He noted that, while the country’s economy has recovered more slowly than everyone had hoped, he remained optimistic for the coming year.

Forecasts given for 2012’s unemployment rate predicted a number far higher than what has proven to be true thus far.  According to the most recent jobs report, the United States added 243,000 jobs in January.  These additions brought down the unemployment rate to 8.3%.  Bernanke attributed this decrease, at least in part, to the recent revival of manufacturing in this country: “US manufacturers have become increasingly competitive on a global stage.”

Despite his lauding American manufacturers, Bernanke’s overall message was grim: he believed that the 2013 drastic fiscal changes (the expiration of the Bush tax cuts and the spending reductions triggered by the Budget Control Act) would slow economic recovery further.  Senator Pete Sessions (R-Ala.), questioned Bernanke and his claim that it was less important to reduce the deficit than to continue to encourage recovery and growth.  Bernanke’s response was simple: “What we want to do is have a credible, strong plan so that the economy doesn’t hit a huge pothole.”  Bernanke thus encouraged a deficit reduction plan that could phase in over a longer period of time than the automatic one set for January 2013.

In the Classroom

This article may be used in a variety of ways.  It may be introduced simply as a way to keep students apprised of the opinions being heard by Congress about the budget deficit.  It may also be used to introduce Ben Bernanke and the Federal Reserve, if you have not done so previously.

The article also may be used in a debate on the merits of the current plan for deficit reduction.  Bernanke provides an argument against the plan – he says that it occurs in too short a time and will slow overall economic recovery. What do your students think? Which topic is more important: economic recovery or deficit reduction? Is it possible to have one without the other?


A More Transparent National Debt

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January 17, 2012

When you take out a mortgage on your home or a student loan to pay for college, you generally are required to pay back that loan with interest through monthly installments spread over a specified number of years. As an individual, you may choose to create a monthly budget for yourself that indicates all of your ongoing and long-term expenses.

When the federal government needs to pay for a war or its employees or Medicare, it issue bonds (which essentially is borrowing money as a loan) to pay for those expenses.  Furthermore, when the federal government creates a budget for itself, it does not include the cost of borrowing or ongoing expenses beyond that fiscal year.  Bruce Bartlett, writing for the New York Times Economix blog, reports on the much larger deficit this country faces beyond what the single year tally indicates.

In this article, Bartlett first provides the history for the way in which the government reports its current and long-term debts.  He explains that the federal government did not publish a “consolidated financial statement” until 1977, despite the fact that the Hoover Commission had recommended that the government provide such a report as early as 1949.

The consolidated financial statement was succeeded by what is currently titled: The Financial Report of the United States Government. The Treasury’s Financial Management Service published this year’s report on December 23, 2011.  Bartlett surmises that this day was picked strategically, because most reporters would be preparing for the holiday rather than reading this 254-page document.

Bartlett summarized the report as follows:

According to the report, the federal debt – simply the cumulative value of all past budget deficits less surpluses – was $10.2 trillion on Sept. 30.  But the government also owed $5.8 trillion to federal employees and veterans.  Social Security’s unfunded liability – promised benefits over expected Social Security revenues – was $9.2 trillion over the next 75 years, or about 1 percent of the gross domestic product.  Medicare’s unfunded liability was $24.6 trillion, or 3 percent of G.D.P.  Altogether, the Treasury recons the government’s total indebtedness at $51.3 trillion – 5 times the size of the national debt.

Bartlett goes on to say that the report demonstrates that the largest growth in future federal spending will be in the interest owed on the debt, rather than in government programs as is commonly assumed.

Teachers may use this article to discuss the ways in which the federal government creates and considers its yearly budget.  If the students were in charge of redesigning the way in which the government reported its budget, how might they include the long-term projections of the deficit as well as the short-term ones (if they chose to include both)? Why might it be important to consider the long-term costs of borrowing money?


The Atlantic’s Guide to the U.S. Debt Crisis: Part 1 of 3

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December 6, 2011

In less than a year, citizens of this country will vote for the next President of the United States.  While there are many issues that this country faces, no issue is larger than the national debt.  Literally.  With these two ideas in mind, Charles Davi, writing for the Atlantic, created a “Glossary and Guide to the Key Issues in 2012” pertaining to the U.S. debt crisis.

In this guide, Davi has provided a number of terms and explanations that often come up in discussions and debates on this country’s economic future.  The upcoming Presidential debates only will magnify the amount the debt crisis will come up in the news.  Below, I have provided a summary of the main points of the first half of his glossary and guide.  I will cover the rest of his glossary over the next two weeks:

The Budget

In this section, Davi first explains how the United States budget works, a yearly undertaking around the beginning of every calendar year.  First, the President creates a budget plan and submits it to Congress. Congress then debates (and frequently modifies or changes) the plan and sends it back to the President once the plan has passed through both chambers of Congress.  The President then has the power to sign or veto it.

Davi then explains how the U.S. Treasury works and defines the terms “appropriations” and “outlays.” The main idea he emphasizes is that while Congress and the President create the budget, the Treasury enacts it by borrowing, spending, and collecting money.  After, he provides a comprehensive explanation for the government’s yearly cash flow – whether the government is running a deficit or a surplus in a given year and why that happens according to basic economics theory.

The explanations begin to get more complicated when Davi describes the way in which the government borrows money in order to spend beyond what it collects.  He explains that when the government plans to spend more than it has, it borrows money from the public by issuing debt securities, most of which are treasuries.  With this point, Davi provides a graphic definitely worth including in any lesson on this point in order to differentiate for visual learners.

These treasuries, whose aggregate value roughly equals the Government’s budget deficit for that year, are then sold through auctions conducted by the Treasury and the Federal Reserve Bank of New York.  Rather than bidding their cost, however, investors bid through interest rates – whoever bids the lowest owns the treasury.  The cost of these treasuries for the Government (which is the interest paid on each treasury) thus depends on how competitive the bids are.

From here, Davi now has a comprehensive explanation for the national debt: an aggregate of all of the money the government spends beyond what it collects.  The debt, unlike the deficit, is not calculated yearly. Rather, it is a sum of every year’s deficit.  Davi provides another graphic to demonstrate this idea, which again gives teachers an opportunity to differentiate instruction on this point.

Bringing this Article into Your Classroom

This article provides a comprehensive explanation for how the government’s budget works.  One math and economics activity you could do with students is to create a fictional country for which the students will need to create a budget.  Give them a fixed amount of money to spend as well as fixed amount they may collect from taxpayers (an amount much less than the money they must spend).  Give them a list of things on which they must spend (health care, defense, education, etc.), so that they may decide what percent of the budget will go to which sector.

Then ask them to finance their budget. Will they issue treasuries? How will they do that? Are there any other ways to collect money?

An alternative to this activity if your classroom has access to computers for the students is to play the game Budget Hero.  This game gives students the opportunity to determine on which sectors the government should spend money, and how much.

As a follow-up and an introduction to the second half of the article, ask the students what they would do if, on top of the budget deficit they are facing, they also have debt from the previous year’s treasuries. How will they pay back those treasuries with their interest?

Next week’s post will discuss the national debt in more depth, including what it means for the Government to refinance its treasuries each year, on what the Government is spending, and where Davi thinks the country is heading.


Why Should Students Care about the U.S. Debt Panel?

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November 2, 2011

“It’s the economy, stupid,” the phrase popularized in the 1992 Clinton presidential campaign, may need slight revision.  Yes, it certainly is the economy, but right now, it’s the debt.  And while high school students are anything but stupid, they may need some reminding as to why they should care about the looming deadline for the Joint Selection Committee on Deficit Reduction

Heidi Przybyla’s recent article for Bloomberg explores the consequences of the automatic cuts if the Committee is unable to create an alternative.  James Jones, an Oklahoma Democrat, is quoted as saying: “I don’t think Congress on either end understands the consequence of their inaction… You’re creating a generational war.”

War? Who is fighting?

On one side, we have Social Security and Medicare; on the other, child health and education programs.  Though one may think that all of these programs will take a hit with the $1.2 trillion cut, some may be hit harder than others, Przybyla explains.  The programs that will be hit hardest, she posits, will be those serving the young. 


Przybyla points first to the strong lobbying of the AARP who, in the first six months of this year, spent $9.7 million on said lobbying.  Second, she notes the fact that Social Security and Medicare are “mandatory entitlement spending that automatically grows as the retiree populations increases,” while spending for many children’s programs is determined annually.  Furthermore, the Children’s Defense Fund, in stark contrast to the AARP, spent $48,245 during all of last year. 

Already, trends in federal spending indicate which generation has been “winning” this war: “In 2008, per capita federal spending on those 19 and younger was $3,660, compared with $23,900 for those 65 and older, according to a report by Urban Institute and Brookings in Washington,” reports Przybyla. 

How children may lose

 A recent study by the Federal Funds Information for States stated that the U.S. Department of Education may have its budget cut by $3.5 billion.  The Head Start program may lose up to $799 million.  The study also mentioned potential budget cuts for child welfare services and child-care. 

In the Classroom

This article introduces a number of important aspects of the political process.  Teachers may use this article to introduce the concept of “lobbying,” who lobbyists are, and how interest groups play a role in lobbying.

With regards to interesting the students in this current budget crisis, teachers may use this article to explore what it might mean for their particular school if the Department of Education lost that much funding.  Students may be asked to research how much money, on average, a school in their district receives, what percentage of the federal budget their district is, and then how much money their school could lose based on the cut.  The project could culminate in examining the costs of the school: how much the desks cost, the printers cost, etc., and what the school might not have without federal funding.

Have the students consider the following questions: how does the action (or inaction) of the federal government affect me?  How does it affect the nation as a whole?  If you were a member of the Congressional committee, what trade-offs (between Social Security and Medicare on one side, and child health and education services on the other) would you make? Would you try to cut equally from the benefits for seniors and children, or would you cut more from one than the other?  What information would you need to be able to make an informed decision?


Better off without Debt? Think Again…

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October 26, 2011

What would the United States economy look like if it were debt-free?  Members of the Clinton administration pondered this question in an unpublished report titled “Life after Debt” during Clinton’s last year in office, reports David Kestenbaum in Planet Money, NPR’s economic blog.

In 2000, the annual budget ran a surplus.  The deficit began to shrink.  Had the government continued to collect more than it spent, the government could have paid off its debt by 2012.  Kestenbaum’s blog post provides a graph depicting what the national debt would have looked like had the surplus continued, as well as its actual trend:

Clearly, Clinton’s economists had little to worry about – by 2005, the government debt had grown by over 1 trillion dollars.

But why worry in the first place?

Kestenbaum explains that an end to the national debt also would bring an end to U.S. Treasury bonds.  Though that possibility seems rather benign (particularly in comparison to the “hooray!” moment of the government getting out of debt), Treasury bonds actually play a huge role in the global and national economy.

What is the role of Treasury bonds, nationally and internationally?

The U.S. government sells Treasury bonds in order to borrow money.  Internationally, these bonds are believed to be so safe that “much of the world has come to depend on them.  The U.S. Treasury bond is a pillar of the global economy,” notes Kestenbaum.  The Federal Reserve buys and sells Treasury bonds to keep the U.S. economy stable.  Banks buy hundreds of billions of dollars worth of them.  Even the money collected from people’s paychecks for Social Security is invested in Treasury bonds.

Kestenbaum thus asks of the Social Security money: “If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?”

Though “Life After Debt” was meant to be included in Clinton’s official “Economic Report of the President,” it was deemed “too speculative, too politically sensitive” by high-ranking members of Clinton’s staff.  Kestenbaum’s questions, quoted above, certainly point to one way in which the report may have raised more questions than it answered.

Incorporating this article into the classroom

Kestenbaum quotes an economist, Jason Seligman, at the end of the article as saying that perhaps a little debt is a good thing.  After reading this article with students, find out what they think.  Do they agree with the economist? Why or why not?  Do they think that Seligman’s statement applies in all instances (does their answer change if he was discussing an individual’s debt)?

This article also introduces a number of major concepts and themes related to the national debt.  Teachers may want to introduce Treasury bonds and how they work before delving into the article itself.

Also, teachers may use this article to introduce how the national debt and annual budget are related.  As an activity, teachers may ask students to plot the national debt through time alongside the annual budget surplus or deficit.  They also should add a timeline with major national and world events (wars, natural disasters, stock market booms or crashes).  These graphs could lead to a class discussion or written assignment on any patterns (or lack thereof) that students noticed.


Political Cartoons about the Budget and Deficit

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March 29, 2011

US News and World Report has an extensive collection of political cartoons about the federal budget deficit.  Teachers could use these cartoons to help students better understand the complex and competing opinions informing the fiscal debate.  Three cartoons from US News and World Report are shown below, along with potential questions teachers could use to guide students in their analysis.

Teachers should begin by helping students understand the elements of the cartoon, building up to an overall analysis of the artist’s message.  Students should be encouraged to discuss the cartoons with their classmates in order to uncover the artist’s point of view.  As a follow-up activity, students could design their own political cartoons based on their opinions about the federal budget, the deficit, and the national debt.

  • Who are the individuals in the cartoon?  What do they want?
  • What is significant about the month of November?  Why have the individuals changed their opinions by March?
  • What is the artist’s message?  Do you agree or disagree?

  • Who is riding in the car?  What did they narrowly avoid?
  • What is about to happen to the car?  What does this represent?
  • What is the artist’s message?  Do you agree or disagree?

  • Who is the contestant on the Biggest Loser?  What does his tattoo indicate that he loves?
  • Who are the two “coaches”?  What are their plans for trimming the budget?
  • What is the artist’s message?  Do you agree or disagree?


The Federal Budget Zugzwang

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March 4, 2011

In a recent blog for the New York Times, Nate Silver drew a comparison between the federal budget debate and a situation in chess called a zugzwang.  Sliver explained that a zugzwang occurs when any legal move would leave the player worse off, such that she or he would be better served by skipping their turn.  Oftentimes, he explained, the zugzwang is mutual, and both sides would rather their opponent moved first.  Silver wrote, “If this sounds oddly familiar, it may be because it greatly resembles the debate over the federal budget.”

Example of a zugzwang:  black’s only move leads to a loss,
but white’s only moves turn an advantageous position into a draw

Silver described three sets of budgetary constraints imposed by public opinion that have, in effect, created a zugzwang for politicians:

  • The public sees the deficit as a serious problem, but sees job creation (which arguably benefits from short-term deficit spending) as an even greater priority.
  • The public prefers cutting spending to raising taxes, but there are few programs that the public is willing to cut.
  • The public would rather raise taxes than reduce Medicare benefits, but most feel that it will not be necessary to raise taxes on “people like them” to reduce the deficit.

The zugzwang, Silver argues, exists because “in general, almost any detailed proposal that a politician might make is going to be received poorly.”  Therefore, he concludes, “what we’re basically going to see transpire over the next weeks and months is a lot of passive-aggressiveness: efforts to force the other side to make the next (unpopular) move.”  From the article:

What differentiates the budgetary process from something like chess, however, is that it is not truly a zero-sum game. Even if politicians don’t give a rip about the effects that their actions would ultimately have upon the welfare of the country, they still have an interest in re-election. And in this regard, the interests of President Obama and the Republican Congress are not mutually exclusive…

In seeking an equilibrium solution, then, we might look for the answer to the following problem: what resolution to the budgetary process would tend to maximize the chance of the scenario in which both President Obama and the Republicans in Congress are re-elected?

Silver hypothesizes that the answer to this question might be found in “a solution that avoids any major disruption to the economy but also gives it enough of a handicap that extremely robust short-term growth is unlikely.”  He believes that “any ‘grand bargain’ involving major changes to the tax code or to entitlement programs [are] too unpredictable… for incumbents seeking re-election.”

Teachers could use this article to stimulate classroom discussion about the federal budget deficit and the national debt.  Students should consider the following questions:  According to Silver, where do the budget problems originate – with the public’s contradictory views on government spending, or with the politicians’ concerns about reelection?  Are these issues related?  Do you agree or disagree with Silver’s conclusions?  Why or why not?  Is Silver’s description of a “budgetary zugzwang” appropriate?  What led you to that opinion?  Does your response to this article (favorable or unfavorable) influence your opinion about the federal budget debate?  If so, how?  If not, why?

Teachers could revisit this discussion with their students throughout the budget approval process.  As compromise is sought and agreements between the parties are reached (or are not reached), students should consider whether or not their initial impressions about the budget debate still hold true.  Throughout the process, students should be encouraged to develop their own opinions and to discuss those opinions with their classmates.