Data‎ > ‎

Federal Budget

The issue Democrats and Republicans are avoiding:
Eliminating the Federal deficit without a Value Added Tax (VAT) requires large cuts to Social Security, Medicare, and Medicaid

Note:  In FY2011 in the following graph, Social Security, Medicare, and Medicaid comprise 75 percent of entitlement spending.

For the next ten years, Federal budget deficits are projected to be $1 trillion, or 25 percent of the Federal budget.  Therefore, eliminating the Federal deficit without a tax hike requires cutting all Federal spending, including Social Security, Medicare, and Medicaid by 25 percent.  If defense is cut less than 25 percent, then other programs have to be cut more than 25 percent.   More ...

In President Obama's proposed $3.8 trillion FY2011 budget:
  • The deficit is $1.3 trillion, or 33 percent of the budget
  • Entitlements and interest on the debt are $2.4 trillion, or 64 percent of the budget
  • Social Security, Medicare, and Medicaid are $1.5 trillion, or 40 percent of the budget
The federal debt is $13 trillion.
  • Government agencies own about $4.5 trillion of the debt, of which the major owner is the Social Security administration ($2.3 trillion)
  • The public owns about $8.5 trillion of the debt, of which about $4 trillion is owned by foreign governments
  • Of the $4 trillion owned by foreign governments, China owns about $900 billion and Japan $800 billion.
Obama to propose Value-Added Tax (VAT) after the 2010 elections?
  • National Commission on Fiscal Responsibility and Reform, appointed by President Obama and composed of ten Democrats and eight Republicans, will report after the 2010 general elections.  The concern is that this commission will recommend a VAT.
  • The Patient Protection and Affordable Care Act (HR 3590 - "Obamacare") requires in Section 9006 that all "businesses issue 1099 tax forms not just to contractors but to any individual or corporation from which they buy more than $600 in goods or services in a tax year."  See Budget & Tax News article,  "Health Care Law's Hidden Tax Provision".  According to Mark Tapscott, editorial page editor of the DC Examiner, the 1099 could be used to implement the VAT.
  • The VAT is a hidden tax, unlike the sales tax where you know how much of the price is due to the tax.   The VAT is included in the price, so you do not know how, for example, how much of the cost of a car is due to the VAT.  Listen to Budget & Tax News podcast,  "Expert Calls Value-Added Tax a 'License to Steal' ".
  • If Republicans do not have a mandate to cut entitlements after the 2010 election, then they either have to continue borrowing or significantly raise taxes, perhaps in the form of a VAT.
Download "Eliminating the Federal Deficit"