## Analyzing the Evidence Exercises

 Social Security is one of a number of entitlement programs that provides for the welfare of Americans. Entitlements involve nondiscretionary spending, which is another way of saying that federal spending for Social Security, Medicare, and Medicaid, among others, is mandated by law. As this chapter’s Analyzing the Evidence unit notes, the funds required to pay for Social Security will soon exceed the revenues (income) generated by the Social Security payroll tax, resulting in increased federal deficits. The problem of rising costs affects other major components of the federal budget as well. This infographic from the Congressional Budget Office depicts the overall federal budget in 2011. 1. How much did the federal government spend in 2011? Please answer in terms of both the dollar amount and the percentage of gross domestic product (GDP). 2. Of this amount, how much involved discretionary spending and how much involved mandatory spending (including net interest on the national debt)? 3. How large was the 2011 deficit — the difference between revenues and spending? While overall federal spending as a percentage of GDP is expected to decline somewhat in the next few years, the long-term picture poses a real challenge as the cost of the major entitlement programs is expected to continue to rise (as this figure shows).i For this reason, policy makers have discussed a variety of means to reduce or eliminate the budget deficit. Of course, doing so requires balancing competing political interests and would involve increasing taxes, cutting spending, or both.ii 4. Imagine that you are a member of Congress and are given the task of balancing the budget. How would you do it? How would you weigh the trade-offs among competing demands? Now let’s make this exercise a bit more concrete. Try your hand at eliminating the annual budget deficit as projected for 2015 (\$418 billion) and 2030 (\$1.345 trillion) via this interactive Budget Puzzle.iii Notice that your options are grouped into these categories: domestic programs and foreign aid, military, health care, Social Security, existing taxes, and new taxes and tax reform. 5a. Share the link for your solution. 5b. What percentage of your savings result from tax increases and spending cuts, respectively? 6. Why did you choose this particular mix of spending cuts and tax increases? 7a. Identify which of your solutions had the biggest impact on deficit reduction. 7b. Who are the likely opponents? Why? Now let’s be a bit more concrete in terms of a single federal program. Look at the figure from this chapter’s Analyzing the Evidence unit below. 8. Which among these proposals for Social Security Reform would you advocate and why? i Peter G. Peterson Foundation, “All of the projected future growth in the federal budget will come from entitlements and interest costs,” June 1, 2011. www.pgpf.org/Chart-Archive/0003_spending-growth-driver.aspx (accessed 2/22/12). ↑ ii For an insightful look at the “blame game” politics over the cause of the deficit, see the Washington Post’s “[Votes that pushed us into the red] [www.washingtonpost.com/wp-srv/special/outlook/votes-that-pushed-us-into-the-red/],” June 4, 2011. ↑ iii Leonhardt, David. “O.K., You Fix the Budget.” New York Times, November 13, 2010, www.nytimes.com/2010/11/14/weekinreview/14leonhardt.html (accessed 2/22/12). ↑