Background of Balancing the Budget 2013-14:

Some would say that the main suspense of the Budget session of
Parliament is already over. The railway ministry announced its
first hike in passenger fares in 12 years in January, while the
finance ministry has floated a weather balloon canvassing
opinion on whether taxing the rich more would help bridge the
fiscal deficit.
- A widening fiscal deficit,
- slower growth than previous years (the government has
projected GDP growth for fiscal year 2013 at 5%) and
- not enough headroom to spend (even on defence, which is
going to face spending cuts this year)
mean that the finance minister has less space than before
for any financial pyrotechnics.
This is a particularly problematic situation when presenting
the last full budget before a general election.
The session, therefore, will be packed with
- heavy-duty bills, contentious and political,
- increasingly looking like a wish list
that should have been done and dusted over the past two
years but which now appears as governance in hindsight.

High fiscal deficit would trim welfare spending

There may not be a major increase in the allocation for social
sector in the forthcoming Budget due to the grim fiscal situation.

In the face of rating downgrade threats, Finance Minister had in

October set a fiscal deficit target of 4.8 per cent next fiscal. He
had also said he would rein in fiscal deficit at 5.3 per cent this
fiscal yr.
The Government's flagship rural employment guarantee
programme MGNREGA, needs to be more "flexible" to regional
sensitivities, especially in the central India, where the Maoist
insurgents are capitalising on the discontent spread by lack of
development.
This is the second time flaws have been found with MGNREGA.
Earlier, the programme had been termed as "paying wages for
unproductive work" which creates no real assets.
Government may target Rs 40,000 crore from stake sales in
FY14:
The government is likely to target Rs 40,000 crore ($7.42 billion)
in proceeds from stake sales in state-run companies in the next
fiscal year.
The revenue target from a partial privatisation of state-run
companies is higher than the Rs 30,000 crore government is
aiming for in the current fiscal year.
With less than two months to go before the year closes, the
government has managed to raise 70 percent of the targeted
amount, and officials in the government concede that the final
figures for this year could fall shy of the target.
Salaried class employees want IT exemption limit raised

Salaried class want Finance Minister to raise the income tax

exemption limit to at least Rs 3 lakh and increase deductions like
medical and educational allowances in the Budget.
Over 89 per cent of respondents said the slab of tax free income
has not moved up in line with real inflation. The current basic
exemption limit of Rs two lakh should be increased to at least Rs
three lakh . This will increase the purchasing power of
individuals and stimulate demand.
Barring education, the country's performance on the other
human development indicators like health has not been good,
even though the economic growth has been strong, he said. He
also pointed out a slew of paradoxes like the human development
index continuing to be poor in spite of high per capita incomes in
states like Gujarat, Punjab and Haryana.
Similarly, richest states like Maharashtra, Andhra and
Karnataka, have districts or pockets having the worst human
development indicators.
Raising tax exemption cap on interest payments on housing
loans
Consultancy firm PwC today demanded increasing the cap on
interest payments (up to Rs 1.5 lakh are eligible for deduction on
housing loans should be increased to Rs 3 lakh) and medical
expenses for the purpose of tax benefits in the upcoming Budget.
He said the realty sector has been under pressure for quite some
time now and the government should incentivise investments into
the sector, which will go a long way in helping the economy.

On deductions for medical expenses, which currently stand at Rs

15,000 per annum, an increase to Rs 50,000 is being demanded,
more so considering that revision has not happened in the past
14 years, but medical cost has surged manifold since then.
There is also a demand for the government to revisit standard
deduction for the next fiscal, which has been called off since
2006.
Tax benefits for M&As (Mergers and Acquisitions) in all
sectors sought:
Industry body CII wants the government to extend tax benefits
pertaining to mergers and amalgamations (M&As) to all
businesses such as telecom, financial services, entertainment,
sports, IT and entertainment.
The move will help industry to reorganise and restructure
operations in sync with the rapidity of changes taking place in
the business environment as well as to deal with the emergence
of new sectors and segments.
Currently, M&A tax benefits are limited to industrial
undertakings and select services such as shipping, hotels,
aircraft and banking.
--------------US PUBLIC POLICY FISCAL DEFICIT - AND ECO
DEVELOPMENT
U.S. Budget and Spending Related Links
U.S. Budget Taxes and Income Primer

U.S. Budget Deficit

Who's Who in the Budget Process

The Budget and the Economy

How Fast Should the Economy Grow?
U.S. Debt
Will Baby Boomers Retire?

U.S. Budget and Spending Related Websites

CBO Current Budget Projections
The President's Plan to Fix Social Security

By Kimberly Amadeo,
About.com Guide
-----------------Definition: The budget deficit is when the government spends more than it takes in from taxes or
other forms of revenue. The Federal government can do this year after year without the risk of
going bankrupt. That's because it has the ability to print its own money.
The consequences aren't immediate. Creditors are satisfied, because they know they will get paid.
Government legislators don't have to decide who gets paid, and who doesn't, because the Federal
government has the ability to pay everyone. Elected officials just keep promising the voters in
their district more and more benefits, military bases, and tax cuts. Telling voters that they will get
less from the government would be political suicide. To voters, elected officials, and creditors, the
government's ability to run deficits means no pain, and all gain -- year after year after year.
The Deficit and the Debt
However, each year the deficit adds to the national debt. As the debt grows, it increases the deficit
in two ways. First, the interest on the debt must be paid each year. This is added to Federal budget
spending. This, in turn, increases the deficit without providing any benefits. This creates a bit of a
drag on economic growth, as those funds could have been used to stimulate the economy.
Second, higher debt levels can make it more difficult for the government to raise funds. As the
debt to GDP ratio approaches 90%, creditors become concerned about a country's ability to repay
the debt. Interest rates rise to give investors a higher return on this higher risk. This can increase
the deficit each year. For more, see How the Deficit and Debt Affect Each Other.
This can become a self-defeating loop, as countries go deeper into debt to repay their debt. At
some tipping point, interest rates on new sovereign debt can skyrocket, as it becomes ever more
expensive to countries to roll over debt. If it continues, long enough, a country may default. This is
what caused the Greece debt crisis in 2009.
How Is the Deficit Financed?

In the U.S., the budget deficit is financed from U.S. Treasury bills, notes and bonds. This is the
government's way of printing money. Actually, it is creating more credit denominated in the U.S.
dollars. However, it has the same effect -- it lowers the value of the U.S. dollar. That's because, as
dollars/Treasury notes flood the market, the supply outweighs the demand.
The U.S. is fortunate, because the dollar is a global currency. That means it is used for most
international transactions. For example, almost all oil contracts are priced in dollars.
This means that the U.S., and its currency the dollar, do not face the same consequences as other
countries and their currencies do for running up a huge debt. The stability of the U.S. economy
means that investors will invest in the dollar as a safe haven when there is global economic
uncertainty. During the 2008 financial crisis, the dollar's value strengthened by 22% when
compared against the euro. It happened again in 2010 as a result of the eurozone debt crisis. The
U.S. doesn't have to worry about have to rising Treasury note yields, even as the debt rises. For
this reason, the U.S. will probably never default on its debt. For more, see U.S. Debt Default.
Now that you understand the budget deficit, find out what the current U.S. budget deficit is, and
compare it to the Federal budget income, Federal budget spending. There you'll find past budget
deficits as well.
-----------------------------U.S. Budget Spending:
For Fiscal year 2013, Federal spending was budgeted at $3.803 trillion. Nearly two-thirds of the
budget (60%) went towards Mandatory programs, such as Social Security, Medicare and Military
Retirement programs. These expenditures were mandated by law, and cannot be changed in the
annual budget process. The rest of the budget, called Discretionary programs, are negotiated
between the President and Congress each year. More than two-thirds of the Discretionary budget
went toward military spending. The remaining 6.5% of spending ($248 billion) went toward
interest payments on the $15 trillion national debt. (Source: OMB, Table S-5)
Economic Growth Cannot Keep Up With Government Spending:
Before the recession, the Executive Office of Management and Budget (OMB) kept budget spending
at 20% of GDP each year. This meant the budget only grew as fast as the economy, which was
about 3% per year. However, stimulus spending to lift the economy out of recession, and increased
defense spending, increased this ratio to 24.3% of GDP in FY 2012.
The OMB forecast that spending would drop to 23.3% of GDP in FY 2013, 22.6% in FY 2014, and
and roughly 22% a year in FY 2015-FY 2022. Stimulus spending was needed to stimulate
consumer spending, which supports 70% of economic growth. However, once the economy
recovers, fiscal spending should be reduced to avoid inflation and reduce the debt.
Mandatory Spending Is the Largest Portion of the Budget:
Over half of the budget is Mandatory spending, which is required by Federal law enacted by
Congress. It includes

Senior programs, such as Social Security and Medicare.

Income support programs such as Medicaid, Food Stamps, Unemployment Compensation,

Child Nutrition, Child Tax Credits, Supplemental Security for the blind and disabled, and Student
Loans.

Other Retirement and Disability programs for Civil Servants, the Coast Guard and the
Military.

It also included the TARP program, job creation initiatives, and a credit from health care
reform starting in FY 2011.
Discretionary Spending Is Negotiated by Congress and the President:
Just 33% of the budget is Discretionary. This is what is governed by the appropriations that are
passed each year. It includes Military spending, which is two-thirds of the entire Discretionary
budget. All other departments, including Health and Human Services ($71.7 billion), the
Department of Education ($69.8 billion), and Housing and Urban Development ($35.3 billion),
must operate with the remaining $410 billion.
Interest Payments on the National Debt:
One of the fastest growing sections of the budget is interest payments on the national debt. It was
just 6.5% of total spending, but that's $248 billion -- enough to pay for ten Justice Departments.
However, by 2022, interest payments on the debt is projected to quadruple to $826 billion, double
all non-security discretionary spending. It will also be the fourth largest budget item, after Social
Security ($1.361 trillion), Medicare ($908 billion), and defense spending ($856 billion).
The Percent Allocated to Social Security is Increasing:
The amount for Mandatory programs is increasing thanks to the huge number of Baby Boomers
who are reaching retirement age. The two major Senior programs, Social Security and Medicare,
went from 28% of the budget in FY 1988 to 35.3% of the budget in FY 2013. By FY 2021, the OMB
projects that these two programs will rise to 39% of total spending.
That Means Discretionary Spending Must Fall:
Discretionary spending will drop to 22% of spending by FY 2022 to allow Senior programs, like
Social Security and Medicare, to increase. This makes sense since many of those receiving other
programs, like Medicaid, will transition over to Social Security programs as they become eligible at
age 65.
Even so, there isn't enough money in the Social Security Trust Fund to pay for all the benefits
expected by Baby Boomers as they retire from the workforce. Thanks to the recession, most
people have seen their retirement savings decline, and needing Social Security more than ever.
Defense Spending Must Decline, Too:
Military spending will drop to 14.7% of the budget by FY 2022, but will still be the third largest
budget item -- down from being the largest this year. Non-defense spending is projected to drop to
only 11.7% of total spending by FY 2022 -- down from 10.8% this year. (Article updated February
16, 2012).

-----------------In fact, Obama should take a lesson from the Federal Reserve, and set a target before
implementing contractionary fiscal policy. Obama should announce now that he will cut spending
and/or raise taxes when the U.S. economy is firmly in the expansion phase of the business cycle,
such as a GDP growth rat of 4%, and/or unemployment is below 6.5%. He should outline
specifically what will be cut at that time. This gives businesses something they could plan around.
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Americans Owe $23,346 Per Household in Consumer Debt

Monday February 11, 2013

Credit card use dropped 5.9% in December, according to the Federal Reserve's G-19 Consumer
Credit Report. This followed November's .8% drop. Instead, shoppers relied more on cash, debit
cards and layaway than credit cards to fuel holiday gifts. In addition, families continued to take out
loans, as non-revolving debt rose a record 11.4%, following a 9.7% increase in November.
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Sequestration May Be Delayed Until September

Friday February 8, 2013

Senate Republicans announced a plan to delay the mandatory Federal budget cuts, or sequester,
beyond the March 1 implementation date. They want to put off any cuts until the end of the FY
2013 budget year, which ends September 30, 2013. Instead, they propose to cut Federal labor
costs through attrition over several years starting with the FY 2014 budget.
This plan will have an immediate positive effect on the economy by giving it another nine months
to improve before cuts take place. Government spending is a component of GDP, so any cuts have
a direct negative effect on economic growth. Defense spending cuts were one reason the economy
contracted last quarter.
However, the plan has several negative impacts

Why Are Gas Prices Rising

Again!?!
Monday February 4, 2013

Hope you've enjoyed relatively low gas prices while they lasted. Like they do each spring, gas
prices are rising again. However, this year they are going up higher and sooner than the past few
years. In fact, just last week the national average price of a gallon of gas rose 17 cents to $3.50 a
gallon. This was the highest price ever for this early in February.

What's causing these high oil and gas prices? First, the economy is improving. That makes
investors bet that more people will be demanding gas and oil. To take advantage of future profits,
they bid up oil and gas futures. In addition, companies that need oil and gas also try to lock in
stable prices for the future, hoping to keep their costs low.

BUDGET DEFICIT- US ECONOMY ABOUT.COM