ECONOMICS: Principles and Applications 3e HALL & LIEBERMAN © 2005 Thomson Business and Professional Publishing Fiscal Policy: Taxes, Spending, and the Federal Budget

Figure 1 Federal Government Purchases as a Percentage of GDP Total Government Purchases Military Purchases Nonmilitary Purchases 14% 12% 10% 8% 6% 4% 2% Purchases/ GDP

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 % 12% 10% 8% 6% 4% 2% Transfers/ GDP Over the last several decades, federal transfers have trended significantly upward. They also rise temporarily during recessions, such as in the early 1980s, 1991, and 2001.

Figure 4 Federal Government Interest Payments as a Percentage of GDP 4% 3% 2% 1% Interest/GDP

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

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 Income, Profit and Excise Taxes Social Security Taxes 20% 15% 10% 5% Revenue/GDP

Figure 7a The Federal Budget Deficit or Surplus as a Percentage of GDP (a) 25% 20% 15% 10% Federal Outlays and Revenue, Percent of GDP Deficit Revenue Outlays

Figure 7b The Federal Budget Deficit or Surplus as a Percentage of GDP (b) Surplus (+) or Deficit (-), Percent of GDP 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% 7%

Figure 8 Federal Debt as a Percentage of GDP % 50% 40% 30% 20% 10% Debt/GDP 110% 100% 90% 80% 70%

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

Table 3 Projected Budget Deficits and the Rising National Debt