Annual Report | October 24, 2011 at 6:10 pm

Editors’ Letter

By and

Dear Fellow Americans,

Welcome to the Annual Report of the United States of America. ARUSA is dedicated to explaining and analyzing the federal budget and proposing sustainable fiscal solutions. We hope you use this tool to first learn about the challenges facing American spending policy and then engage your fellow citizens and legislators to enact real, sustainable reform.

This year, Americans watched as the national debt rose to $14.7 trillion, nearly matching the GDP. A tumultuous Congress passed the Budget Control Act of 2011 to raise the debt ceiling on the condition that the federal government decreases future spending. Despite the last-minute compromise, Standard & Poor’s downgraded the US credit ranking from an AAA to an AA+ immediately afterward, insinuating that the US is no longer the world’s safest borrower. After three years of recession, the US failed to reign in federal spending and agree on a sustainable budget.

If you’re hankering for a fiscal awakening, check out the US Debt Clock. Watch as the annual deficit rises to the projected $1.5 trillion by the end of 2011. The deficit—the amount the federal government receives from taxes (receipts) minus its total expenditures (outlays)—fuels our growing national debt. Since 1980, the federal deficit rose 3 to 5 percent almost every year. But since 2009, spending has increased enough to grow the deficit 10 percent each year.

This skyrocketing spending partially stems from the American Recovery and Reinvestment Act of 2009. The Recovery Act sought to allay unemployment during the recession with over $787 billion in stimulus funding. But this is only a small factor in the deficit equation. The 2010 budget allocated over $820 billion to healthcare, $847 billion to defense, nearly $750 billion to pensions, and $502 billion to welfare. Entitlement spending increases annually as rising medical costs and an aging population demand more from the system. Originally intended as safety nets, Social Security and Medicare unsustainably attempt to cover the majority of older Americans.

Because of these burgeoning mandatory programs, science research, public media, and foreign aid funding sit on the chopping block. The debt incurred by entitlements led to the US’ lowered credit rating, chokes out other programs, and rests on the backs of American youth, who will be forced to pay off the unrestrained debt on these social programs.

In spring 2011, Representative Paul Ryan proposed a budget that attempted to stymie entitlement costs. President Obama later released a budget that cut less spending and did not significantly address entitlement reform. This prompted the 2011 “Budget Wars” between Democrats and Republicans, and partisan lawmakers found themselves unable to compromise. Republicans shied away from tax increases, and Democrats shied away from serious spending cuts. Many prepared for a potential government shutdown because Congress seemingly could not agree on a budget.

Even before the Budget Wars, the American people harbored serious concerns about their legislators’ ability to enact sustainable solutions. The Bank Bailout, though it has largely paid for itself, incited anger against hasty government action on behalf of Wall Street. The Bailout failed to halt the foreclosure crisis, stymie rocketing unemployment, and to increase lending. Many Americans believe that the government is beholden to Wall Street and special interests. Meanwhile, President Obama’s newly proposed American Jobs Act of 2011 attempts to relive the Recovery Act, which failed to stem unemployment and jumpstart the economy.

Americans want new solutions. According to a September CBS poll, nearly three-quarters of Americans think the country is on the wrong track, and just one-quarter think the President has made any progress fixing the economy. Over 50 percent of Americans currently disapprove of President Obama, but more than 80 percent disapprove of Congress. Clearly, it is time to change how the US spends.

Both the Ryan and Obama budget proposals cut discretionary spending instead of mandatory spending. But cutting discretionary spending is like sweeping the floor around an elephant. This is because most entitlement spending falls under the mandatory label—law, rather than annual appropriations acts, controls it. Since Presidents Franklin Roosevelt and Lyndon Johnson, the United States has embraced Entitlementationism, or the belief in the public provision of private goods. But unless federal receipts increase or legislators amend the eligibility requirements or benefits of entitlements, discretionary spending will undergo severe cuts and entitlements will continually increase deficits.

This year, ARUSA undertakes a four-pronged approach to offering you pertinent, valuable, and eye-opening information and solutions. First, and unique to the 2011 ARUSA, we present special reports on fiscal issues of eminent importance to the nation today. These include an investigation into how special interests control federal dollars and how American money influences international business, an analysis of the US credit rating, a look at the 2011 Budget Wars, and several others. Second, we analyze the current state of taxes, debt, and interest in order to put the budget into perspective. Third, we include an—imaginary yet factual—income statement of the federal government. Fourth, we offer analyses of major spending areas, focusing on how money is spent and how Congress can approach fiscal sustainability in these areas.

Special Reports

Revenue and Borrowing

Major Spending Areas

Standard and Poor’s downgrade of U.S. debt did not result in the nightmarish scenario some envisioned, but it served an important wakeup call for a nation that was fast becoming complacent with ever growing costs. As lawmakers grapple with spending questions that will determine the shape of the national government in the years to come, we hope you will use ARUSA to understand the questions at hand and formulate your own ideas on the way forward.

—Rachel Wagley & Noah Rayman, Co-Editors

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