What would be true of entitlement spending if the percentage of taxes allocated to discretionary spending rose

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Question:

What would be true of entitlement spending if the percentage of taxes allocated to discretionary spending rose to 100 percent and the federal budget was balance? (Hint Under a balanced budget, tax revenues equals the sum of discretionary and nondiscretionary expenditures.)

How would entitlement spending be funded if tax revenues just covered discretionary spending and there was a government budget deficit?

Indeed, during periods in which the percentage of tax revenues available to allocate to discretionary spending has been zero or negative, the federal government's tax revenues have been insufficient to pay for any of its discretionary spending. During these intervals, all discretionary spending has been financed with borrowed funds.

Borrowing in Part to Cover Entitlement Spending :

When the share of federal tax revenues allocated to discretionary spending is below zero, the government borrows more than the amount of its discretionary spending. During these intervals, the government borrows funds to help pay some of its noncontrollable expenditures on entitlements as well as to cover its discretionary spending.

For Critical Thinking:

1. What would be true of entitlement spending if the percent-age of taxes allocated to discretionary spending rose to 100 percent and the federal budget was balanced? (Hint:

Under a balanced budget, tax revenues equal the sum of discretionary and nondiscretionary expenditures.)

2. How would entitlement spending be funded if tax revenues just covered discretionary spending and there was a government budget deficit?

Web Resources:

1. To review recent trends in federal discretionary and entitlement expenditures, go to www.econtoday.comfchapl4.

2. For projections of federal entitlement expenditures for the first half of this century, go to www.econtoday.comichap14.

The Percentage of Federal Tax Receipts Available for Federal Discretionary Spending

The share of federal tax revenues available for discretionary spending after paying for entitlement expenditures declined after the late 1990s and has fallen considerably since the mid-2000s. Indeed, during some recent years the percentage of federal tax receipts allocated to discretionary spending has even dropped to or below zero. Within these intervals, the federal government has had to borrow funds to finance all of its discretionary spending plus part of its noncontrollable expenditures on entitlements.

Figure 14?7

Borrowing Total Discretionary Spending ? And More

Since 2008, higher federal budget deficits have had three causes: lower tax revenues, higher discretionary spending, and greater entitlement expenditures. Tax revenues have dropped so much that in some recent years, the government has borrowed to fund all discretionary spending.

The Share of Tax Revenues Going to Discretionary Spending:

Figure 14-6 shows that the share of total federal spending on entitlements has increased during the past 20 years. How has this trend affected the government ability to fund its discretionary spending? Figure 14-7 below displays the percentage of tax revenues available to apply toward discretionary spending?that is, after paying for

entitlement expenditures?since the early 1990s. During the late 1990s, this percentage rose above 100 percent, meaning that the federal government officially operated with surpluses and paid down sonic of its outstanding debts. After the late 1990s, however, the percentage of tax revenues available to cover discretionary spending after paying entitlements steadily declined. Since the late 2000s, this percentage has dropped substantially.