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Let’s take a journey together, a journey of numbers. I love numbers, so much so that I pretty much live in Excel. I thoroughly enjoy calculating and charting data of all types. As part of my (soon to be former) job, the Federal Budget – in particular the Defense Budget – is my main analysis area. It’s amazing when I talk to people, read articles, or listen to pundits the amount of mistakes made when referring to certain aspects of the US budget or budget process.

I want to simply put some information out there on the government budget to help everyone understand it and the many terms associated with it. All this information is available on line at the Office of Management and Budget. President Obama submits his budget to congress (and on-line) every year during the first week of February. So, all that talk from the Right insinuating that President Obama has no plan or no budget is pretty much non-sense.

Let'™s start with the highest level possible, The Federal Budget. Two things make up the Federal budget at its highest level; they are Receipts, and Outlays. Receipts are what the government takes in yearly, sometimes also referred to as revenues. Outlays are what the Government sends back out yearly sometimes also referred to as spending. A simple flow chart of this is below.

Now the first thing most people notice is that the outlays are higher than the receipts. This is the definition of a deficit. A deficit is defined as the difference in government receipts minus government outlays.
 
In the above year (2011) that formula produces a deficit of;
When you hear people speaking of the deficit or deficit spending they are hopefully referring to this yearly figure. Unfortunately I have seen many confuse this figure with our next term which is debt.

The US debt is a figure that is made up by adding up all the yearly deficits so you could think of it like this;

The US Debt is a combination of all the deficits from every year the US Government ran a deficit. Of course the opposite of a deficit is a surplus. If you have a surplus (Take in more receipts than outlays) then you can pay the debt down.
Let'™s just look at US Government Receipts and Outlays for the last 48 years. The chart below shows the yearly government total receipts and outlays starting in 2011 and going back to 1964.
I have also annotated the Outlay, Receipts, and Deficit totals for 2011. Looking at the chart you can see that the US has pretty much run deficits for most of the years depicted. This is shown by the blue color being visible. A deficit for any given year is the distance between the blue and the green lines. You will notice that starting in 1998 we (the US Govt.) ran a surplus for a few years. This was of course during the last years of President Clinton. I see the story of our spending in this chart. Let'™s zoom in on the last twenty or so years. I'™ll add in some notable outlay/spending increases and receipt/revenue cuts on top of this chart for you.
This is the story I see in this chart. We have been running deficits for a very long time. The economy tanked (2008) and our receipts dropped precipitously (green). Spending increased to help save the economy and provide aide to the increasing numbers of unemployed/poor (blue). Because of this double whammy of “larger outlays and reduced receipts ”the US has been running large deficits.

What president Obama is proposing to do is lower outlays/spending (blue) while at the same time increasing receipts/revenue (green).

The Republicans have so far refused to raise the green and will only agree to reduce the blue. This is also referred to as "Starving the Beast" with the Beast in this case being the federal government. Grover Norquist comes into the picture here with his œPledge (I will not link to it). The sole purpose of this pledge is to bully anyone signing it into never, never ever raising the green. Deficits should be corrected by only reducing the blue. Although I have noticed as of late that Grover is shifting his interpretation of the pledge.

So President Obama's proposed solution seems like a reasonable approach given how we got here.

Next week we will look at the make-up of the two colors above by breaking out the receipts/revenues and outlays/spending. Then in following weeks, I will lay out a time line of when budgets get created and the not so strict timelines involved in approval through Congress. From there we will dive headlong into the Defense budget (yeah!), I think you will be amazed at what we actually spend that >$600B on.

Finally, I wanted to say thanx for following along, I know you are all as excited about these numbers as I am.

Until next week...Cheers

*note* re-released to fix some spelling typos...opps

Originally posted to simple serf on Sat Dec 01, 2012 at 11:07 AM PST.

Also republished by Community Spotlight.

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What is the largest Outlay/Spending category in the Federal Budget?

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