National budget simulation exercise and outcomes

National Budget Simulation Exercise

The National Budge Simulation Exercise uses the 2006 budget proposed by the White House. Including an approximate $105 billion price tag for supplemental appropriations for the Iraq and Afghanistan operations, the proposed budget has a starting deficit of $401 billion. The goal is to adjust spending and tax expenditures to create a balanced federal budget. This paper reviews the set of program and policy priorities for the upcoming budget that were developed as a means of balancing the budget. The specific changes in the budget that meet these priorities is discussed. The short- and long-term impact of major budget changes on specific groups and the citizenry, in general, are illustrated as well. Lastly, the lessons learned from the exercise are described.

National Budget Simulation Exercise

Introduction:

The National Budge Simulation Exercise uses the 2006 budget proposed by the White House. Including an approximate $105 billion price tag for supplemental appropriations for the Iraq and Afghanistan operations, the proposed budget has a starting deficit of $401 billion. The goal is to adjust spending and tax expenditures to create a balanced federal budget. This paper reviews the set of program and policy priorities for the upcoming budget that were developed as a means of balancing the budget. The specific changes in the budget that meet these priorities is discussed. The short- and long-term impact of major budget changes on specific groups and the citizenry, in general, are illustrated as well. Lastly, the lessons learned from the exercise are described.

Program and Policy Priorities:

There are several program and policy priorities for the upcoming budget; however, given the severe amount of the budget deficit, many programs have to experience at least some budgetary cuts. The largest spending categories for the United States, in 2006, were military spending, Social Security, Medicare, non-Medicare health care, net interest, and aid to low-income families. it's not surprising that a larger percentage of the cuts had to come from these programs, even those programs that are critical to the United States.

In 2006, and even today, military spending was a critical component of national security. However, because of the significant amount of spending on the military, this area is an effective target for balancing the budget. The facet of military spending that needs to be a priority, in 2006, was spending in the Iraq and Afghanistan operations. Although there was a recommendation to cut military operation spending by ten percent, in the new budget there is an increase in spending, by 20%, in reconstruction aid. Other priority programs include: general science, space and technology; non-defense energy spending; natural resources and environment; agriculture; commerce and house; transportation; community and regional development; education; and training, labor and unemployment, as theses are all critical programs to the United State's infrastructure and advancement.

Changes in the Budget:

As mentioned, military spending was one of the areas that received the largest cuts. However, in an effort to facilitate the general priority of a more secure United States, military spending was increased in the area of reconstruction aid for Iraq and Afghanistan, in the hopes that reconstruction will help in the development of countries that were not hot beds for terrorist development. This, in the end, will help reduce the need for other military spending.

No changes were made in some of the core infrastructure programs. General science, space and technology, non-defense energy, education, and training, labor and unemployment all received no cuts, in an effort to protect these important programs. Other priority programs only received minimal cuts.

As an example, in the new budget, natural resources and environment received cuts of just over five percent. Only ten percent was cut from water resources, pollution control and abatement, and the other natural resources divisions. In the agriculture department, only $.85 billion was removed from the more than $26 billion budget. Commerce and housing likewise only received minimal deductions, despite the large amount of deficit that needed to be overcome.

One of the larger protected programs that received more than five percent reduction in funding was transportation. Highways, mass transit, railroads, and other transportation budgets all were reduced by ten percent, leaving air transportation and water transportation unchanged. Although these reductions are small, they can be overcome by private investment in many of these infrastructure areas, such as railroads and mass transit.

Impact of Major Budget Changes:

The major budget changes in the new budget fall in the military, Social Security, Medicaire, and non-Medicare health spending. In addition, just over $41 billion was removed from 2001 and 2003 tax cuts. The cuts in military spending will affect a wide variety of citizenry. Specifically, military personnel will be affected with reduced budgets across the board. This will result in a reduced readiness of the military to protect the United States, in the short-term and the long-term. This reduction in spending will also negatively affect civilian contractors and other companies that provide products and services to the military. This will result in lost revenues and decreased profitability for these organizations. A secondary effect of this could result in lost jobs and reduced tax revenues for the city, state and national governments, as well as reduced revenues for other businesses in the community, if these organizations implement worker layoffs.

Social Security cuts will negatively affect the growing population of Baby Boomers and those already receiving Social Security benefits. However, this underfunded program has significant problems that must be addressed directly. Simply allowing it to continue on the path ti's on is not acceptable. As such, the reductions in the Social Security budget will directly mean a reduction in administration support staff as well as reduced benefits for those currently in the program, in the short-term. Indirectly, there will be short-term effects that affect surrounding businesses.

Medicare and non-Medicare health spending were both cut by ten percent. This reduction will affect senior citizens currently receiving Medicare benefits, as well as lower income families that receive benefits under the non-Medicare program, such as Medicaid and state children's health insurance programs. Will likely result in long-term higher operating costs for physicians and medical facilities as more services aren't reimbursed by patients who can't afford to pay for their medical services. This will result in higher prices for medical services, to make up for this lost profitability. This will affect both insurance companies and patients directly. Consumers will not only directly experience higher medical costs, but also higher insurance rates.

Lastly, a large part of the balancing of the budget was accomplished through a reduction in the 2001 and 2003 tax cuts. The largest portion of this came from a 20% reduction in the tax cuts that affected the top one percent of taxpayers, who made more than $375,000 annually. However, the richest Americans aren't the only ones who'll have to pay a higher tax rate to overcome the deficit. The remainder of the taxpayers will have a reduction in their 2001 and 2003 tax cuts by ten percent.