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Overview of the U.S. Budget

U.S. BUDGET

In this article we give some interesting information about the U.S. budget, a comparison with Indian budget, the main problem in the U.S. economy and how the government is trying to solve the problem.

I) Interesting information :

1. Planning - well in advance

The U.S. budget is planned well in advance. The budget is announced by the President eight to nine months prior to commencement of the fiscal year. Fiscal year commences from 1st October and ends on 30th September. The budget is presented in January/February. Thus clear eight to nine months are available for discussion by the Congress, and comments by public. In India, the budget is normally presented on 28th February -one month before the comencement of the fiscal year.

Another feature of the U.S. budget is that it gives the budget amounts for five years and not just one year only. The budget presented in February 1998, is for the year 1st October 1998 to 30th September 1999 (98-99), plus four years 1999-2003. The amounts may subsequently be revised, modified, etc. However, the budget is for five years. This kind of advance planning is not there in many countries.

2. Transparency

There appears to be some transparency in the budget. The explanatory documents explain the budet terms in simple language. This is also evident from the fact that there is only one meaning assigned to the terms "deficit" and "surplus". A deficit means a true defiict - excess of expenditure over receipts. In India, we have different deficits - revenue deficit, capital deficit, budgetary deficit, etc. A new term - "Primary Deficit" - was coined a few years ago. The true deficit is "fiscal deficit". The U.S. budget only gives one deficit figure which is equivalent to our "fiscal deficit",

However, the budget is basically a receipts and payments account. There does not appear to be a balance sheet. The Indian budget gives a balance sheet also.

3. U.S. budget is presented by the president himself and not by Finance minister as in India.

4. Indian government spends 25% of total budgetary resources into payment of interest. U.S. government spends 15% of its budgetary resources (which does not include fresh loans taken) into payment of interest.

II) Problem issues

1. Till the year 1971 U.S.A was world's largest creditor country. Today it is the world's largest debtor country. Net outstanding foreign loans taken by the U.S governmnet as on February'98 were US $ five trillions.

President Reagan started the "Star Wars". They built large nuclear weapons. Per force U.S.S.R also joined the arms race. They built missiles to carry these weapons, anti- missiles to destroy in the air, enemy's missiles; anti - anti- missiles to destroy enemy's anti- missiles. This was the stage when even U.S could not afford the arms race with U.S.S.R.

U.S.A borrowed vast sums from international markets. Nobody would give any loans to U.S.S.R. Its economy could not support the Afghan war, the Star War arms race, and a mammoth navy around the world. Under the weight of huge defence expenditure, U.S.S.R economy collapsed. It brought down the political system also. Today U.S.S.R is broken into pieces and economically in ruins.

2. US $ was considered a safe haven. World wide people invested in US $. Central banks of almost all countries would keep large foreign exchange reserves in $. An entire Euro $ market developed followed by Petro $. The Arab Sheikhs, the world's mafia, the world wide black money hoarders keeping their money in tax havens - all -kept large part of their balances in $. U.S government printed the green backs which were voraciously taken up by the world community.

Hence large budgetary deficits in the U.S budgets did not cause any inflation within the U.S economy. U.S government and the people enjoyed huge prosperity without having to pay for the deficits because the world was investing in $ & holding cash $.

3. Japan usually has a balance of trade surplus of more than $100 billions every year. It is a huge amount of money. The only market which had sufficient size to absorb such large annual doses of investments was the U.S market. Japanese investments in U.S treasury bonds and other U.S investments solved two way problems. Japan solved its problem of "where to invest" and U.S financed its budgetary deficit.

This was too good even for U.S.A to continue for long. Frustrated by repeated and continuous harrasment by U.S. government and its agencies through Super 301 and other machineries, Japan had twice threatened in the year'97 itself to withdraw its investments from the US treasury bonds.

Still, U.S. did not consider the Japanese threat as a serious threat.

4. EMU

The European Monetary Unit will commence from the year 1999. The European GDP is larger than the U.S.GDP. EMU can very well threaten the supremacy of U.S.$. If the worldwide central banks and black money hoarders start converting their foreign exchange balances from U.S.$ to EMU $ or Japanese yen or any other currency;there can be a run on US $. This kind of run had started at least twice earlier. Quick action by the treasury had prevented any further damage. The world reposed its faith in the $ as safe haven. However, emergence of EMU is going to be a different game and U.S has to be prepared for it.

5. Collapse of U.S.S.R and end of the cold war gave considerable breathing space to the U.S. government. From the year 1992 U.S. deficits have started declining and as per president's claim, the year 1999 will have a balanced budget. The government is serious on eliminating deficits, creating a surplus so that the competition by ECU and the probability of a run on the $ can be met with.


U.S. Budgetary Resources 1998-99     U.S. Budgetary Resources 1997-98  
Individual Income-tax 46%   Individual Income-tax 8%
Corporate tax 11%   Corporate tax 8%
Direcxt taxes Total 57%   Direcxt taxes Total 16%
         
Excise etc. 4%   Excise 19%
Others 5%   Customs 19%
      Others 22%
Social Insurance Receipt 34%   Internal Borrowings
(including PPF, NSC etc.)
23%
Borrowings not shown
as part of budget receipts.
    External Borrowings 1%
  100%     100%
Source: Budget presented in February'98 by President Clinton.     Source: Second Budget presented in 1997 by Finance Min. Mr. Chidambaram.  
 
  $ Billions     $ Billions Rs. Billions
Receipts 1743   Total Receipts 42 1666
Outlays 1733   (including loans)    
Reserve 9        
Fiscal deficit 96   Total expenditure 58 2321
      Fiscal deficit 16 655
GDP 8772   GDP   13514

Note :
Both governments have widely differing accounting policies and assumptions. Hence the two sides are not strictly comparable. This table only gives a rough idea of the comparision.