The Economy of the USA

     Several government agencies provide budget data and analysis. These include the Government Accountability Office (GAO), Congressional Budget Office, the Office of Management and Budget (OMB) and the U.S. Treasury Department. These agencies have reported that the federal government is facing a series of important long-term financing challenges. Expenditures related to entitlement programs such as Social Security, Medicare and Medicaid are growing considerably faster than the economy overall, as the population matures.

     The U.S. Constitution (Article I, section 9, clause 7) states that "[n]o money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time."

Each year, the President of the United States submits his budget request to Congress for the following fiscal year, as required by the Budget and Accounting Act of 1921. Current law (31 U.S.C. § 1105(a)) requires the president to submit a budget no earlier than the first Monday in January, and no later than the first Monday in February. Typically, presidents submit budgets on the first Monday in February. The budget submission has been delayed, however, in new president's first year when previous president belonged to a different party.

     The federal budget is calculated largely on a cash basis. That is, revenues and outlays are recognized when transactions are made. Therefore, the full long-term costs of entitlement programs such as Medicare, Social Security, and the federal portion of Medicaid, are not reflected in the federal budget. By contrast, many business and some foreign governments have adopted forms of accrual accounting, which recognizes obligations and revenues when they are incurred. The costs of some federal credit and loan programs, according to provisions of the Federal Credit Reform Act of 1990, are calculated on a net present value basis.

     Federal agencies cannot spend money unless funds are authorized and appropriated. Typically, separate Congressional committees have jurisdiction over authorization and appropriations. The House and Senate Appropriations Committees currently have 12 subcommittees, which are responsible for drafting the 12 regular appropriations bills, which determine amounts of discretionary spending for various federal programs. Appropriations bills must pass both the House and Senate and then be signed by the president in order to give federal agencies legal authority to spend. In many recent years, regular appropriations bills have been combined into "omnibus" bills.

     Congress may also pass "special" or "emergency" appropriations. Spending that is deemed an "emergency" is exempt from certain Congressional budget enforcement rules. Funds for disaster relief have sometimes come from supplemental appropriations, such as after Hurricane Katrina. In other cases, funds included in emergency supplemental appropriations bills support activities not obviously related to actual emergencies, such as parts of the 2000 Census of Population and Housing. Special appropriations have been used to fund most of the costs of war and occupation in Iraq and Afghanistan so far.

     Budget resolutions and appropriations bills, which reflect spending priorities of Congress, will usually differ from funding levels in the president's budget. The president, however, retains substantial influence over the budget process through his veto power and through his congressional allies when his party has a majority in Congress. The Democratic Party, having won a net increase of seats in both the House and Senate in the November 2006 elections, has controlled both houses of Congress since January 2007. 
 

Federal budget data 

     Several government agencies provide budget data. These include the Government Accountability Office (GAO), Congressional Budget Office, the Office of Management and Budget (OMB) and the U.S. Treasury Department. CBO publishes an economic and budget outlook in January, which is typically updated in August. OMB, which is responsible for organizing the President's budget presented in February, typically issues a budget update in July. GAO and Treasury issue Financial Statements of the U.S. Government, usually in the December following the close of the federal fiscal year, which occurs September 30. The Treasury Department also produces a Combined Statement of Receipts, Outlays, and Balances each December for the preceding fiscal year, which provides detailed data on federal financial activities. 

Mandatory spending and entitlements 

     Social Security and Medicare expenditures are funded by permanent appropriations, and so are considered "mandatory" spending according to the 1997 Budget Enforcement Act (BEA). Social Security and Medicare are sometimes called "entitlements," because people meeting relevant eligibility requirements are legally entitled to benefits. Some programs, such as Food Stamps, are appropriated entitlements. Mandatory spending, according to CBO, equaled 11.2% of GDP in FY2008. Some mandatory spending, such as Congressional salaries, is not part of any entitlement program. Funds to make federal interest payments have been automatically appropriated since 1847. Mandatory spending accounted for 53% of total federal outlays in FY2008, with net interest payments accounting for an additional 8.5%.

     Discretionary outlays, which rely on annual appropriations for funding, accounted for 38.0% of total federal outlays in FY2008. Over the past four decades, the proportion of federal outlays spent on mandatory programs has increased on average. Mandatory spending in FY2009 has increased sharply due to extraordinary actions taken in response to severe turmoil in financial markets and an economic recession that began in late 2008.

     According to CBO projections (The Long-Term Outlook, Alternative Fiscal Scenario), spending on Social Security is projected to reach 6.1% of GDP and Medicare and Medicaid are projected to total 12.5% of GDP in FY2050. By comparison, federal outlays in FY2007 were 20% of GDP and federal revenues were 18.8% of GDP. In other words, spending on those three programs is projected to take up nearly the same proportion of the economy in FY2050 as all federal revenues in FY2007. Unless these long-term fiscal imbalances are addressed by raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations.

     As discussed further below, the Medicare Part A (Hospital Insurance) program began to run a deficit in FY 2007 and Social Security follows thereafter in 2017. Both programs are funded by dedicated payroll taxes that do not cover payouts and run increasing deficits for the foreseeable future, placing significant pressure on the budget.  

Social Security 

     Social Security spending will increase sharply over the next decades, largely due to the retirement of the baby boom generation. The number of workers paying into the program continues declining relative to those receiving benefits. The number of workers paying into the program was 6.1 per retiree in 1960; this declined to 3.3 in 2007 and is projected to decline to 2.1 by 2040. The Congressional Budget Office (CBO) projects that an increase in payroll taxes equivalent to 1.8% of gross domestic product (GDP) would be necessary to put the Social Security program in fiscal balance for the next 75 years. (CBO, The Long-Term Outlook, Dec. 2007) In other words, raising the payroll tax rate to 14.4% during 2009 (from the current 12.4%) or cutting benefits by 13.3% would address the program's budgetary concerns indefinitely; these amounts increase to around 16% and 24% if no changes are made until 2037. Projections of Social Security's solvency are sensitive to assumptions about rates of economic growth and demographic changes.

     Since recommendations of the Greenspan Commission were adopted in the early 1980s, Social Security payroll taxes have exceeded benefit payments. In FY2008, Social Security received $180 billion more in payroll taxes and accrued interest than it paid out in benefits. This annual surplus is credited to Social Security trust funds that hold special non-marketable Treasury securities. The Social Security surplus reduces the amount of U.S. Treasury borrowing from the public. The total balance of the trust funds was $2.4 trillion in 2008 and is estimated to reach $3.7 trillion by 2016. At that point, payments will exceed payroll tax revenues, resulting in the gradual reduction of the trust funds balance as the securities are redeemed against other types of government revenues. By 2037, according to some estimates, the trust funds will be exhausted. Under current law, Social Security payouts would be reduced by 24% at that time, as only payroll taxes are authorized to cover benefits.

     The present value of unfunded obligations under Social Security as of January 1, 2009 has been estimated at approximately $5.3 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years. The estimated annual shortfall averages 1.9% of the payroll tax base or 0.7% of gross domestic product.

     Various reforms have been debated for Social Security. Examples include reducing future annual cost of living adjustments (COLA) provided to recipients, raising the retirement age, and raising the income limit subject to the payroll tax ($106,800 in 2009).  
 
 

Medicare and Medicaid 

     Spending on Medicare and Medicaid is projected to grow dramatically in coming decades. While the same demographic trends that affect Social Security also affect Medicare, rapidly rising medical prices appear a more important cause of projected spending increases. The CBO has indicated that: "Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy." Further, the CBO also projects that "total federal Medicare and Medicaid outlays will rise from 4 percent of GDP in 2007 to 12 percent in 2050 and 19 percent in 2082—which, as a share of the economy, is roughly equivalent to the total amount that the federal government spends today. The bulk of that projected increase in health care spending reflects higher costs per beneficiary rather than an increase in the number of beneficiaries associated with an aging population."

     President Obama stated in May 2009: "But we know that our families, our economy, and our nation itself will not succeed in the 21st century if we continue to be held down by the weight of rapidly rising health care costs and a broken health care system...Our businesses will not be able to compete; our families will not be able to save or spend; our budgets will remain unsustainable unless we get health care costs under control."

     The present value of unfunded obligations under all parts of Medicare during FY 2007 is approximately $34.1 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years.

     Various reform strategies have been debated for Medicare and Medicaid. Examples include comparative effectiveness research, independent review panels, modifying doctor incentives to focus on value rather than fee for service, taxing healthcare benefits paid for by employers, tort reform, prevention of obesity and related expensive conditions, and improved healthcare technology.  

Military spending 

     During FY 2008, the U.S. government spent nearly $800 billion on defense and homeland security, approximately 32% of tax receipts of $2.5 trillion.  

Department of Defense: $741 billion

Homeland Security: $52 billion 

     The U.S. defense budget (excluding spending for the wars in Iraq and Afghanistan, Homeland Security, and Veteran's Affairs) is around 4% of GDP. According to the CBO, defense spending grew 9% annually on average from fiscal year 2000-2009.  

Labor unions in the United States 

     Labor unions in the United States are legally recognized as representatives of workers in many industries. The most prominent unions are among public sector employees such as teachers and police. Activity by labor unions in the United States today centers on collective bargaining over wages, benefits, and working conditions for their membership and on representing their members if management attempts to violate contract provisions. Although much smaller compared to their peak membership in the 1950s, unions also remain an important political factor (especially within the Democratic Party), both through mobilization of their own memberships and through coalitions with like-minded activist organizations. Today most unions are aligned with one of two larger umbrella organizations: the AFL-CIO and the Change to Win Federation, which split from the AFL-CIO in 2005. Both advocate policies and legislation on behalf of workers in the United States and Canada, and take an active role in politics. The AFL-CIO is especially concerned with global trade issues. American union membership in the private sector has in recent years fallen under 9% — levels not seen since 1932. In another example, Construction trades now only represent approximately 14% of the labor market. The inability to prevent non-union companies from taking significant market share has undercut union membership.

     American unions remain an important political factor, both through mobilization of their own memberships and through coalitions with like-minded activist organizations around issues such as immigrant rights, trade policy, health care, and living wage campaigns. Unions allege that employer incited opposition (including engaging in what is commonly termed "union-busting": running "anti-union" campaigns, employing "union-busters" - a.k.a. "union avoidance" consultants, or engaging in unfair labor practices, like firing workers who support the union, which is illegal) has contributed to this decline in membership.

     Unions are currently trying to reduce employers' influence over workers' decisions to be represented by a union by advocating new federal legislation that would allow workers to elect union representation by signing cards, a process often referred to as card check recognition. This proposed legislation is known as the Employee Free Choice Act. Under this proposed Act, once a majority of employees in a workplace have signed a card, the employer will be obligated to make a good-faith effort to bargain a contract with the union. Significantly, the card signing is to be performed in front of a union representative, who can identify the signer. The current process established by federal law requires at least 30% of employees to sign cards for the union, then wait 45 to 90 days for a federal official to conduct a secret ballot election in which 50% plus one of the employees must vote for the union in order to obligate the employer to bargain. Unions report that, under the present system, many employers use the 45 to 90 day period to conduct anti-union campaigns. Since the 2008 elections, the Employee Free Choice Act now has the support of majorities in the House and Senate, and of the President. 

Labor unions today 

     Today most labor unions in the United States are members of one of two larger umbrella organizations: the American Federation of Labor–Congress of Industrial Organizations (AFL-CIO) or the Change to Win Federation, which split from the AFL-CIO in 2005. Both organizations advocate policies and legislation favorable to workers in the United States and Canada, and take an active role in politics favoring the Democratic party but not exclusively so. The AFL-CIO is especially concerned with global trade issues.

     Recently unions have become a larger issue within the 2008 "Economic Crisis" with the three largest automakers seeking $50 Billion in loans in order to stay viable. According to some Senators 'costly labor agreements' including pension and health plans put the U.S. automakers at a disadvantage to foreign companies resulting in their collapse. Others point out that the United Auto Workers has made extensive concessions to the car companies over the last twenty years in order to help the companies remain competitive, and allege that the automakers' recent troubles are better ascribed to other factors.

     Private sector union members are tightly regulated by the National Labor Relations Act (NLRA), passed in 1935. The law is overseen by the National Labor Relations Board (NLRB), an independent federal agency. Public sector unions are regulated partly by federal and partly by state laws. In general they have shown robust growth rates, for wages and working conditions are set through negotiations with elected local and state officials. The unions' political power thus comes into play, and of course the local government cannot threaten to move elsewhere, nor is there any threat from foreign competition. In California the public sector unions have been especially successful.

To join a traditional labor union, workers must either:

be given voluntary recognition from their employer or

have a majority of workers in a "bargaining unit" vote for union representation.

In either case, the government must then certify the newly formed union. Other forms of unionism include minority unionism, Solidarity unionism, and the practices of organizations such as the Industrial Workers of the World, which do not always follow traditional organizational models.

     Public sector worker unions are governed by labor laws and labor boards in each of the 50 states. Northern states typically model their laws and boards after the NLRA and the NLRB. In other states, public workers have no right to establish a union as a legal entity. (About 40% of public employees in the USA do not have the right to organize a legally established union.)

     Once the union has won the support of a majority of the bargaining unit and is certified in a workplace, it has the sole authority to negotiate the conditions of employment. However, under the NLRA, if a minority of employees voted for a union, those employees can then form a union which represents the rights of only those members who voted for the union. This minority model was once widely used, but was discarded when unions began to consistently win majority support. Unions are beginning to revisit the "members only" model of unionism because of new changes to labor law which unions view as curbing workers' ability to organize.

     The employer and the union write the terms and conditions of employment in a legally binding contract. When disputes arise over the contract, most contracts call for the parties to resolve their differences through a grievance process to see if the dispute can be mutually resolved. If the union and the employer still cannot settle the matter, either party can choose to send the dispute to arbitration, where the case is argued before a neutral third party.

In the 1940s and 1950s links to organized crime were discovered in U.S. unions, hurting their image.

     Since the 1970s, union membership has been steadily declining in the private-sector while growing in the public sector.

     Right-to-work statutes forbid unions from negotiating agency shops. Thus, while unions do exist in "right-to-work" states, they are typically weaker.

Members of labor unions enjoy "Weingarten Rights." If management questions the union member on a matter that may lead to discipline or other changes in working conditions, union members can request representation by a union representative. Weingarten Rights are named for the first Supreme Court decision to recognize those rights.

     The NLRA goes farther in protecting the right of workers to organize unions. It protects the right of workers to engage in any "concerted activity" for mutual aid or protection. Thus, no union connection is needed. Concerted activity "in its inception involves only a speaker and a listener, for such activity is an indispensable preliminary step to employee self-organization."  

Social class in the United States (4) 

Upper class 

     This term is applied to a wide array of elite groups existing in the United States. The term commonly includes the so-called "blue bloods" (multi-generational wealth combined with leadership of high society) such as the Astor or Roosevelt families. There is disagreement over whether the "nouveau riche" should be included as members of the upper class or whether this term should exclusively be used for established families. Twentieth century sociologist W. Lloyd Warner divided the upper class into two sections: the "upper-upper class" and "lower-upper class". The former includes established upper-class families while the latter includes those with great wealth. As there is no defined lower threshold for the upper class it is difficult, if not outright impossible, to determine the exact number or percentage of American households that could be identified as being members of the upper-class (es).

     Income and wealth statistics may serve as a helpful guideline as they can be measured in a more objective manner. In 2005, approximately one and half percent (1.5%) of households in the United States had incomes exceeding $250,000 with the top 5% having incomes exceeding $157,000. Furthermore only 2.6% of household held assets (excluding home equity) of more than one-million dollars. One could therefore fall under the assumption that less than five percent of American society are members of rich households. The richest 1% of the American population owns as much as the combined wealth of the bottom 90%, or perhaps even more.

     Members of the upper class control and own significant portions of the corporate America and may exercise indirect power through the investment of capital. The high salaries and the potential for amassing great wealth through stock options have greatly increased for the power and visibility of the "corporate elite". Many sociologists and commentators, however, make a distinction between the upper class (in the sense of those in the families of inherited wealth) and the corporate elite. By implication, the upper class is held in lower regard (as inheritors of idle wealth) than the self-made millionaires in prestigious occupations.