National Debt/Deficit Lesson: Ten Trillion and CountingThe following lesson is taken from the PBS Frontline website with a companion video from Frontline and an activity from the NPR Marketplace website.Lesson Objectives:
Students will explore:
The students are to attempt to answer the following questions. Then the students are to watch the Frontline special on the National Debt and Budget Deficits called Ten Trillion and Counting which can be purchased from pbs.org or streamed from http://www.pbs.org/frontline/tentrillion.As they watch the video the students should reanswer the review questions.
- Important economic terms related to government budgeting and borrowing
- The process used for developing a government budget
- Trade-offs that must be made when developing the National Budget
- How government pays its debt
What can happen if the percentage of debt to GDP is too high
Ten Trillion and Counting: Discussion Questions
1. What is a budget deficit?
2. What is total national debt?
3. What are some reasons why the budget deficit and nonbudgeted spending have been adding more than $500 billion to the national debt in recent years?
4. Name three countries that loan money to the U.S. government. What instruments do they receive to guarantee their loans?
5. On several occasions, a balanced budget amendment has been proposed as law but not passed by Congress. What would be the advantages and disadvantages of having such a law?
6. What was PAYGO? What happened to that policy, and how did it impact the budget deficit?
7. According to Greg Ip of The Economist, President Bush's economic policy of cutting taxes and spending through borrowing was "politically smart" rather than "economically smart." Do you agree or disagree? Explain.
8. How did the U.S. government pay for the wars in Afghanistan and Iraq?
9. What impact did spending for the wars in Iraq and Afghanistan have on the budget deficit?
10. When compared to other countries, to what extent is the U.S. debt compared as a percentage of GDP something to be concerned about? Why? (Note: The following link ranks countries according to their debt-to-GDP percentages. The U.S. percentage is 60.8, putting it at number 23 out of the 126 countries listed. Countries with higher debt percentages include Japan, Italy, Norway, France and Canada.)
11. With increased foreign purchases of U.S. government debt by central banks of foreign countries such as China, what are the political and financial risks if these countries stop buying this debt?
12. Most economists agree that both tax cuts and additional spending are needed to stimulate the economy in a time of recession. In what ways does each of these policies stimulate the economy?
13. How are/did Republicans in Congress responding to President Obama's proposed stimulus package? Why are/did they responding this way?
14. According to the program, entitlement programs such as Medicare and Medicaid represent the biggest threat to the U.S. budget deficit. What reforms do you suggest to help avoid an unsustainable increase to the debt?
GOVERNMENT BORROWING LESSON:
YOU MAKE THE U.S. BUDGET: STUDENT HANDOUT
Note to Students: In the film Ten Trillion and Counting, you learned that the U.S. government's total debt totals more than $10 trillion. This debt does not include the unfunded promises of social programs such as Social Security, which is held in the Social Security Trust Fund and which many believe will also need additional funding to cover future obligations. The debt is an accumulation of budget deficits from previous years and interest owed on the debt. As with your personal budget, when spending exceeds income, borrowing is the only solution. If big lenders such as China stop lending money, the United States faces the challenge of cutting programs and facing additional economic hardships. Currently, many believe the U.S. is on a crash course toward economic hardship because of its relationship of debt-to-GDP level. The CIA World Factbook ranks countries according to their debt-to-GDP percentages. The U.S. percentage is 60.8, putting it at number 23 out of the 126 countries listed. In order to borrow, the U.S. government issues Treasury bills and bonds, among other securities. President
Obama has proposed cutting the U.S. budget deficit in half over the years to come, which could slow the growth in total debt from its recent pace. You can read President Obama's budget by clicking the following link. Note that summary tables are on page 114. www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf
Your Mission: Your group has been assigned to see if you can even do better than the president's proposals. Also, for your budget category, you will need to prioritize and conduct research on one area of the budget. In your group, discuss and answer the following:
1. Budget Plan. The proposed U.S. budget includes more than $3 trillion in spending annually. In your group, answer the questions below and assign percentages to each of the six budget categories listed below. If you decide to spend more than you bring in through taxation, your government will need to borrow by selling more bonds.
a. Do you think it is important to create a budget that has less spending than tax revenues collected? Explain.
b. What are some economic and political reasons why it is difficult to cut spending from the current high levels?
c. Deficit spending happens when a government spends more than what it has coming in from taxation. Under what circumstance do you think this could be a good strategy?
d. Will you increase taxes to help collect more money? If so, what will be your plan for your tax increase?
e. Will you decrease taxes? Regardless, what are possible advantages to decreasing taxes even when spending is high?
f. In what areas will you allocate money to stimulate the economy? Explain.
2. Create a Budget. In your group, discuss your priorities and rationale for allocating resources to each of the following six categories. When you have reached a consensus, detail what percentage of the total budget you will spend on each of six budget categories listed below.
Budget Category Percentage of Total Budget:
Total Spending: =100%
a. Will you have a budget deficit or surplus?
b. What criteria did you use to decide which areas received the most or least amount of the budget?
3. Research your specific budget area with your team and prepare a presentation for your class. Explain the main spending priorities and programs within the budget proposal made by the president for your budget category. The link is www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf.
4. The following White House link has important links to budgets for different departments and programs: www.whitehouse.gov/omb/. Other useful Web sites you can use for research include:
Health Care: www.hhs.gov/news/budgetblueprint.html
Social Programs: www.ssa.gov/pgm/links_governance.htm
Explain the main spending priorities and programs within the budget proposal made by the president for your budget category:
5. What are some reasons why your budget category should receive the highest percentage of spending possible?
6. As you research your budget area, identify what decisions you would make to eliminate spending. Explain below any ideas for spending cuts that you propose.7. Present your proposal to the class and help debate what budget would be acceptable to everyone.
GOVERNMENT BORROWING LESSON:
BE A BUDGET HERO: STUDENT HANDOUT
Note to Students: Review the following information, play the simulation online, then answer the questions at the end of this handout concerning the choices you made and the results of the simulation.
‡ Spending is part of fiscal policy. If you spend more than you have in your budget, it creates what is called a budget deficit. Total debt or surplus is the addition of the budget deficit or surplus from preceding years plus interest owed to anyone that is financing that debt.
‡ A trade-off involves giving up something in order to gain something else in return, as well as understanding the upside and downside to the choices that were made.
‡ Governments generate revenues to cover budgetary obligations through taxation. If tax income does not generate enough money to cover spending, governments need to borrow. This borrowing comes in the forms of bonds.
‡ Deficit spending can help minimize or end a recession. However, if
a government has too much debt and needs to borrow too much, or people or countries stop lending the money, problems could include the need to pay more interest, inability to pay for important programs, inflation, lower growth rates and future tax increases.
‡ You are going to be in charge of running the U.S. government budget
while you play this game.
‡ Go to the following Web site: http://marketplace.publicradio.org/features/budget_hero/.
‡ Click the link for "Get Briefed" to learn the game rules.
‡ Make sure you select badges in the game that represent your values. You win these badges by running the budget well.
‡ To make your budget choices, click on the buildings that represent the different budget categories. There you will see specific choice cards. You can drag cards you would like to choose that represent new spending or spending cuts over to the "Played Cards" column.
‡ As you play the simulation, answer the questions below to prepare for our class discussion.
1. A trade-off involves prioritizing some areas over others. What three badges did you prioritize over the others that reflect your values, and why?
2. What was the most important card you played for each of the following budget categories? (Click on the buildings to see the cards. Play the cards by dragging them to the column on the right that lists "Cards Played.")
g. Health Care:
h. Social Security:
i. Interest on Debt:
j. Taxes (Click the button for tax categories):
3. What were two important cards you played that added spending to the budget, and why did you decide it was important to spend more in these areas?
4. What were two important cards you played that cut spending by a lot of money? What made you choose these areas to cut spending?
5. What was your general policy when it came to raising or lowering taxes?
6. What are some potential risks with following your tax plan?
7. When done, click the button on the bottom right to see results of your budget. What was the percentage of debt to GDP in your budget? What was the percentage of debt to GDP in 2008?
8. Until what year did you delay the budget bust?
9. How many of your badges did you earn?
10. What specific decisions caused you to earn or not earn your badges?
11. What decisions would you make differently now that you have seen how the entire process works?