US & World Economies US Economy Fiscal Policy FY 2012 U.S. Federal Budget and Spending How the 2012 Budget Created the 2011 Debt Ceiling Crisis By Kimberly Amadeo Updated on April 30, 2022 Reviewed by Robert C. Kelly Reviewed by Robert C. Kelly Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital. learn about our financial review board Fact checked by Hans Jasperson Fact checked by Hans Jasperson Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states. learn about our editorial policies Sponsored by What's this? & President Obama Returns To White House. Photo: Allison Shelley/Stringer/Getty Images News/Getty Images The FY 2012 budget was supposed to fund government operations for fiscal year 2012. This is the period from Oct. 1, 2011 to Sept. 30, 2012. But it didn't follow the normal budget process. Instead, it created the debt ceiling crisis. Here's what happened, why, and what was actually spent. Obama Outlines Budget Priorities In January, President Obama outlined his FY 2012 budget priorities in the 2011 State of the Union Address. Although he would keep spending at FY 2011 levels, House Republicans wanted to lower it to 2008 levels. The president submitted his FY 2012 budget to Congress on Feb. 14, 2011. But Congress had yet to approve the FY 2011 budget. It used stop-gap funding bills in March and April to keep the government funded. The Republicans now had a majority in the House, and they wanted to cut $61 billion from the Discretionary budget. They targeted child nutrition, college tuition, and food safety funding. If passed, it would have cost 800,000 jobs. On April 14, Congress approved the FY 2011 budget. It included $38 billion in reduced spending. On April 18, Standard & Poor's cut its rating outlook on the U.S. debt. It doubted that Congress could agree on how to restrain deficit spending, which threatened to increase the debt-to-gross domestic product ratio above 100%. The Dow immediately dropped 200 points. Congress Stalled On April 5, 2011, House Republicans presented their budget, “The Path to Prosperity.” It cut $5.8 trillion in mandatory program spending while implementing $4.2 trillion in tax cuts. On April 13, 2011, President Obama outlined a new budget in a speech. It would cut deficits by $4 trillion over 12 years. It would do this by capping increases in Medicare and Medicaid spending. It would also allow the Bush tax cuts to expire for those with incomes over $200,000. On May 25, the Senate voted against the Republican plan. It also voted against the president's original FY 2012 budget since it had been replaced by his new budget outline. Debt Ceiling Crisis In July, the bipartisan Gang of Six proposed a plan to cut the tax rate for higher income families. It also proposed to reform important tax deductions, like charitable giving and mortgage interest. Meanwhile, the debt was coming close to reaching the debt ceiling. With their plan defeated, tea party Republicans threatened to "Just Say No to the Debt Ceiling" to force deficit reductions. Both Senate Democrats and House Republicans proposed their own budgets that included different plans to raise the debt ceiling. The House plan was defeated in the Senate. On Aug. 2, 2011, the debt ceiling was raised by $1.2 trillion, as part of the Budget Control Act. It required a Congressional Super Committee to create a proposal to reduce the debt by $1.5 trillion over 10 years. If this wasn't successful, it would trigger a sequestration that would reduce spending by $1.2 trillion over 10 years through an across-the-board spending cut. On Sept. 2, the Bureau of Labor Statistics reported that exactly zero new jobs were created in August. Although that number was later revised upwards, it indicated how severely the debt ceiling crisis had impacted the economy. On Sept. 8, President Obama proposed the American Jobs Act. The Super Committee met unsuccessfully in November and was disbanded in January. The FY 2012 budget was passed in December 2011. What Was Spent in FY 2012 The actual revenue, spending, and deficit for FY 2012 were reported in subsequent budgets. Here's a summary. Revenue The federal government received $2.450 trillion in revenue. Income taxes of $1.132 trillion or 46.2% contributed the lion's share. Payroll taxes added 34.5%, as follows: Social Security —$570 billion.Medicare—$201 billion.Unemployment—$67 billion.Retirement—$8 billion. Corporate taxes added just $242 billion or 9.8%. All other, including excise taxes, tariffs, and earnings on deposits at the Federal Reserve, contributed $215 billion. The Office of Management and Budget’s Table S-5 of the FY 2014 Budget provides the actual revenue collected. Total Spending The government spent $3.537 trillion, less than the $3.7 trillion originally budgeted. More than half went toward mandatory programs, such as Social Security, Medicare, and Supplemental Security for the Disabled. These expenditures are mandated by law, and cannot be changed without an act of Congress. A whopping $220 billion was spent to pay the interest on the national debt. Mandatory - Mandatory programs cost $2.032 trillion or 57.4% of the U.S. federal budget. At $768 billion, Social Security was by far the most expensive. Medicare was $466 billion while Medicaid was $251 billion. All other programs, such as Food Stamps, Unemployment Compensation, Child Nutrition, and Tax Credits, spent $548 billion. These figures are reflected in Table S-5 of the Office of Management and Budget’s “FY 2014 Budget.” Discretionary - Just over a third of spending or $1.285 trillion went toward discretionary programs. This percentage will continue to decline because mandatory spending will only grow and leave less money for all other government activities. This means there's less money that the president and Congress can appropriate each year. Almost half of that, $614 billion, was spent on all federal government activities not related to defense. The largest non-security related departments were Health and Human Services, which spent $78.3 billion; Education, $67.4 billion; Housing and Urban Development, $36.3 billion; Justice, $26.9 billion; and Agriculture, $23.7 billion. Table S-11 of OMB’s “FY 2014 Budget” indicates these figures. Military - Over half of the Discretionary budget, or $804.8 billion, was military spending. This included $530.4 billion for the Department of Defense base budget. The budget focused on buying military equipment. It emphasized weapons research and cyber-security. Through some management and acquisition reforms, it planned to save $78 billion through 2016. Although that's a lot a money, it's still less than a 2% decrease in total security spending. It also included $159.3 billion spent by other departments to support the DoD base budget. This includes the FBI at $8.1 billion; the National Nuclear Security Administration, $11 billion; Homeland Security, $39.9 billion; the Department of Veterans Affairs, $58.7 billion; and the State Department, $41.6 billion. Total military spending also included $115.1 billion in Overseas Contingency Operations, which paid for the War in Afghanistan. This Congressional appropriation is outside the normal budget process. Tables S-10 & S-11 of OMB’s “FY 2014 Budget” provide more figures on military spending. Budget Deficit Improved The budget deficit in FY 2012 came in at $1.087 trillion, less than the $1.101 trillion expected. Yet this deficit helped push the U.S. debt beyond total annual economic output. This concerned many elected officials. In the short term, deficit spending stimulates the economy. This is especially true if businesses are operating below capacity, and the spending focuses on activities that are efficient in creating jobs. The U.S. budget deficit by year can help you make a comparison between all U.S. budget deficits since 1929. But continued deficit spending puts downward pressure on the dollar's value. As the dollar declines, the price of imports increases, as does the risk of inflation. As the debt approaches 100% of GDP, it increases the expectation that this debt won't be paid until sometime in the distant future. This expectation of future taxes puts downward pressure on economic growth. Compare to Other Federal Budgets Current Federal BudgetFY 2018FY 2017FY 2016FY 2015FY 2014FY 2013FY 2011FY 2010FY 2009FY 2008FY 2007FY 2006 Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. The White House President Barack Obama. "Remarks by the President in State of Union Address." Office of Management and Budget. "Fiscal Year 2012 Budget of the U.S. Government." Committee for a Responsible Federal Budget. "Spending May Diminish, but Time Definitely Is Shrinking." Economic Policy Institute. "Republican Proposal to ‘Right Our Fiscal Ship’ Throws More Workers Overboard." U.S. Congress. "H.R.1473—Department of Defense and Full-Year Continuing Appropriations Act, 2011: Actions." Committee for a Responsible Federal Budget. "Final Details of Budget Deal Released." S&P Global. "Research Update: United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative." House Republicans, Committee on the Budget. "Fiscal Year 2012 Budget Resolution: Summary Tables," Page S-2. The White House President Barack Obama. "Remarks by the President on Fiscal Policy." U.S. Congress. "May 25, 2011 Issue: Vol. 157, No. 73—Daily Edition." Tax Foundation. "Details on the 'Gang of Six' Plan." House Committee on the Budget. "Summary of the Budget Control Act of 2011." U.S. Bureau of Labor Statistics. "The Employment Situation—August 2011," Page 1. U.S. Bureau of Labor Statistics. "The Employment Situation—September 2011," Page 3. The White House President Barack Obama. "Fact Sheet: The American Jobs Act." Congressional Research Service. 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