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Difficult

Budget of the Federal Government Difficult

GMAT-OB1E8D

The pie charts below, published by the Internal Revenue Service, show the major categories of federal income and outlays for the fiscal year 2013. (These charts are published annually in the instruction booklet for income tax Form 1040.)

In 2013, the federal government spent \$3.455 trillion (\$3,455 billion), as divided into categories in the pie chart above at right. The federal government collected \$2.775 trillion in taxes, and then borrowed $680 billion for deficit spending. The pie chart above at left is equal in total dollar value to the pie chart above at right when the increase in the national debt is included as income (a category which appears above at left).

Part 1:
Find the proportion of Social Security, Medicare and other retirement outlays that are paid for directly with Social Security, Medicare and other retirement taxes.


Part 2:
If higher interest rates led to an increase in net interest on the debt paid in outlays, other outlays would have to decrease. If net interest on the debt increased by 20% from its current amount, and Congress decided to make cuts only to the categories of social programs and physical/community development, and did so proportionally, then how much money would be cut from outlays for social programs?


Part 3:
Assume that Congress sets a goal of having personal income tax collections account for 55% of all income from taxation. All other forms of taxation will remain at the same percentages. In that case, what percentage of the income pie chart would represent deficit borrowing?