- Slides: 32
THE FEDERAL BUDGET
BUDGET VOCAB • Budget deficit • Congressional Budget Office • Discretionary spending • Entitlement programs • Fiscal policy • Keynesian economics • Mandatory spending • Means-test programs • Monetary policy • Non-means tested programs • Supply side economics
Discretionary spending • Congress and the President can decide how much they are going to spend on these programs each year. • Defense, education, energy
Mandatory Spending • Spending that cannot change • Entitlements • Social security, Medicare, interest on loans
Social Services • Social security (1936) • Disabled workers (1950 s) • Medicare (1965)
SOME BASIC INFORMATION • Policy document allocating burdens and benefits • FEDERAL gov. funds a substantial and diverse range of programs and activities from Pell Grants to scientific research to military operations • 2 categories of spending • MANDATORY spending: gov. allocates funds to all who are eligible based on legislation regardless of cost to the treasury • Entitlement programs – Means-tested or defined by legislation (non-means tested) • Interest on national debt • DISCRETIONARY spending: everything else • Deficit occurs when expenditures exceed revenues • Nat’l gov. spends more money than it receives = DEFICIT each yr. added to federal DEBT
THE PLAYERS • Interest groups • Agencies • POTUS • OMB – Office of Management and Budget • COTUS • CBO – Congressional Budget Office • Budget Committees • Standing Committees • Appropriations Committees • GAO – General Accounting Office
Republicans Cut spending Cut taxes Flat tax Raise retirement age Democrats Wealthy pay more Keep Social Security, Medicare, Medicaid Protect programs that help poor and middle class Cut defense
President § Federal agencies prepare requests for spending § The Office of Management and Budget (OMB) writes the budget § President formally proposes budget to Congress in Feb.
Congress • President’s budget must be approved by both Houses of Congress. • Congress has a fixed calendar • Congress has the CBO (Congressional Budget Office)
• President Obama sent the final budget proposal of his presidency to Congress on Tuesday, a $4. 15 trillion package that will mark the closing rounds of a long-running fiscal battle with Republicans in Congress over the nation’s spending priorities. • The proposal would boost total spending by 4. 9 percent, mainly as a result of increases in mandatory programs, most notably Social Security, and a rise in interest payments on the House Speaker Paul D. Ryan (R-Wis. ) said in national debt. In keeping with the twoa statement that “this isn’t even a budget so year budget deal struck with Congress much as it is a progressive manual for in December, the president requested growing the federal government at the only a slight increase, less than expense of hardworking Americans. ” He 1 percent, in discretionary spending added, “We need to tackle our fiscal programs overall, though Republicans problems before they tackle us. ” still accused him profligate spending.
• Obama is asking for $4. 1 billion, up from $3. 5 billion this year, to fund the campaign against the Islamic State and the response to the ongoing civil war in Syria. It includes programs to rebuild and stabilize towns destroyed when militants are ousted, and efforts to counter the extremists’ propaganda. With 60 million refugees or internally displaced people around the world, the budget allots $6. 2 billion for humanitarian assistance, up from $5. 6 billion in the current fiscal year.
FEDERAL BUDGET • BOTH POTUS and COTUS write the budget • CONGRESS CONSTITUTIONALLY • Funding levels for fiscal yr. based on incrementalism • U. S. Constitution (Article I, section 9, clause 7) • “no 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. " • Budget Accounting Act 1921 – required the President to submit to Congress an annual budget for the federal government • Congressional Budget and Impoundment Control Act of 1974 – calendar, budget committee, CBO, president cannot impound funds w/o approval
Incrementalism • The belief that this year’s budget will be the same as last year’s with a slight increase
Fiscal Year • Funding for fiscal year – Oct. 1 st – Sept. 30 th • Office of Management and Budget (OMB): responsible for drafting budget • estimates spending, revenue and borrowing levels • Executive level • Congressional Budget Office (CBO): responsible for giving Congress budget projections, priorities, and balancing the OMB’s priorities with Congress’s policy interest • Legislative level
BUDGET PROCESS - POTUS • POTUS submits his budget request to Congress by first Monday in Feb. • Proposal is a request – no binding authority • Statement of administrations fiscal goals and policy preferences • Economic projections and analysis • Detailed program by program funding levels • Introduces new policies, programs or changes they would like to enact (mandate) • Prepared by the OMB
BUDGET PROCESS - COTUS • Concurrent Congressional Budget Resolution – sets the TOTAL level of discretionary funding – Budget committee (caps TOTAL amount for EACH piece of the pie) – Filed by April 15 th – Send message about fiscal priorities of each chamber • Sent to Appropriations committee – Determine program by program funding (very specific program allocation) – Separate appropriations bills – Divide funding into specific programs: hold hearings, accept requests • Differences often occur w/I each chamber • ALL appropriations bills MUST pass BOTH chambers • If not passed: 2 options – 1) CR – continuing resolutions: operate government under temporary funds and last years budget – 2) SHUTDOWN!
Continuing Resolutions • If Congress cannot agree on appropriations they use, which uses last year’s spending procedures
SOURCES OF REVENUE • INCOME TAX (individual) • Varies 0 -35% • SOCIAL SECURITY (FICA) • Elderly, disabled, widowed, unemployed • CORPORATE INCOME TAX • EXCISE DUTIES • Tax on liquor, tobacco, gas • 10% excise tax on tanning • Less than 5% • CUSTOMS, DUTIES, TARIFFS • BORROWING
Why a recession is bad… • People are out of work, so they don’t get paid, so they don’t pay taxes, so the government doesn’t collect as much revenue • People are out of work, so they don’t buy anything, small business can’t profit, they fire more people, go under and can’t pay as much taxes, so the government doesn’t collect as much revenue • You see where I’m going here? ? ?
Nation In Debt • Deficit Spending = Expenditures exceed revenue • FY 2011 deficit = $1. 27 trillion • FY 2013 deficit = $901 billion • Federal gov only level of gov able to borrow more money than it receives • • 1930: $16 Billion 1950: $260 Billion 1980: $909 Billion FY 2010: $1. 56 Trillion
MANDATORY V. DISCRETIONARY • Budget allocation divided • MANDATORY: MUST be spent aka “entitlements” – ENTITLEMENT PROGRAM: Social security, Medicare, Medicaid (all paid for through payroll taxes) • SS: 44 million in 2010 to 73 million in 2030 (it’s gonna run out!!! More people being paid than paying in!!! Even I can do that math) • May absorb all federal revenues sometime around 2050 : -0 • Solutions: raise the age/requirements (work longer) • DISCRETIONARY: OPTIONAL – EVERYTHING ELSE: defense, education, transportation, agriculture (think about Cabinet departments)
How did we get into this mess? !? ! • POLITICIANS USE THE BUDGET TO GET ELECTED! DUH! • Republicans want to lower taxes • SUPPLY SIDE ECONOMICS • Democrats want to increase social programming and raise taxes on the wealthiest percentages to benefit and lower and middle class • KEYNESIAN ECONOMICS