Ch 14 Federal Budget

 Laswell- Who gets what, when and how?  Some definitions  Revenue  Expenditures  Deficit  Deficit + deficit + deficit + deficit =  Contradictory demands of public

Sources of Revenue  Personal Income Tax  16 th Amendment  IRS  44% (2010)  Corporate  12% (2010)  Progressive v. Flat v. Regressive

 Excise taxes- what are they?  Social Insurance Taxes (Payroll Taxes)- FICA  Soc Sec, Medicare, Medicaid, Unemployment  Trust Fund- not general budget  Increasing rapidly- why?

Are Taxes Too High? % of GDP - why?

Corporate rates below

Tax Policy  Tax “Expenditures”  Revenue loss from deductions, credits, etc  Deductions v. Credits  “Loopholes”  The issue  Govt. promoting certain behavior  Charities  Mortgage interest  Business investments  Tuition credit!  Tax reform- why politically difficult?  Churches, charities, life insurance, etc

 Borrowing  How?  Treasury Bonds- incentive? (10 Trillion)  Intra-Governmental Debt (5 trillion)  Trust funds  Current Debt  6% interest

Why should we care?  Future burden  Long term things cost more  6% interest  Foreign ownership  Crowds out lending to citizens

Foreign ownership of our debt

Interest- nothing for our money

 Best way to reduce deficits/debt?  Is debt bad? What would be good debt?  Any different than families? Communities?

 The issue:  Deficits and debt Can you solve it?

Entitlements & Mandatory Spending/ Uncontrollable Expenditures Define:

Social Security

1945: 50 to 1; 1990: 3 to 1; 2025: 2 to 1

Fate of Soc Security?  Soc Sec revenue > payouts (currently)  Soc sec Trust Fund  trillion  trillion  Turning point  Exhausted by 2041

Medicare / Medicaid

National Defense

Recent History  Reagan  Cuts, indexed  Deficits increase  Clinton  Top 2%  Surplus  Bush  2001 and 2003 cuts  Business investments & Capital gains

 Trends?  U.S. in comparison to other nations  Why so hard to pull back?

 Post WWII Changes  Pre 60s %  Late 80s- why?  9/11  Military expenditures as % of GDP

 Biggest expense = income security  Social Security, medicare, disability  % %  Costs will exceed revenue  Options?

Political Causes of Growth  Incrementalism  Starting point for an agency’s budget  Little by little  Hyperpluralism?  “Uncontrollable” expenditures  2/3 automatic/entitlement payments  Ex) soc sec, vet benefits, interest  Technically controllable, but....

How should a family prepare its yearly budget?

Preparing the Budget!  3 trillion  Players  IGs  Agencies  OMB- Office of Management & Budget  President  Committees  CBO, GAO, etc. etc. etc.

Battle for 2013 Budget (Oct ’12-Oct ’13)  Struggle within Executive Branch  Spring-Summer 2011  OMB- Ally, coordinator  Pres- prioritizes, goals  Agencies-  Pres + OMB set guidelines  Fall 2011  Agencies- lobby, request  OMB- tries to coordinate

 Executive Departments  Department of Agriculture (USDA) Department of Agriculture (USDA) Department of Agriculture (USDA)  Department of Commerce (DOC) Department of Commerce (DOC) Department of Commerce (DOC)  Department of Defense (DOD) Department of Defense (DOD) Department of Defense (DOD)  Department of Education (ED) Department of Education (ED) Department of Education (ED)  Department of Energy (DOE) Department of Energy (DOE) Department of Energy (DOE)  Department of Health and Human Services (HHS) Department of Health and Human Services (HHS) Department of Health and Human Services (HHS)  Department of Homeland Security (DHS) Department of Homeland Security (DHS) Department of Homeland Security (DHS)  Department of Housing and Urban Development (HUD) Department of Housing and Urban Development (HUD) Department of Housing and Urban Development (HUD)  Department of Justice (DOJ) Department of Justice (DOJ) Department of Justice (DOJ)  Department of Labor (DOL) Department of Labor (DOL) Department of Labor (DOL)  Department of State (DOS) Department of State (DOS) Department of State (DOS)  Department of the Interior (DOI) Department of the Interior (DOI) Department of the Interior (DOI)  Department of the Treasury Department of the Treasury Department of the Treasury  Department of Transportation (DOT) Department of Transportation (DOT) Department of Transportation (DOT)  Department of Veterans Affairs (VA) Department of Veterans Affairs (VA) Department of Veterans Affairs (VA)

 Winter  Agencies fit to final guidelines  Pres + OMB finalize  February- 1st Monday  Budget submitted  Budget in Congress  Historically- no “budget”  and voila!  1974 Reform  To better organize  Budget calendar, budget committees

Struggle in Congress  Feb 2012  CBO- reviews  April 1 st  Budget Committee  Spending and revenue levels  Mid April  Budget Resolution  Spring + Summer 2012  Internal battles, who gets what, hearings

 Spring + Summer 2012  Internal battles, who gets what, hearings  Authorization Bills  Appropriations Committee  APPROPRIATIONS SUB COMMITTEES  Drafts Appropriations bill- def?  Appropriations Bills- Appropriations Bills- Appropriations Bills-  Final Appropriation bills (x13) = total budget  Reconciliation Bills  Fix it  Deadline- Oct 1 st  “Fiscal” year 2012

TYPES OF APPROPRIATIONS MEASURES  Agriculture  Commerce, Justice, State, The Judiciary  Defense  District of Columbia  Energy and Water Development  Foreign Operations  Homeland Security  Interior  Labor, Health and Human Services, Education  Legislative Branch  Military Construction  Transportation, Treasury, Independent Agencies  Veterans Affairs, Housing and Urban Development, Independent Agencies

No Deal?  Continuing Resolution  Results?  Often “Omnibus” Bills

Reform cure deficits?  Gramm-Rudman-Hollings Act  Goal-   Or else? –

Annual Federal Deficits

Next reform:  P.A.Y.G.O. Approach  Entitlements  Taxes  So what has happened?  Balanced Budget Amendment?