Bell Activity Write an journal entry giving your opinion of user fees charged for things such as entry into national parks. Include whether you think the fees are equitable or not.

Federal Government Finances Chapter 14 Section 2 Part 2

Federal Government Expenditures Spending by the public sector (part of the economy consisting of federal, state, and local governments) was low prior to the Great Depression. Attitudes have shifted and spending has increased sharply. Earmarks or pork- term used to describe a line-item budget expenditure that circumvents normal budget-building procedures. Largest category of expenditure is Social Security program. Retired persons receive benefits from the Old-Age and Survivors Insurance (OASI). Unable to work receive payments from disability insurance (DI).

Federal Government Expenditures Mandatory spending-spending authorized by law that continues without the need for annual approvals by Congress. 2nd largest-National defense includes military spending and defense- related atomic energy activities. Defense expenditures are called discretionary spending. Spending that must be approved by Congress in the annual budgetary process. Can go up, down, or remain the same, depending on Congress and the will of the President.

Income Security Consists of a wide range of programs: Unemployment assistance, Food and nutrition assistance, Retirement benefits for federal civilian employees and retired military. Majority of these expenditures are transfer payments Payments that the government receives neither goods or services in return. Other transfer payments include social Security, unemployment compensation, welfare, aid for people with disabilities, child care, foster care, and adoption assistance.

Income Security Those unable to support themselves receive Supplemental Security Income (SSI), Subsidized housing, Federal child support, Temporary Assistance for Needy Families (TANF), Food stamps. Most income security expenditures are mandatory and do not need congressional authorization every year.

Medicare and Medicaid Medicare- insurance plan that covers major hospital costs. Medicaid- joint federal-state medical insurance program for low- income persons. Some programs in this category are discretionary. The Occupational Safety and Health Administration (OSHA)- monitors occupational safety and health in the workplace. AIDS and breast cancer research, substance abuse treatment, and mental health services are others.

Medicare and Medicaid Other broad categories of the federal budget include education, training, employment, social services, veterans benefits, transportation, administration of justice, and natural resources and the environment. These include both mandatory and discretionary spending.

From Deficits to Debt Deficit spending- excess spending of revenues collected. Has characterized the federal budget. National debt- total amount borrowed from investors to finance the government’s deficit spending. Balanced budget- annual budget in which expenditures equal revenues. Trust funds- special accounts used to fund specific types of expenditures (Social Security and Medicare).

Public vs. Private Debt 3 differences between public and private debt mean that the country will never go bankrupt. 1. We owe most of the national debt to ourselves-whereas private debt is owed to others. 2. Repayment- when the government barrows, it gives little thought to repayment and issues new bonds to pay off old debt. 3. Purchasing power- taxes collected from some groups are simply transferred to others. The exception is the 34% of the public debt owned by foreigners.

Impact of the National Debt Transferring Purchasing Power National debt can cause transfer of purchasing power from the Private Sector to the public sector. When public debt increases, taxes increase, and people have less money for themselves. Reducing Economic Incentives Government borrowing can reduce private economic incentives if it appears to spend money in a careless manner. Crowding-out effect- high-than-normal interest rates caused by heavy government borrowing that squeezes private borrowers out of the market.

Reducing Deficits and the Debt Early Legislative Failures Balanced Budget and Emergency Deficit Control Act of 1985 or the Gramm-Rudman-Hollings (GRH)- mandate a balanced budget. Failed for 2 reasons 1. Congress could get around it by passing spending bills that took affect 2 to 3 years later. 2. Economy started to decline in 1990, triggering a suspension of budget cuts when the economy was weak. 1990 Congress passed the Budget Enforcement Act (BEA) Featured a “pay as you go” provision- requirement that new spending proposals must be offset by reductions elsewhere in the budget.

Reducing Deficits and the Debt Line-item veto- Power to cancel specific budget items without rejecting the entire budget. The Supreme Court declared it unconstitutional. Spending caps- legal limits on annual discretionary spending- to assure the Congress balanced the budget by 2002. Raising revenues is another way to reduce deficits. Higher tax rates, along with strong economic growth, combined to produce four consecutive years of federal budget surpluses from 1998 to 2001. 2001- unplanned government spending on homeland security and wars in Iraq and Afghanistan.

Reducing Deficits and the Debt Spending was difficult to reduce. Government had to many entitlements Broad social programs with established eligibility requirements to provide health, nutritional, or income supplements to individuals. 2011 Obama and Congress agreed to a deficit reduction measure that would start in 2013. Featured a sequester- law that required automatic budget cuts.

Enforcing the Debt Ceiling Debt ceiling- total amount of money that the U.S. government is authorized to borrow to meet existing commitments. Does not authorize spending on new programs. Only permits borrowing for expenditures that have already been authorized by Congress and the president.

Activity 1. Why is it so difficult to reduce the national debt? 2. Is such a goal even desirable? Why or why not? Be prepared to discuss with the class.