Federal Budget and Budgetary Process

Budget A financial plan for the use of money personnel or resources. The federal budget indicates the amount of money the federal government expects to receive and authorizes government spending for a fiscal (12month) year. Federal budget for 2017 was 3.65 Trillion

Balanced Budget When expenditures equals revenue. Spending equals income

Budget Deficit Expenditures exceed revenue 2017 deficit was approx. $443 million Federal debt is the total amount owed Exceeds $17 Trillion

Monetary Policy Tool for influencing the economy Controlled by ???? Includes ?????

Fiscal Policy Controlled by executive and legislative branches President proposes the budget, congress approves it Raising and lowering taxes and government spending programs

Sources of Federal Income

Income Taxes Income taxes permitted by the 16th amendment Progressive Proportionate to income, as income increases so does the amount of the tax Regressive Levied at a flat rate without regard to the level of income or ability to pay Poor citizens pay a higher percentage of their income as compared to wealthier citizens About 45% of tax revenue

Corporate Taxes Ranges from 15 to 35% Generate approximately 12 percent of the federal tax revenue

Social Security Taxes Paid by employers and employees 6.2% of the first $106,800 of earnings Medicare an additional 1.45% for both Regressive, levied at a fixed rate Generate about 36% of the federal tax revenue

Excise Taxes Tax on the manufacture, sale or consumption of a good or service Imposed on the sale of gasoline, tobacco, alcohol, airline tickets, and many other goods and services 2.7% of the federal tax revenue

Estate and Gift Taxes Estate Tax Gift Tax Imposed on the assets of someone who dies Gift Tax Imposed on a gift from a living person to another over a certain amount About 1.2% of the federal tax revenue

Custom and Duties Aka Tariffs Levied on goods brought into the US About 1.1% of the federal tax revenue (increasing under current administration)

Other Sale of government securities Collection for fees for services, such as issuing patents

Federal Expenditures

Uncontrollable Spending Neither the president or congress can control spending, it is set by law Over 60% of all spending falls into this category

Entitlements Federal programs that guarantee a specific level of benefits to persons who meet requirements set by law Person is “entitled” to benefits if they meet the criteria set by the federal government Spending on entitlements is mandated by the Federal law Make up over 44% of federal spending

Examples -Social Security -Medicare -Medicaid -V.A. Programs -Unemployment Programs -Food Stamps -Retirement Plans for Federal Employees

Entitlements Provides needed benefits to American citizens Positives Negatives Provides needed benefits to American citizens Government cannot delay or avoid payment in the budget No Congressional discretion on money allotted 2/3 of budget Less money for discretionary spending

Social Security Signed into law by FDR in 1935 1965 added Medicare Designed to lift America out of the Great Depression Pay retirement benefits Spouses may receive death benefits If you are unable to continue working you may be eligible for benefits. 1965 added Medicare Designed to assist the elderly with medical costs Most expensive programs in the federal budget

Demographic Trends that Threaten Social Security In 1935 there was 1 beneficiary to every 25 workers Today the ration is 1 beneficiary to every 3.3 workers Baby boom generation incudes 76 million people, As the baby boomers begin to retire the number of workers who fund SS will decrease while those collecting will increase Life expectancy is increasing, leading to people collecting for longer

Borrowing Debt now exceeds 17 Trillion dollars 5 to 9 percent of federal expenditures goes to paying the interest on the debt If interest rates rise so does the amount needed to pay the interest on the debt

Discretionary Spending Not required by law Defense, education, agriculture, highways, research grants, and government operations Defense accounts for about 20% of all federal expenditures

The Budget Process Proposed at the State of the Union Message in January or Separately in early February

Office of Management and Budget (OMB) OMB sends instructions to agencies Agencies send requests to OMB OMB revises the budget

Congressional Budget and Impoundment Act 1974 Designed to reform the process Regain power lost to the executive branch Created a fixed budget calendar Established a budget committee in both houses of congress Created the CBO to evaluate the presidents budget, and advise congress by forecasting revenue and evaluating the probable consequences of budget decisions

Congressional Budget Office (CBO) President submits budget to Congress by the first week in February Reflects the priorities and goals of the president's policy agenda CBO looks over and sends report to both chambers of Congress

Appropriations Committee The appropriations committee holds hearings and sets budget targets Reconciliation bills are made if budget does not meet targets

Finalizing the Budget By October 1st, all appropriations bills should be passed If they are not passed, Congress has to pass a continuing resolution where agencies run on last year’s budget or shut down

Barriers to a Balanced Budget Entitlement programs now account for 60% of the total budget Limits the options that the president and Congress have Agencies assume a increase in their annual budget each year Called incrementalism, makes it difficult to cut spending

More Barriers Fragmented federal system enable interest groups to resist tax increases and defend favored programs

Consequences of a Budget Deficit Require huge interest payments 2008, $249 billion to service the debt Place a heavy burden on future generations Make it difficult to fund key policy goals

5.10 The Executive and the Media

Public support Everything here is built on the idea that the President's success depends on grassroots support” Ronal Regan

Approval levels National Poll asking “do you approve or disapprove of the way (name of President) is handling his job as President?” Data shows these factors increase the rating Honeymoon periods at the beginning of an administration Positive media coverage of activities and decisions Foreign policy successes Foreign crisis that produce a “rally round the flag” effect Strong economic growth and low unemployment

Factors that lower approval ratings Scandals involving the president and or his top aides A gap between high expectations and poor job performance Foreign wars that go badly over a protracted period of time Weak economic growth and high unemployment

Lame Duck A time period in which The president’s term is about to come to an end. Typically have less influence during a lame-duck period

The President and the Media Key role in influencing public view President is more successful than Congress in using media to set policy Policy agenda is Set of issues and problems that policy makers consider important Significantly influenced by mass media and their choice of what to focus on

Factors that give the president an advantage President represents the whole nations, vs congress representing districts or states Leader of the “free world” More powerful than any 1 member of Congress Speaks with a single voice, in contrast to the 535 of Congress