Financing Government Uncle Sam takes all your money and what does he do with it?

2 How does the budget get written!? 1.President/OBM/Executive Depts draft Budget 2.Send proposal to Congress 3.Congress reviews, edits, passes/doesn’t pass …sooo what if Congress doesn’t pass it?

Where does the government get money?  TAXES (Article 1 Section 8)  Income—Personal and Corporate  Social Insurance (Social Security or Payroll Taxes)  Excise—tax on manufacture, sale or consumption of goods and/or performance of services  Estate and Gift  Custom Duties (Import taxes)

What is the breakdown of tax revenue (this is how gov gets $$$ to run!)?

2014 Federal Tax Rates

Tax Brackets  10% - 35% (USA)  Higher is most other developed countries

Besides taxes, where do we get money?  Borrowing—Congress has power to borrow money (Art. 1, Sect. 8)  (Kinda like them having student loans…)  Public Debt   All money borrowed plus accrued interest  How does the gov’t borrow?  Issue T-bills (Treasury notes/bills) for short- term borrowing  Issue Bonds for long-term borrowing  Investors (individuals, banks, foreign countries, etc.) buy the bonds

Government Spending

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How do we spend the money?  What do you think we spend the most money on?  If you had to balance the budget, what would you spend money on?  m306/flash/popupActivity.html m306/flash/popupActivity.html 

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What are deficits and surpluses?  Deficit: When we spend more than we take in  Surplus: When we take in more than we spend

How do we get a deficit?  The bulk of the deterioration in the budget since the start of some 75 percent of it - has come from policy changes (i.e. tax cuts and spending increases), rather than from economic and technical factors outside policymakers’ control.

How can we balance the budget?  What are you willing to sacrifice?