Chapter 14: The Budget …or why we’re screwed

Focus: Does Your Family Have a Budget?

What happens when you go over?

What if there were no consequences?

What does a trillion dollars look like?

A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...

And $1 BILLION dollars... now we're really getting somewhere...

Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

Let’s look at a trillion dollars another way…

Four Major Concepts 1.The national deficit is $ we don’t have and the national debt is $ we owe. 2.Entitlement spending takes up most of the federal budget*. 3.The budget-making process is a political process that often prevents Congress from making tough choices. 4.Since World War II, Americans expect more and more from the federal government but show a reluctance for increases in taxes to pay for it.

Concept #1

Types of Taxes A progressive tax levied on both individuals and corporations A regressive tax used to fund social security, Medicare, and unemployment A tax laid on the manufacture, sale, or consumption of goods and services A tax levied on the assets of someone who dies Taxes brought into the U.S. from abroad

18 TYPES OF FED SPENDING PART OF THE FED BUDGET Congress and Pres. have no direct power To change Interest on the national debt Social Security & other Entitlement programs Congress and the Pres. decide how much will be spent Specific expenditures Environmental protection, Defense and security Education, etc. Controllable Spending Uncontrollable Spending

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The Public Debt Borrowed and not yet repaid Accumulated Interest No Constitutional limit All government borrowing since ratification, 1789 Total outstanding debt

The National Debt

Concept #2

YOU Where are YOU in this cartoon?

Entitlement programs:  Social Security  Medicare  Medicaid What we CAN’T cut What we CAN cut

ENTITLEMENT PROGRAMS GUARANTEED BY LAW BABY BOOMERS START RETIRING

How Social Security Works

1940 WorkersRetirees

1950 WorkersRetirees

2006 Workers Retirees

??? Workers Retirees

Proposed Reforms Increase retirement age Raising the payroll tax Invest some of Social Security trust fund into the stock market Privatized accounts

Concept #3

GAO Budget Agents Federal Budget Congress Pres Interest Groups Tax Committees Agencies OMBCBO Incrementalism- The idea that last year’s budget is the best predictor of this year’s budget, plus some.

The Budget Process (in theory) OMB Prepares a budget President submits a budget proposal to Congress Congress decides on levels of taxation and spending Congress passes specific spending bills President signs bills into law

Concept #4 TAXES PROGRAMS

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Ch. 14- The Budget Four Major Concepts Types of Taxes: 1.Progressive- 2.Social Insurance- 3.Excise tax- 4.Estate tax- 5.Custom duties- Controllable Spending Uncontrollable Spending Debt vs. deficit:The Public Debt Social Security Reforms:

Budget Agents: Government Accounting Office (GAO):Congressional Budget Office (CBO): Office of Management and Budget (OMB):President: Congress:Tax Committees: Interest Groups:Agencies: The Budget Process (In theory):