Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Congress, the President, and the Budget: The Politics of Taxing and Spending Chapter 14 Edwards, Wattenberg, and Lineberry Government in America: People, Politics, and Policy Fourteenth Edition
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Introduction Budget –A policy document allocating burdens (taxes) and benefits (expenditures)
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
THE BUDGET DRAFTED BY THE PRESIDENT CHANGED & PASSED BY CONGRESS ACCEPTED BY THE PRESIDENT
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. TAXES, FEES, FINES = REVENUE EXPENDITURES = SPENDING (AKA = APPROPRIATIONS) KEY TERMS / IDEAS DEFICIT = ONE YEAR SHORTFALL DEBT = TOTAL AMOUNT WE OWE
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Sources of Federal Revenue Income Tax –Shares of individual wages & corporate revenues –The 16 th AMENDEMENT –Income tax is PROGRESSIVE
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Sources of Federal Revenue Social Insurance Taxes AKA Pay roll taxes –Taxes for specific funds Social Security Medicare Unemployment
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Payroll is regressive tax: greater impact on lower-income earners Medicare is proportional (flat) tax: same rate against all income Payroll Taxes Paying for Government
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Other Sources of Revenue Excise tax (sin tax, luxury tax) Tariffs: taxes on imported goods Estate tax (“death tax”) >$5.25 million is taxed at 40% Gift tax Fees and Fines Federal Reserve System Interest
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Figure Federal Revenues Back
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Sources of Federal Revenue Borrowing –The Treasury Department sells BONDS Federal Debt: all money borrowed over the years and still outstanding
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Taxes and Public Policy Tax Loopholes: tax breaks/benefits for a few Tax Expenditures: revenue losses that result from special exemptions, exclusions, or deductions on federal tax law Tax Reduction: the call to lower taxes Tax Reform: change rates /who pays them Tax Reform Act of 1986—extensive tax reform
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
FEDERAL GOVERNMENT SPENDING
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Federal Expenditures
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. PER CAPITA EXPENDITURES (CONSTANT DOLLARS)
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Federal Expenditures Big Governments, Big Budgets
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Federal Expenditures The Rise of the National Security State –In the 1950s and 1960s the Department of Defense received more than half the federal budget. –Defense now constitutes about one- fourth to one-sixth of all federal expenditures.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Federal Expenditures
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Federal Expenditures The Rise of the Social Service State – Income security – Income security programs TANF, food stamps, etc. – Social Security is largest program Include disability benefits and Medicare.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Federal Expenditures Incrementalism –The idea that last year’s budget is the best predictor of this year’s budget, plus some. –Budgets tend to go up a little each year.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Federal Expenditures “Uncontrollable” Expenditures –Spending determined by the number of recipients, not a fixed dollar figure – e.g., Social Security –The only way to control the expenditures is to change the rules.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Budgetary Process Budgetary Politics All departments & agencies All states, counties, & cities The President (OMB) Congress (CBO)
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Budgetary Process OMB –Office of Management and Budget White House budget specialists CBO –Congressional Budget Office Legislative budget specialists
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The President’s Budget OMB makes projections POTUS sets general guideline Departments submit requests OMB, POTUS creates proposal
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
The Congress’s Budget Receives & reviews budget CBO, committees make changes Appropriation committees finalize House/Senate pass bill (budget)
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Budgetary Process
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Budgetary Process Budget to be considered as a whole –Omnibus Budget Bill Budget is authorized and appropriated – Authorization bill Establishes a gov’t program – Appropriations bill Funds government programs
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. Attempts to Reform the Process The Congressional Budget and Impoundment Control Act of 1974 –Fixed budget calendar –Created budget committee(each House) –Established the CBO, advises Congress Counterweight to OMB
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Results of the 1974 Reforms One omnibus budget Deficit budgets most years Most deadlines missed – Continuing resolutions Contains “pork”
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Revenue & Expenditures Debt as % of GDP ?
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Democracy and Budgeting Politicians “spend” money to buy votes Groups/people ask for government help Politicians try not to spend money People like government programs, but do not want to pay for them
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
The Budget & the Scope of Government The budget represents the scope of government. The bigger the government, the bigger the budget. Limits on funding (taxes) can limit what the government can do.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.
Summary Federal budget consumes one-fifth of GDP Government growth=higher taxes &more services The budgetary process is complex and political. Government is financed through deficit spending
Copyright © 2009 Pearson Education, Inc. Publishing as Longman.