Fiscal Policy/Federal Budget 15.3 Federal Budget—the Federal Gov’t plan for the use of government revenues. 3 Reasons for development of Federal Budget: –Wartime Spending—Rises sharply during war –Increased Corruption—Believed to reduce –Progressive Reform—More accountable to the public.

The Budget and Accounting Act of 1921 President submits annual budget to Congress for its approval. In 1974, the Office of Management and Budget was created ( OMB). The Budget Process Today: –Developed by the President and his staff –Analyzed by the Congress –After analysis, returned to President for his signature –President can veto if he disapproves

Government Committees House Appropriations Committee –40% of total federal spending Armed Services Committee Foreign Relations Committee Committee, Committee, Committee, etc. –Why do our elected representatives want to be on these committees?

Federal Budget Deficits 15.3 Fiscal Year—is a 12 month financial period that typically does not duplicate the dates of the calendar year. Federal Budget Deficits: –Deficit—when the government spends more money than it collects. –Surplus—when the government collects more money than it spends.

Federal Budget Deficits 15.3 Deficit Spending—the policy of the government spending more money for programs than it is able to cover with it’s revenues. –1992 budget deficit was $300B –2003 budget deficit was around $600B

Why Budget Deficits ? National Emergencies—ex. Wars 2. Social Programs 3. Stimulate economy during recessions The National Debt: is the total amount of money that the federal government has borrowed, and includes all deficits from previous years. –1790 = $75 million –1917 = $ 1 billion –1996 = $5 trillion –2003 = $7 trillion

The National Debt 15.3 Debt Ceiling—Is the limit on the size of the national debt. – $12.5 Billion – $2 Trillion – $5.5 Trillion –2003--$8.0 Trillion  Impact of National Debt:  1995—Government paid $232 Billion in interest  Could that money be used in other places?  What do we get for this $232 B ?

Balancing the Federal Budget Two Ways to Balance Budget: –1. Increasing Revenues– ex. Raise taxes –2. Decreasing Expenditures— 1990’s closed many military bases  Legislating a Balanced Budget—  Gramm-Rudman Act—1985, said that the federal budget must be balanced within 5 years.  Every program was cut  Did not achieve full budget balancing