Fiscal Policy= Congress+ President Budget: – A policy document allocating burdens (taxes) and benefits (expenditures). Deficit: – An excess of federal expenditures over federal revenues. Debt: - Sum of all deficits – than-the-presidential-candi than-the-presidential-candi Expenditures: – What the government spends money on. Revenues: – Sources of money for the gov ernment.

Sources of Federal Revenue Income Tax (16 th amendment) – Shares of individual wages and corporate revenues. – The individual part is the largest single revenue source for the government. – It’s progressive: Those with more income pay higher rates of tax on their income.

Figure 14.1 Sources of Federal Revenue Social Insurance Taxes- – Additional taxes for specific fund: Social Security and Medicare

Sources of Federal Revenue Borrowing – The Treasury Department sells bonds- this is how the government “borrows” money. – Interest must be paid for all money borrowed. – The federal debt is the sum of all the borrowed money that is still outstanding.

Sources of Federal Revenue Taxes and Public Policy Tax exemptions and loopholes: Special exemptions, exclusions or deductions A lot of potential revenue/money is lost.

– Tax Reduction: The general call to lower taxes. – Tax Reform: Rewriting the taxes to change the rates and who pays them.

Federal Expenditures Big Governments, Big Budgets – A big government requires lots of money. – As the size of government increases, so does its budget.

The Rise and Decline of the National Security State – In the 50’s & 60’s, the Department of Defense received more than half the federal budget. – Now that number is much less, mainly due to less international tension.

Federal Expenditures The Rise of the Social Service State (Entitlements) – The biggest part of federal spending is now for income security programs. – The biggest of these is Social Security. – Social Security has been expanded since 1935 to include disability benefits and Medicare. – These benefit programs face financial problems with more recipients living longer.

Figure 14.2

Federal Expenditures “Uncontrollable” Expenditures – Spending determined by the number of recipients, not a fixed dollar figure. – Mainly entitlement programs where the government pays known benefits to an unknown number of recipients- Social Security. – The way to control the expenditures is to change the rules of who can receive them.

Federal Expenditures Incrementalism – The idea that last year’s budget is the best predictor of this year’s budget, plus some. – Agencies can safely assume they will get at least what they got last year. – The budgets tend to go up anyway.

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Understanding Budgeting Democracy and Budgeting – Many politicians “spend” money to buy votes. – With many groups and people asking for government assistance, the budgets get bigger. – Some politicians compete by trying not to spend money. – People like government programs, but they really don’t want to pay for them, thus there are deficits & the public debt.

Congress Authorization Bill- Establishes, continues, or changes a discretionary program. Appropriations Bill- Actually funds programs within limits established by authorization bills. Appropriations usually only cover one year. Important Committees – House Ways and Means Committee – Senate Finance Committee - House and Senate Appropriations Committees

Step 1: The President Submits a Budget Request Presidents did not originally play a role in the budget. Now budget requests are directed through the OMB and president before going to Congress. The president sends a budget request to Congress each February for the coming fiscal year, which begins on Oct. 1. The president’s budget request is just a proposal. Congress then reviews the request and passes its own appropriations bills; only after the president signs these bills does the country have a budget for the new fiscal year.president’s budget request

Step 2: The House and Senate Pass Budget Resolutions Once the president’s budget request has been released, the House Committee on the Budget and the Senate Committee on the Budget each writes a budget resolution. It provides a framework for Congress for making budget decisions about spending and taxes. It sets overall annual spending limits for federal agencies, but does not set specific spending amounts for particular programs. The CBO (Congressional Budget Office) provides information and analysis for Congress After the two chambers pass their budget resolutions, a joint conference is formed to iron out differences between the two and a reconciled version is then voted on by each chamber.

Step 3: House and Senate Subcommittees “Markup” Appropriation Bills The Appropriations Committees in both the House and the Senate are responsible for determining the precise levels of budget authority for all discretionary spending Subcommittees review the president’s request, it conducts hearings and poses questions to leaders of its associated federal agencies about each agency’s requested budget. All subcommittee members then consider, amend, and finally vote on the bill. Once it has passed the subcommittee, the bill goes to the full Appropriations Committee. The full committee reviews it, and then sends it to the full House or Senate for consideration.

Step 4: The House and Senate Vote on Appropriations Bills and Reconcile Differences The full House and Senate then debate and vote on appropriations bills from each of the subcommittees. After both the House and Senate pass their versions of each appropriations bill, a conference committee meets to resolve differences between the House and Senate versions. After the conference committee produces a reconciled version of the bill, the House and Senate vote again, but this time on a bill that is identical in both chambers. After passing both the House and Senate, each appropriations bill goes to the president.

Step 5- President signs the bill The goal is for this to happen before October 1 st (start of the fiscal year) This has not happened in recent years.

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