1. Chapter 10 – Government Spending

2. Section One – The Economics of Government Spending I.Government Spending in Perspective i. Government called on to do more during and after the Great Depression ii. World War II called for large government expenditures iii. Many Americans have accepted increased government spending as a consequence of progress. iv. Others question how much the government should spend or provide

3. II.Two Kinds of Spending i. Purchase of Goods and Services and Payments to Designated Groups a. Goods and Services i. Goods (ships, tanks, office buildings, laboratories) ii. Hire People (military, hospitals, staffers) - Uses each to provide public services b. Transfer Payments i. Social security, welfare, unemployment, disability aid ii. Grants to states (schools, highways)

4. III.Impact of Government Spending a. Affecting Resource Allocation i. Could support prices in the farm sector ii. What part of the country the government spends on projects can stimulate economic activity in certain areas b. Redistributing Income i. Incomes of needy families are directly affected by transfer payments ii. Incomes are affected on which companies supply the government c. Competing With the Private Sector i. Public vs. Private Universities ii. Public vs. Private Hospitals

5. Section Two – Federal Government Expenditures I.Establishing the Federal Budget i. More than 2/3rds of the federal budget consists of mandatory spending - payments on borrowed money - Social Security - Medicaid ii. The rest is spent on discretionary spending that needs approval yearly iii. Government’s fiscal year starts October 1st

6. a. Executive Formulation i. President establishes general budget guidelines ii. The budget must be sent to both houses of Congress by the first Monday in February iii. Congress is not required to pass a balanced budget

7. b. Action by the House i. Congress has the power to approve, modify or disapprove of the budget ii. House sets targets for discretionary spending categories iii. Once the targets are set the House assigns appropriations bills to different subcommittees iv. If it passes the sub-committee it goes to the House Appropriations Committee for approval then to the full House for a vote

8. c. Action by the Senate i. The Senates receives the budget after the House approves it ii. If differences exist between budgets a joint committee works out a compromise d. Final Approval i. The President can then sign the bill or veto it

9. II.Major Spending Categories i. Social Secruity, Medicaid and National Defense are the Largest Categories ii. Disability benefits to workers, veterans benefits, child nutrition, subsidized housing, education, training, employment, transportation, national parks

10. Section Three – State and Local Government Expenditures I.Approving Spending i. Loosely modeled after the federal government ii. Most states have passed a balanced budget amendment iii. Power often rests with the mayor, city council or county judge at the local level iv. Spending is limited to property taxes and local sales taxes or funding from the states II. State Government Expenditures i. Intergovernmental Expenditures ii. Public Welfare iii. Retirement/Insurance Funds iv. Education v. Highway and Road Construction

11. III.Local Government Expenditures i. Largest spending categories - elementary and secondary schools - Utilities - Hospitals - Police - Public welfare - Interest payments on debt - Road repair

12. Section Four – Deficits, Surpluses and the National Debt I.From the Deficit to the Debt a. Deficits Add to the Debt i. Must sell bonds to the public to finance the debt ii. It grows when we spend more than we collect b. How Big is the Debt i. Now almost 18 trillion

13. c. Public vs. Private Debt i. Most public debt is owed to ourselves ii. Private debt is owed to others iii. Private debt repayments signal a loss of purchasing power - Public debt does not

14. II.Impact of the National Debt i. Which segment of our population holds the debt? ii. Causes a transfer of purchasing power to the public sector rather than the private sector iii. Tax revenues are used to pay off interest on the debt iv. Many people feel their tax dollars are being squandered v. Heavy government borrowing can cause higher interest rates