1. Coach Roberts Spring Semester 2011
Chapter 10 Spending!
Coach Roberts
Spring Semester 2011

2. 1- I will be able to…..
Explain why and how government expenditures have grown since 1940.
Describe 2 kinds of government spending.
Describe how government spending impacts the Economy .

3. Terms needed to know. Public Sector Private Sector
Distribution of Income
Federal Budget
Mandatory Spending
Discretionary Spending
Fiscal Year
Budget Deficit
Budget Surplus
Entitlements

4. Section 1
Discusses the growth of government spending and examines the two types of expenditures: (1) goods and services, and (2) transfer payments for which the government does not receive anything in return. This spending affects the distribution of income and competes with the private sector for scarce resources.

5. Government Spending in Perspective
Per Capita: “Per Person” Per Capita Government Spending in the United States Federal, State, and Local Fiscal Year 2011   
Government Pensions    $3,266 / person  
Government Health Care    $3,853 / person  
Government Education     $3,444 / person   
National Defense    $2,985 / person  
Government Welfare    $2,206 / person   
All Other Spending    $5,754 / person   
Total Government Spending   = $21,551 / person   
Federal Deficit  $4,067 / person
Current estimated US Population 308,745,538.
Public Sector: The part of the economy made up of federal, state, and local government.

6. Why did Government Spending Go up?
WWII- Spending jumped considerably when WWII erupted.
The government had a larger role in everyday economic affairs.
Large scale projects-
TVA, Big Dig (Boston), Interstate Highway System.

7. Private Sector
The part of the Economy made up of private individuals and private-owned business-should provide.

8. 2 Kinds of Spending 1. Goods and Services
Tanks, planes, space shuttles, office buildings, parks, land, schools, pay,
The government uses goods, services, and other resources to provide the public goods and services that most American use.

9. 2 Kinds of Spending
2. Transfer payment- a payment for which the Government receives neither good nor services in return.
Social Security, welfare, unemployment compensation, and aid for people w/ disabilities.

10. Impact of Government Spending
Government spending affects how resources are allocated.
If the Government spends its $$ on items like missiles system in a rural area instead of social programs in urban areas, then economic activity in the rural areas are stimulated and resources are shifted to the rural areas.

11. Distribution of Income
The way in which income is allocated among families, individuals, or other designated groups in the Economy.

12. Assessment
Describe the per capita growth in Government spending since 1940.

13. Answer
It grew dramatically during WWII and scaled back after the war. Today, it has grown considerably.

14. 2-Federal Spending
Federal Budget- a planned expenditure for the coming year.
For 2011 it is projected at $3.83 Trillion.

15. Section 2
It examines the process required of the president, the House of Representatives, and the Senate to develop and approve the federal budget. Currently, the three largest components of the federal budget—accounting for more than one-half of all federal expenditures—are Social Security, national defense, and income security

16. 2- Federal Spending Mandatory spending-
Spending authorized by law that continues without the need for annual approval from Congress. Includes Social Security and Medicare
2011: Social Security ($730 billion), Medicare ($492 billion) and Medicaid ($271 billion).
The Defense Department receives $741 billion, an increase of three percent. This figure includes funding of $159 billion for the wars in Afghanistan and Iraq.

17. 2-Federal Spending-2011
Discretionary Spending: programs that must be approved annually. This Includes money for defense, Coast Guard and welfare.

18. Discretionary Spending cont.
The President proposes a freeze on approximate $530 billion in discretionary spending outside of the Defense Department budget and those programs considered a part of Homeland Security.
This freeze is expected to result in $250 billion in savings over three years.
The freeze does not mean that all domestic programs are frozen. Some will be cut or eliminated and others will be increased.

19. Federal Budget
Step 1- Executive Formulation- POTUS establishes the Federal Budget for the upcoming year.
Must be sent by the FIRST Monday in February, by law it must go to The House and Senate.

20. Federal Budget Total revenue $2.57 trillion (estimated)
Total expenditures$3.83 trillion (estimated)
Deficit$1.267 trillion (estimated) That is a Federal Budget Deficit ( spending more than you take in) of-$307 Billion.
If it was reversed, a Federal Budget Surplus the spending would be less than the revenues.

21. House of Representatives
The POTUS budget is just a request. The Congress can approve, disapprove or change the proposal.
The House only debates Discretionary Spending.
The Congress then sets forth an Appropriations Bill, allowing spending by governmental agencies.
Deadline is September 15th.

22. Senate The Senate gets the budget after the House.
Can approve it as it is or draft its own version.

23. Final Approval
If everything goes according to plan, the House and Senate approve the budget and sends it to the POTUS for signature.
If not, the POTUS can VETO the bill and send it back to Congress.

24. ??????
What are the 3 stages required to establish the federal budget?

25. 1. Executive formulation (POTUS prepares budget) and submits it to Congress.
2. The House / Senate votes on it / Modifies it.
3. Sent to POTUS for consideration.

26. Section 3
Describes the major categories of state and local spending. The largest state expenditures are intergovernmental transfers, public welfare, insurance contributions, and higher education. The largest single category of spending for local governments is elementary and secondary education. Public utilities, hospitals, police protection, interest on debt, public welfare, and highways follow.

27. Page 269 Figure 10.5
See table for breakdown of State and Local Governments.

28. Section 4
Discusses the persistent nature of the federal budget deficit and the way that deficit spending adds to the federal debt. Attempts to control the deficit have taken the form of mandated deficit targets and pay-as-you-go provisions.
President Clinton's Budget Reconciliation Act of 1993 significantly reduced the federal budget deficit by introducing higher marginal tax brackets.
The 1996 line-item veto also gave the president some power to trim federal expenditures, but it was ruled unconstitutional by the Supreme Court.
Spending caps were introduced in the balanced budget agreement of 1997 in a further attempt to control the deficits. Finally, after 29 consecutive years of deficits, the federal budget was in surplus by 1998.

29. Deficits Deficits Spending- Spending in excess of revenues collected.
Federal Debt- The total amount borrowed from investors to finance government spending.

30. Debt!
U.S. NATIONAL DEBT CLOCK The Outstanding Public Debt as of 05JAN2011 at 3:31PM is
$14,004,196,300,266
The estimated population of the United States is 308,745,538 so each citizen's share of this debt is $

31. “Pay-as-you-go”
The BEA- Budget Enforcement Act of 1990 has a requirement that new spending proposals or tax cuts must be offset by reductions somewhere else.
Limitations:
Only for Discretionary Spending.
Act can be suspended during an emergency.

32. THE BUDGET IS BALANCED! Wait no its not…..
In 1998 there was a budgetary surplus. Increased tax revenues and a reduction in federal spending. But…..In 2001, the attacks on the WTC led to an increase in federal spending on Defense, Homeland Security, Iraq, and Afghanistan.
In 2003, 2004, record federal budget deficit returned.

33. Entitlements
Broad social programs that use established eligibility requirements to provide health, nutrition, or income supplements to individuals.
They are called entitlements because people are entitled to them if they meet the requirements.
Congress can alter these provisions.