1. Government Spending Chapter 10 – Section 1
In this section, you will learn that the role of the federal government has grown, making it a vital player in the economy.
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2. Pork
Term used to describe a line-item budget expenditure that circumvents normal budget procedures
Benefits a small number of people or businesses
Taxpayers would not otherwise approve
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3. Public sector
Part of economy made up of local, state, & federal government
Relatively low prior to Great Depression
Since then, attitudes have shifted & spending has increased sharply
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4. Spending since the 1930’s Two main causes for growth in spending
Major change in public opinion
Massive government spending funded the U.S. involvement in World War II.
Private sector- part of economy made up of private individuals & businesses
1a. This gave government a larger role in everyday economic affairs.
1b. This resulted in more people working, as factories converted to war production
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5. Two types of spending Goods & services
Ex. Tanks, planes, ships, office buildings, land for parks, capital goods for schools
Also must hire people to work in its agencies and staff military
Transfer payment – payment for which government receives neither goods nor services in return
Ex. Social Security, unemployment compensation, welfare
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6. Grant-in Aid
Transfer payment from one level of government to another that does not involve compensation
Ex. Fed govt grants money to cover the major part of a cost (highways, building new schools, etc.)
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7. Impact of Government Spending
Affecting resource allocation
Subsidies – govt payment to encourage or protect a certain economic activity
Redistributing income
Distribution of income – way in which the nation’s income is divided among families, individuals, or other groups
Competing with the private sector
Govt produces goods/services too (ex. public vs. private colleges, health care)
Increasing the tax burden
Govt provides more services…this increases the tax burden to us
2a. Increasing or decreasing transfer payments can directly affect the incomes of needy families who receive financial support from the government.
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8. Federal, State, & Local Government Expenditures
Section 2
In this section, you will learn that governments provide money for many services and programs.
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9. Federal budget
Annual plan outlining proposed expenditures & anticipated revenues
Very ambiguous!
Fiscal year – 12-month financial planning period that may not coincide with the calendar year (starts 10/1)
2. Budget is a “rough” estimate of actual revenues & expenditures…i.e. the economy could suddenly slow down or speed up, affecting the amount of tax revenues collected…also unanticipated spending like 9/11 can affect budget too
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10. Establishing the Federal Budget
Office of Management & Budget (OMB) responsible for preparing budget
President’s budget is only a request
Congress can approve, modify, or disapprove it
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11. House of Representatives
Breaks down budget into 13 major expenditure categories assigned to a separate House subcommittee
Appropriations bill- allows federal agencies to spend money for a specific purpose
An approved bill is sent to entire House for a vote
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12. Senate Acts on budget after House approves it
Can approve it or draft its own version
Both branches seek advice from Congressional Budget Office (CBO)
Once they approve the budget, it is sent to President for signature (can veto)
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13. Budget deficit An excess of expenditures over revenues
Budget surplus- a positive balance after expenditures are subtracted from revenues
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14. Social Security Largest payment in federal budget
Payments to aged & disabled Americans
Mandatory spending- spending authorized by law that continues w/o need for annual approvals by Congress
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15. National Defense 2nd largest category of spending (behind Soc Sec)
In late 1900’s it was the largest
Includes military spending by Defense Department
Discretionary spending – must receive authorization
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16. Medicare
Health-care program available to all senior citizens regardless of income
Began in 1966
Expenditures have risen dramatically in recent years as population has aged & cost of elderly care has risen
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17. Health Health-care services
Account for significant part of federal budget
Medicaid – joint federal-state medical insurance program for low-income people
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18. Other expenditure categories
Net interest on debt
Education
Training
Employment
Social services
Transportation
Veterans’ benefits
Natural resources & environment
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19. State Government Expenditures
Budget process
Balanced budget amendment
Intergovernmental expenditures
Public welfare
Insurance trust & retirement
Higher education
Other expenditures
1b. Under this provision, states often must cut spending when revenues drop
3. Payments take the form of cash assistance, payments for medical care, spending to maintain welfare institutions
4. State employees have an insurance & retirement fund which is invested by the state until the employees retire, become unemployed, or are injured on the job (teachers, legislators, highway workers, police)
5. Tuition that students pay covers only a portion of higher education expenses. States usually budget funds to pay the remainder of the cost.
6. corrections, utilities, hospitals, parks & rec, highways & road improvements
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20. Local government expenditures
Budget process
Elementary & secondary education – largest item on their budget
Utilities – electricity, water, sewerage, etc.
Public safety & health – police and fire
Other expenditures – highways, street repairs, snow removal
Power to approve spending often rests with the mayor & city council.
Local governments have primary responsibility for education. Accounts for more than 1/3 of all local govt spending (largest item in budget)
Sewerage, electricity, natural gas, & water (approx. 10% of budget)
Police force, fire dept
Highways, roads, street repairs, snow removal
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