1. The Congress, the President, and the Budget: The Politics of Taxing and Spending Chapter 14

2. Introduction  Budget:  A policy document allocating burdens (taxes) and benefits (expenditures)  Deficit  An excess of federal expenditures over federal revenues (in a given year)  Surplus  If collect more in taxes than spend  Should it be given back?  Budget:  A policy document allocating burdens (taxes) and benefits (expenditures)  Deficit  An excess of federal expenditures over federal revenues (in a given year)  Surplus  If collect more in taxes than spend  Should it be given back?

3. Introduction  Expenditures:  What the government spends money on  Revenues:  Sources of money for the government  The National Debt is the total amount owed by the federal government (Accumulation of Deficits)  Have we reached the tipping point?  http://www.fiscal.treasury.gov/ http://www.fiscal.treasury.gov/  Expenditures:  What the government spends money on  Revenues:  Sources of money for the government  The National Debt is the total amount owed by the federal government (Accumulation of Deficits)  Have we reached the tipping point?  http://www.fiscal.treasury.gov/ http://www.fiscal.treasury.gov/

4. The national deficit

5. The National Debt

7. The national debt

9. The federal $$$$ tree  Managing the federal coffers: The president advises, congress delegates; sometimes together. Key questions:  Who bears the burden of paying for gov’t?  Who receives the benefits?  How does one maintain prosperity (public inspired or private)?  Will gov’t continue to fund all those GREAT programs?  President and Congress both have plans  Managing the federal coffers: The president advises, congress delegates; sometimes together. Key questions:  Who bears the burden of paying for gov’t?  Who receives the benefits?  How does one maintain prosperity (public inspired or private)?  Will gov’t continue to fund all those GREAT programs?  President and Congress both have plans

10. Sources of Federal Revenue

12.  Income Tax (16 th Amendment)  Shares of individual wages and corporate revenues.  Individual and corporate income tax is the largest single revenue source for the government.  It ’ s progressive (Those with more income pay higher rates of tax on their income)  Income Tax (16 th Amendment)  Shares of individual wages and corporate revenues.  Individual and corporate income tax is the largest single revenue source for the government.  It ’ s progressive (Those with more income pay higher rates of tax on their income)

13. Sources of Fed Revenue: Taxes Galore!  Income Tax  Direct Tax: one who is taxed pays the tax  Progressive Tax (Federal Income tax)  Flat Tax: a set rate that all pay without any loopholes like deductions (state income taxes)  Regressive Tax: Levied at a flat rate (sales tax)  Indirect tax: one who is taxed can shift burden to another  Excise tax: sale or consumption of a product (Sin taxes on tobacco, alcohol, etc)  Income Tax  Direct Tax: one who is taxed pays the tax  Progressive Tax (Federal Income tax)  Flat Tax: a set rate that all pay without any loopholes like deductions (state income taxes)  Regressive Tax: Levied at a flat rate (sales tax)  Indirect tax: one who is taxed can shift burden to another  Excise tax: sale or consumption of a product (Sin taxes on tobacco, alcohol, etc)

14. Sources of Fed Revenue: Taxes Galore!  Corporate Tax  Social Insurance- fica (regressive tax)  Borrowing (next slide)  Corporate Tax  Social Insurance- fica (regressive tax)  Borrowing (next slide)

15. Sources of Federal Revenue  Borrowing  The Treasury Department sells bonds. this is how the government “ borrows ” money.  Intragovernmental Debt  The government competes with other lenders.  Some would like to see a balanced budget amendment.  Borrowing  The Treasury Department sells bonds. this is how the government “ borrows ” money.  Intragovernmental Debt  The government competes with other lenders.  Some would like to see a balanced budget amendment.

16. Taxes and Public Policy  Tax Loopholes: Tax break or benefit for a few people. not much revenue is lost.  Tax Expenditures: Special exemptions, exclusions or deductions, like mortgage interest, a significant amount of revenue is lost  Tax Reduction: The general call to lower taxes.  Tax Reform: Rewriting the taxes to change the rates and who pays them.  Tax Loopholes: Tax break or benefit for a few people. not much revenue is lost.  Tax Expenditures: Special exemptions, exclusions or deductions, like mortgage interest, a significant amount of revenue is lost  Tax Reduction: The general call to lower taxes.  Tax Reform: Rewriting the taxes to change the rates and who pays them.

18. Federal Expenditures

21.  The Rise and Decline of the National Security State (Discretionary Spending)  In the 50 ’ s & 60 ’ s, the DOD received more than half the federal budget.  that number declined due to the “peace dividend.”  The wars in Iraq and Afghanistan increased military spending.  The Rise and Decline of the National Security State (Discretionary Spending)  In the 50 ’ s & 60 ’ s, the DOD received more than half the federal budget.  that number declined due to the “peace dividend.”  The wars in Iraq and Afghanistan increased military spending.

22. Federal Expenditures  The Rise of the Social Service State (Nondiscretionary Spending)  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.  1/3 of budget is Social Security and Medicare!  Social security and Medicare face financial problems with more recipients living longer.  Is it time to end the wage cap? Or means test the program? Or privatize it?  The Rise of the Social Service State (Nondiscretionary Spending)  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.  1/3 of budget is Social Security and Medicare!  Social security and Medicare face financial problems with more recipients living longer.  Is it time to end the wage cap? Or means test the program? Or privatize it?

23. Federal Expenditures  “ Uncontrollable ” (Nondiscretionary) Expenditures  AKA: Entitlements  Spending determined by the number of recipients, not a fixed dollar figure.  These are Mainly entitlement programs where the government pays known benefits to an uncontrollable number of recipients, like Social Security.  The way to control the expenditures is to change the rules of who can receive them.  Mandatory spending is spending on programs required by current law (About 2/3 of budget)  http://www.businessinsider.co m/50-suggested-budget-cuts- for-the-us-government-2010- 6?op=1 http://www.businessinsider.co m/50-suggested-budget-cuts- for-the-us-government-2010- 6?op=1  “ Uncontrollable ” (Nondiscretionary) Expenditures  AKA: Entitlements  Spending determined by the number of recipients, not a fixed dollar figure.  These are Mainly entitlement programs where the government pays known benefits to an uncontrollable number of recipients, like Social Security.  The way to control the expenditures is to change the rules of who can receive them.  Mandatory spending is spending on programs required by current law (About 2/3 of budget)  http://www.businessinsider.co m/50-suggested-budget-cuts- for-the-us-government-2010- 6?op=1 http://www.businessinsider.co m/50-suggested-budget-cuts- for-the-us-government-2010- 6?op=1

24. Federal Expenditures  Incrementalism  last year ’ s budget is the best predictor of the next year ’ s budget, plus some more.  Agencies can safely assume they will get at least what they got last year.  All of this is discretionary spending  Incrementalism  last year ’ s budget is the best predictor of the next year ’ s budget, plus some more.  Agencies can safely assume they will get at least what they got last year.  All of this is discretionary spending

25. The President and the Budget  The President ’ s Budget  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 budget process is time consuming, starting nearly a year in advance.  Negotiations occur between OMB, the president and the agencies about their requests.  http://usatoday30.usatoday. com/news/washington/stor y/2012-02-13/obama-budget- election/53084982/1 http://usatoday30.usatoday. com/news/washington/stor y/2012-02-13/obama-budget- election/53084982/1  The President ’ s Budget  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 budget process is time consuming, starting nearly a year in advance.  Negotiations occur between OMB, the president and the agencies about their requests.  http://usatoday30.usatoday. com/news/washington/stor y/2012-02-13/obama-budget- election/53084982/1 http://usatoday30.usatoday. com/news/washington/stor y/2012-02-13/obama-budget- election/53084982/1

26.  http://online.wsj.com/news/a rticles/SB1000142405297020 479530457722106313550290 8 http://online.wsj.com/news/a rticles/SB1000142405297020 479530457722106313550290 8  http://www.nytimes.com/intera ctive/2012/02/13/us/politics /2013-budget-proposal- graphic.html http://www.nytimes.com/intera ctive/2012/02/13/us/politics /2013-budget-proposal- graphic.html  http://www.washingtonpost.co m/wp- srv/special/politics/federal- budget-2013/ http://www.washingtonpost.co m/wp- srv/special/politics/federal- budget-2013/  http://online.wsj.com/news/a rticles/SB1000142405297020 479530457722106313550290 8 http://online.wsj.com/news/a rticles/SB1000142405297020 479530457722106313550290 8  http://www.nytimes.com/intera ctive/2012/02/13/us/politics /2013-budget-proposal- graphic.html http://www.nytimes.com/intera ctive/2012/02/13/us/politics /2013-budget-proposal- graphic.html  http://www.washingtonpost.co m/wp- srv/special/politics/federal- budget-2013/ http://www.washingtonpost.co m/wp- srv/special/politics/federal- budget-2013/

27. Congress and the Budget  Congressional Budget and Impoundment Control Act of 1974 did much to reform the process.  set up to help Congress get a budget by: A fixed budget calendar…A budget committee in each house….set up the Congressional Budget Office to advise the Congress on the budget and its process  Budget should be considered as a whole.  A budget resolution sets the bottom line for the budget.  a resolution binding Congress to a total expenditure level  The current budget is then reconciled (adjusted to meet the resolution).  A congressional process through which program authorizations are revised to achieve required savings.  The new budget is authorized and appropriated.  Congressional Budget and Impoundment Control Act of 1974 did much to reform the process.  set up to help Congress get a budget by: A fixed budget calendar…A budget committee in each house….set up the Congressional Budget Office to advise the Congress on the budget and its process  Budget should be considered as a whole.  A budget resolution sets the bottom line for the budget.  a resolution binding Congress to a total expenditure level  The current budget is then reconciled (adjusted to meet the resolution).  A congressional process through which program authorizations are revised to achieve required savings.  The new budget is authorized and appropriated.

28. Congress and the Budget  The Success of the 1974 Reforms.  From 1974 to 1998, every budget was a deficit budget.  Congress misses most of its own deadlines.  Congress passes continuing resolutions to keep the government going until it passes a new budget.  Omnibus budget bills often contain policies that can ’ t pass on their own.  The Success of the 1974 Reforms.  From 1974 to 1998, every budget was a deficit budget.  Congress misses most of its own deadlines.  Congress passes continuing resolutions to keep the government going until it passes a new budget.  Omnibus budget bills often contain policies that can ’ t pass on their own.

29. Gramm-Rudman-Hollings Act  Balanced Budget and Emergency Deficit Control Act of 1985  Set maximum deficit Levels until 1993  Budget was to be balanced by 1993  If budget went over deficit max, sequestration set in  automatic spending cuts in all programs except Social Security and debt interest  Half from domestic, half from military  Replaced with “Pay-as-you-go”  Any increase in one program has to be offset by cuts in another  Any tax cut has to be offset by revenue increase elsewhere  Balanced Budget and Emergency Deficit Control Act of 1985  Set maximum deficit Levels until 1993  Budget was to be balanced by 1993  If budget went over deficit max, sequestration set in  automatic spending cuts in all programs except Social Security and debt interest  Half from domestic, half from military  Replaced with “Pay-as-you-go”  Any increase in one program has to be offset by cuts in another  Any tax cut has to be offset by revenue increase elsewhere

30. The Budget Process  Executive Branch  Agencies prepare their estimates of budget needs and present them to the OMB.  OMB reviews these requests and makes recommendations to the Pres.  President reviews OMB recommendations and then submits a budget to Congress.  Congress  CBO provides an independent analysis of the Pres. Budget.  Roles of Budget, Ways and Means, Finance and the Appropriations Committees  Input and lobbying from agencies.  Majority vote needed in both houses.  Government Accountability Office is a congressional watchdog agency that ensures money is spent as prescribed by law.  Executive Branch  Agencies prepare their estimates of budget needs and present them to the OMB.  OMB reviews these requests and makes recommendations to the Pres.  President reviews OMB recommendations and then submits a budget to Congress.  Congress  CBO provides an independent analysis of the Pres. Budget.  Roles of Budget, Ways and Means, Finance and the Appropriations Committees  Input and lobbying from agencies.  Majority vote needed in both houses.  Government Accountability Office is a congressional watchdog agency that ensures money is spent as prescribed by law.

31. The Budget Process  Political influences  Political party differences.  Interest group/PAC influences  Iron triangles  Public opinion  Presidential Action.  President signs or vetoes entire taxing and spending bills- no line item veto.  Congress can override a veto with 2/3 vote in both houses.  Political influences  Political party differences.  Interest group/PAC influences  Iron triangles  Public opinion  Presidential Action.  President signs or vetoes entire taxing and spending bills- no line item veto.  Congress can override a veto with 2/3 vote in both houses.