1. US Government Mrs. Lacks
The Federal Budget
US Government
Mrs. Lacks

2. Understanding Numbers
How long would it take you to count out one million $1 bills (assuming you were Superman and could count 1 per second for 24 hours a day)?
12 DAYS
How long would it take you to count one billion $1 (again, assuming you could count 1 per second)?
32 YEARS
How long would it take you to count one TRILLION $1 bills (again, assuming you could count 1 per second)
32,000 YEARS

3. Understanding Billions
A billion seconds ago, it was 1981
A billion minutes ago, Jesus was alive
A billion hours ago, our ancestors were living in the Stone Age
A billion dollars ago in US time was 8 hours and 20 minutes ago

4. Introduction Budget: Expenditures: Revenues:
A policy document allocating burdens (taxes) and benefits (expenditures).
Expenditures:
What the government spends money on.
Revenues:
Sources of money for the government.

5. Sources of Federal Revenue
Income Tax
Shares of individual wages and corporate revenues.
The 16th Amendment permitted Congress to levy an Income tax (1913).
The individual part is the largest single revenue source for the government.
Income tax is progressive: Those with more income pay higher rates of tax on their income.

6. Who pays income tax?
Source: Washington Post (2012)

7. Who does pay income taxes?

9. Sources of Federal Revenue
Social Insurance Taxes
Additional taxes for specific fund: Social Security and Medicare (FICA – Federal Insurance Contributions Act)

10. Tax Vocab Taxes and Public Policy
Tax Loopholes: Tax break or benefit for a few people - not much money is lost.
Tax Expenditures: Special exemptions, exclusions, or deductions (charities, interest on mortgages, children, capital)- lots of money is lost.
Tax Reduction: The general call to lower taxes.
Tax Reform: Rewriting the taxes to change the rates and who pays them.

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

12. Oct, 2013

13. What we owe in billions

14. Sources of Federal Revenue
When we borrow from others, we have to pay interest (like a credit card)
In 2013, we paid $ billion in interest to “holders of the national debt” (up from $163 billion in 2010)

16. Sources of Federal Debt
Three major sources of the federal debt:
Deficit
Debt
Unfunded liabilities

17. Deficit
the annual amount the government spends that is more than the amount of money it takes in (i.e., revenue) from taxes, fees and tariffs.

18. Debt Debt is the accumulation of deficits over time Two kinds of debt
Public debt: federal government securities (for example, Treasury bills) purchased and held by Americans and foreigners
Intragovernmental debt: amounts the government borrows from trust funds (for example, Social Security)

19. Unfunded Liabilities
benefits that the government has promised to pay in the future, without knowing in advance exactly where the money to pay those benefits will come from
Social Security
Medicare
Current unfunded liabilities: over $128 trillion (not included in federal debt calculations)

20. Debt Ceiling How much can the US borrow?
Federal law requires Congress to authorize govt to borrow money when needed
WWI: debt ceiling (or debt limit) introduced to give Treasury dept more authority
President is now required to ask Congress to address the debt ceiling on Feb 1
2011 ceiling: $16.4 trillion
Raised 69 times since WWII, 4 times under President Obama
Highly partisan

23. Debt Ceiling Affects our international credit rating
Credit ratings measured by Standard & Poor’s Corp (S&P)
US credit rating downgraded in 2011 from AAA to AA+
AAA: extremely strong capacity to meet its financial commitments (highest issuer credit rating)
AA+: high quality, with very low credit risk, but susceptibility to long-term risks appears somewhat greater

26. Changes in 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 DOD received more than half the federal budget.
Defense now constitutes about one-sixth of all federal expenditures.

27. Trends in national defense spending

29. Washington Post, 2013

30. Changes in Federal Expenditures
The Rise of the Social Service State
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.

31. Trends in social service spending

32. 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.
Focus & debate on the increase over last year.
The budgets tend to go up a little each year.
Problems?

33. What factors cause the budget to rise?
rising elderly population
rising elderly pop means increasing number of elderly receiving benefits
more effective elderly interest groups (AARP)
public awareness of issues for the elderly
increased life expectancy
Growing population – schools, welfare, etc.
Possible military action
The more we want government to do, the more we have to pay for

34. 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 only way to control the expenditures is to change the rules.

35. Creating the Federal Budget
US Government

36. the Budget Last budget passed: Dec 2013 First passed since 2009
2009 – 2013: a series of continuing resolutions (CRs)

37. Fiscal Policy The impact of the federal budget on the economy
Ex. Taxes, spending, & borrowing

38. Major Players
The President and the OMB (Office of Management & Budget)
The Legislative Branch
House & Senate Appropriations Committees
House & Senate Budget Committees
House Ways & Means Committee
Senate Finance Committee
Congressional Budget Office

39. The Process
POTUS is supposed to make recommendations for the budget for the next fiscal year (Oct – Sept) and present it to Congress by the first Monday in February
OMB: the POTUS will give the OMB his guidelines for the budget (OMB does all the work)
OMB also takes requests from different executive agencies and departments
Combines all this info and make the budget

40. The Process cont...
House & Senate Appropriations Committees: studies budget and makes recommendations to their chambers by early May
During summer, each chamber passes individual appropriations bills

41. The Process cont...
Appropriations bills fund programs to create a program, an authorization bill must be passed
Once H & S App passes it all, President has to sign it
Once passed, each House has to pass a budget resolution bill

42. The Process cont...
If no one can agree (President & Congress), Congress can pass a CR, which means government will continue to fund at last year's level
If Congress doesn't get a CR, or the president doesn't sign it, the government shuts down until a budget or a new CR is passed

43. Government Shut Down?
a situation in which the government stops providing all but "essential" services
police, fire fighting, postal service, armed forces, utilities, air traffic management, and corrections (the penal system)
Last shut down?
President Obama vs. John Boehner – Oct 1 – 16, 2013
President Bill Clinton vs. Newt Gingrich
Nov 14 through Nov 19, 1995
Dec 16, 1995 to Jan 6, 1996

44. Sequestration President and Congress cannot agree
Sequestration = the difference in what we have and what we want
with no agreement, money can be “sequestered” (immediate spending cut)

45. Our Situation, 2012
(Anthony Robbins, 19 mins)
(truncated version, 11 mins)