1. HW for Friday: 0 Read pgs. 439-447 & finish “What would you cut?” assignment

2. Happy Tuesday! 0 On notebook paper, reflect on the following questions before we begin: 1. What is the purpose of taxes? 2. Overall, what is your perception of how Americans feel about taxes? 3. As a citizen, what would make you willing to pay more in taxes?

3. For today… 0 Intro notes on CH 14 0 Editorials on federal budget 0 Questions on editorials Learning Targets: 1. Define budget, deficit, expenditures, revenue 2. Explain why income taxes are Constitutional 3. Identify how the federal deficit impacts our lives as citizens

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

5. Introduction 0 Budget: 0 A policy document allocating burdens (taxes) and benefits (expenditures) 0 Deficit: 0 An excess of federal expenditures over federal revenues 0 Expenditures: 0 What the government spends money on 0 Revenues: 0 Sources of money for the government

6. Sources of Federal Revenue 0 Income Tax 0 Shares of individual wages and corporate revenues 0 The 16 th Amendment permitted Congress to levy an income tax. (Pullock v. Farmer’s Loan & Trust Co. 1895) 0 Individual taxes are the largest single revenue source for the government. 0 Income tax is progressive: Those with more income pay higher rates of tax on their income. 0 **Income taxes yield more revenue than corporate taxes ($0.13 vs. $0.43)

7. Taxes 0 Progressive 0 Top 10% pay 66% of all income taxes 0 Bottom 50% pay less than 4% 0 Progressive tax vs. Flat-rate tax vs. Sales tax

8. Social Insurance Taxes 0 Employee & Employer Pay SS 0 Go to SS Trust Fund 0 $ goes to elderly, disabled, widowed, unemployed 0 Fastest growing source of revenue 0 37% of all federal revenue 0 6.2% on all earnings up to $97,500 (2014 = $117,000) 0 1.45% for Medicare (employer matches) 0 As of 2011 $1180 average; maximum $2366

9. Sources of Federal Revenue 0 Social Insurance Taxes- 0 Additional taxes for specific funds: Social Security and Medicare

10. Deficit 0 Borrowing 0 The Treasury Department sells bonds—this is how the government borrows money. 0 Citizens, corporations, mutual funds, financial institutions buy 0 The federal debt is the sum of all the borrowed money that is still outstanding. 0 The government competes with other lenders. 0 Increases interest rates; makes it harder to get loans, mortgages more expensive 0 Foreign investors (20%) 0 Most borrowing is for day-to-day expenses (farm subsidies, military pensions, etc.) 0 9% of all federal expenditures go to paying INTEREST 0 Intragovernmental Debt

11. On yesterday’s bell work… 0 1. Define progressive tax & flat tax. Explain the pros/cons of each. 0 2. How does the federal deficit hurt individuals? Website: https://sites.google.com/a/franklincityschools.com/ap- government/assignments https://sites.google.com/a/franklincityschools.com/ap- government/assignments

12. For today… 0 Warm-Up Questions 0 Finish I cans from CH 13/CH 14 Reading Guide Learning Targets: 1. Explain where federal government revenues come from & where federal government spends tax dollars. 2. Identify spending trends since 1981.

13. 0 https://sites.google.com/a/franklincityschools.com/a p-government/assignments https://sites.google.com/a/franklincityschools.com/a p-government/assignments Read through the editorials on the page, and click on the different government agencies listed on the left side of the page (Agencies & Programs, Agriculture, Defense, EPA, etc.). Read through the various editorials on how different Americans citizens believe we should cut spending to decrease our national debt. 0 In a brief reflection, explain: -Which editorials you agree with most and why. -Which editorials you most disagree with any why. -What YOU would cut from the federal budget and why. 0 When finished, submit to red bin.

14. Sources of Federal Revenue Federal Debt: all money borrowed over the years and still outstanding

15. Question: 0 Is it fair that if a citizen chooses not to have children, that they get taxed more by the government?

16. For today… 0 Review of Webquest 0 Notes on loopholes 0 Video clips on loopholes & Reagan tax reform Learning Targets: 0 1. Define tax loopholes 0 2. Explain how deductions impact on individual behavior/choices

17. Sources of Federal Revenue 0 Taxes and Public Policy 0 Tax Loopholes: tax breaks or benefits for a few people 0 Tax Expenditures: revenue losses that result from special exemptions, exclusions, or deductions on federal tax law 0 Tax Reduction: the general call to lower taxes 0 Tax Reform: rewriting the taxes to change the rates and who pays them 0 Tax Reform Act of 1986—extensive tax reform

18. Tax Loopholes = Expenditures 0 Government loses money every time it provides a loophole or exemption 0 Generally go to middle & upper class & corporations 0 Tax codes determine our behavior 0 Are all deductions loopholes???

19. Tax Cuts 0 We like to cut taxes, but not spending 0 Reagan 0 tax cuts 0 Tax Reform Act 1986- simplified system 0 Decreased 25%, deficits by 1990s 0 Clinton raises 2% income tax on wealthy

20. For Today… 0 1. Warm-Up 0 2. Finish Loophole Clips 0 3. Where would you cut funding? 0 Learning Targets: 0 1. Explain how loopholes impact individual behavior. 0 2. Define Incrementalism 0 3. Explain why it is so difficult to cut spending

21. Federal Expenditures 0 The Rise of the Social Service State 0 The biggest part of federal spending is now for income security programs. 0 Social Security is largest program 0 Social Security has been expanded since 1935 to include disability benefits and Medicare. 0 These benefit programs face financial problems with more recipients living longer. 0 Another reason for government growth

22. Federal Expenditures

23. 0 Big Governments, Big Budgets 0 A big government requires lots of money. 0 As the size of government increases, so does its budget. 0 The Rise and Decline of the National Security State 0 In the 1950s and 1960s the Department of Defense received more than half the federal budget. 0 Defense now constitutes about one-sixth of all federal expenditures. 0 One reason for growth of government

24. Federal Expenditures Pearson Education, Inc., Longman © 2008

25. Federal Expenditures 0 Incrementalism 0 The idea that last year ’ s budget is the best predictor of this year ’ s budget, plus some. 0 Agencies can safely assume they will get at least what they got last year. 0 Focus & debate on the increase over last year 0 Budgets tend to go up a little each year.

26. Federal Expenditures 0 “ Uncontrollable ” Expenditures 0 Spending determined by the number of recipients, not a fixed dollar figure 0 Mainly entitlement programs where the government pays known benefits to an unknown number of recipients 0 Social Security 0 The only way to control the expenditures is to change the rules.

27. Hypothetically…. 0 If you were designing a federal budget, what would YOU cut? 0 Remember, YOU will be running for reelection in the next election cycle.

28. The Budgetary Process 0 Budgetary Politics 0 Stakes and Strategies 0 All political actors have a stake in the budget. 0 Try and tie their budget needs to national or political needs 0 The Players 0 Lots of players, with the president and Congress playing important roles 0 Almost all committees are involved in the budget.

29. The Budgetary Process 0 The President ’ s Budget 0 Presidents originally played a limited role in the budget. 0 Now budget requests are directed through the OMB and president before going to Congress. 0 The budget process is time consuming—starting nearly a year in advance. 0 The OMB, the president, and the agencies negotiate budget requests.

30. The Budgetary Process Pearson Education, Inc., Longman © 2008

31. The Budgetary Process 0 Congress and the Budget 0 Reforming the Process 0 The Congressional Budget and Impoundment Control Act of 1974: an act designed to reform the congressional budgetary process 0 It established the following: 0 Fixed budget calendar 0 A budget committee in each House 0 The CBO, which advises Congress on the probable consequences of its decisions, forecasts revenues, and is counterweight to OMB Pearson Education, Inc., Longman © 2008

32. The Budgetary Process 0 Congress and the Budget 0 Reforming the Process (continued) 0 Budget to be considered as a whole 0 A budget resolution binds Congress to a bottom line for the budget before Congress considers appropriations. 0 The current budget is then reconciled—program authorizations are revised to achieve required savings 0 The new budget is authorized and appropriated. 0 Authorization bill: establishes a discretionary government program; set goals and maximum expenditures 0 Appropriations bill: funds programs within limits established by authorization bills Pearson Education, Inc., Longman © 2008

33. The Budgetary Process Pearson Education, Inc., Longman © 2008

34. The Budgetary Process 0 Congress and the Budget 0 The Success of the 1974 Reforms 0 Between 1974 and 1998, every budget was a deficit budget. 0 Congress misses most of its own deadlines. 0 Congress passes continuing resolutions to keep the government going until it passes a budget. 0 Omnibus budget bills often contain policies that cannot pass on their own. Pearson Education, Inc., Longman © 2008

35. The Budgetary Process Pearson Education, Inc., Longman © 2008 Annual Federal Deficits (Figure 14.6)

36. The Budgetary Process 0 Congress and the Budget 0 More Reforms 0 Congress passed bills to try and control the deficits. 0 By 1990, Congress focused on increases in spending. 0 Both parties claimed victory for the budget surpluses that began in 1997. 0 Economic downturn, income tax cuts, and increased military expenditures brought a return to deficits by 2001. Pearson Education, Inc., Longman © 2008

37. Understanding Budgeting 0 Democracy and Budgeting 0 Many politicians “ spend ” money to buy votes. 0 With many groups and people asking for government assistance, the budgets get bigger. 0 Some politicians compete by trying not to spend money. 0 People like government programs, but they really do not want to pay for them, thus there are deficits and federal debt. Pearson Education, Inc., Longman © 2008

38. Understanding Budgeting 0 The Budget and the Scope of Government 0 In sum, the budget represents the scope of government. 0 The bigger the government, the bigger the budget 0 Limits on funding (taxes) can limit what the government can do. Pearson Education, Inc., Longman © 2008

39. Summary 0 Federal budget consumes one-fifth of GDP 0 Government growth has meant higher taxes to pay for additional services, often through deficit spending. 0 The budgetary process is complex. 0 The budget is used, some argue, to buy votes, leading to an ever larger government. Pearson Education, Inc., Longman © 2008