1. CH 10, Section 3: Balanced budget amendment
a proposed Constitutional amendment that requires that annual spending not exceed revenues
Some states already have such amendments in place.

2. Intergovernmental expenditures
funds that one level of government transfers to another for spending
Largest category of state spending
Distributed to counties, cities, towns
Sales Tax Revenue

3. Section 4: Deficit spending
government spending in excess of revenues collected.
What are some of the reasons we take on deficit spending?
War
Financial Crisis

4. Federal debt
all the outstanding federal bonds, borrowed moneys, payments to investors
Used to finance government deficit spending
To make up the shortage of revenue the government sells bonds and other forms of debt to the public.

5. Balanced budget
annual budget in which expenditures equal revenues.

6. Trust funds
special accounts used to fund specific types of expenditures.
Social Security Insurance (SSI)
Medicare
Principle funds are increased using payroll tax
Invested in various schemes and earn interest
Distributed, mostly from the interest,
Not supposed to touch the principle funds

7. Public vs. Private Debt Most of the Federal debt is owed to ourselves.
Bond holders
The American Public
Private debt is owed to another.
Banks
Private debt is usually planned to be repaid
30 year mortgage
Federal Government give little thought of repayment because they can issue more bonds.

8. Jon Stewart National Debt
Why would our country be auctioned off to a couple from Beijing?
Why would the Republican’s put out their own budget plan? (2012)
Why did the White House invite Paul Ryan to the press conference?
What program would see cuts to increase the healthcare of seniors?
Our tax rate is at its lowest rate since when?
Why would Obama say “More spending reductions in the tax code?”

9. Crowding-out effect
Excessive government borrowing pushes up all interest rates, even private.
Above normal market interest rates.
Banks will have to pay out more interest when issuing their bonds.

10. Pay-as-you-go provision
a requirement that new spending proposals or tax cuts must be offset by reductions elsewhere in the budget.
Budget Enforcement Act (BEA), 1990.
Helps prevent deficit spending
Weaknesses include:
Only applies to discretionary spending
Can be suspended
in a low-performing economy
if the president declares an emergency.

11. Line-item veto
President could select parts of a bill and veto them, but still pass the rest of the bill.
Supreme Court declared it unconstitutional.

12. Spending caps legal limits on annual discretionary spending
Balanced Budget Agreement, 1997
Some item limits were unpopular:
Education
Health
Science

13. Entitlements broad social programs
Established eligibility requirements make payments mandatory…..
Health
Nutrition
Income supplementation

14. Assessments: Checking for Understanding
1 What are some of the services that state and local government provide for in their budget?
Education
Hospitals
Public welfare
Interest on debts
Highways

15. Assessment
3 Describe how state governments handle the spending approval process.
There are many different methods, but in most states the process is loosely modeled after the federal government’s system.

16. Assessment 4 List seven major categories of state spending.
Intergovernmental expenditures
Public welfare
Insurance trust
Higher education
Highways
Hospitals
Interest on debt

17. Assessment
5 Identify the seven major categories of local government spending.
Elementary and secondary spending
Public utilities
Police protection
Hospitals
Interest on debt
Public welfare
Highways

18. Assessments: Checking for Understanding
1 What is the difference between the federal debt and the federal deficit?
Federal deficit:
The government’s expenditures exceed its revenues in a given year
Federal deficit adds to the federal debt.

19. Assessment 3 Describe how the federal deficit affects the debt.
When the federal government runs a deficit, it must borrow to cover the shortage of revenue, adding to the total federal debt.

20. Assessment 4 List five ways the national debt can affect the economy.
May reduce purchasing power of economy
affect the distribution of income,
transfer purchasing power from private to public sector,
reduce the incentive to work, save, and invest,
cause a rise in interest rates.

21. Assessment
5 Identify four recent attempts to bring the federal deficit under control.
Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings)
Budget Enforcement Act, 1990
Omnibus Budget Reconciliation Act of 1993
Balanced Budget Agreement, 1997

22. Assessment 6 Identify three entitlement programs. Social Security
Medicaid
Medicare
Agricultural price supports
Federal employee retirement and health benefits
Unemployment compensation
Aid to the poor

23. Image, p. 269
What are the three largest spending categories for local governments? For state governments?
Elementary and secondary education
Utilities
Police protection
Intergovernmental expenditures
Public welfare
Higher education

24. Image, p. 270
Which level of government has the major responsibilities for higher education?
State

25. Image, p. 273 What caused the deficit to return in 2002?
Tax reductions and a recession in 2001

26. Image, p. 274
What happened to the size of the federal debt since 2001?
It has increased
+ Why do you think it increased? (consider: GOP Congress had legislated a balanced budget requirement in the late 1990s and it should NOT have increased)
Wars in Afghanistan and Iraq
Tax cuts to the richest sector (individuals and corporations over $200,000/year income)

27. Image, p. 275
Why do economists regard the public portion of the federal debt as the economically relevant part of the debt?
They tend to disregard the portion of the debt held in trust funds
Because the funds represent money the government owes to itself
Economists focus instead on the public portion of the debt.

28. Image, p. 276 How does the federal debt impact the economy
May reduce purchasing power of economy
Affect the distribution of income
Transfer purchasing power from private to public sector
Cut down incentive to work, save, and invest
Cause rise in interest rates