SOME BASIC INFORMATION• Policy document allocating burdens and benefits• FEDERAL gov. funds a substantial and diverse range of programs

and activities from Pell Grants to scientific research to military operations

• 2 categories of spending• MANDATORY spending: gov. allocates funds to all who are

eligible based on legislation regardless of cost to the treasury• Entitlement programs• Interest on national debt

• DISCRETIONARY spending: everything else• Deficit occurs when expenditures exceed revenues• Nat’l gov. spends more money than it receives = DEFICIT each

yr. added to federal DEBT

THE PLAYERS• Interest groups• Agencies• POTUS• OMB – Office of Management and Budge

• COTUS• CBO – Congressional Budget Office• Budget Committees• Standing Committees• Appropriations Committees• GAO – General Accounting Office

FEDERAL BUDGET• BOTH POTUS and COTUS write the budget• CONGRESS CONSTITUTIONALLY• Funding levels for fiscal yr. based on incrementalism• U.S. Constitution (Article I, section 9, clause 7)• “no money shall be drawn from the Treasury, but in

Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time."

• Budget Accounting Act 1921 – required the President to submit to Congress an annual budget for the federal government

• Congressional Budget and Impoundment Control Act of 1974 – calendar, budget committee, CBO, president cannot impound funds w/o approval

Fiscal Year• Funding for fiscal year – Oct. 1st – Sept. 30th

• Office of Management and Budget (OMB): responsible for drafting budget• estimates spending, revenue and borrowing levels

• Executive level

• Congressional Budget Office (CBO): responsible for giving Congress budget projections, priorities, and balancing the OMB’s priorities with Congress’s policy interest• Legislative level

BUDGET PROCESS - POTUS• POTUS submits his budget request to Congress

by first Monday in Feb.• Proposal is a request – no binding authority• Statement of administrations fiscal goals and

policy preferences• Economic projections and analysis• Detailed program by program funding levels• Introduces new policies, programs or changes

they would like to enact• Prepared by the OMB

BUDGET PROCESS - COTUS• Concurrent Congressional Budget Resolution – sets the TOTAL level of

discretionary funding– Budget committee – Filed by April 15th

– Send message about fiscal priorities of each chamber• Sent to Appropriations committee

– Determine program by program funding – 12 separate appropriations bills– Divide funding into specific programs: hold hearings, accept requests

• Differences often occur w/I each chamber• ALL appropriations bills MUST pass BOTH chambers and signed by POTUS by

the end of the fiscal year• If not passed: 2 options

– 1) CR – continuing resolutions: operate government under temporary funds and last years budget

– 2) SHUTDOWN!

SOURCES OF REVENUE• INCOME TAX (individual)• Varies 0-35%

• SOCIAL SECURITY (FICA)• Elderly, disabled, widowed, unemployed

• CORPORATE INCOME TAX• EXCISE DUTIES• Tax on liquor, tobacco, gas• 10% excise tax on tanning• Less than 5%

• CUSTOMS, DUTIES, TARIFFS• BORROWING

Why a recession is bad…

• People are out of work, so they don’t get paid, so they don’t pay taxes, so the government doesn’t collect as much revenue

• People are out of work, so they don’t buy anything, small business can’t profit, they fire more people, go under and can’t pay as much taxes, so the government doesn’t collect as much revenue

• You see where I’m going here???

Nation In Debt• Deficit Spending =

Expenditures exceed revenue• FY2011 deficit = $1.27 trillion• FY2013 deficit = $901 billion

• Federal gov only level of gov able to borrow more money than it receives• 1930: $16 Billion• 1950: $260 Billion• 1980: $909 Billion• FY2010: $1.56 Trillion

MANDATORY V. DISCRETIONARY

• Budget allocation divided• MANDATORY: MUST be spent aka “entitlements”– ENTITLEMENT PROGRAM: Social security, Medicare,

Medicaid• SS: 44 million in 2010 to 73 million in 2030• May absorb all federal revenues sometime around 2050 :-0

• DISCRETIONARY: OPTIONAL– EVERYTHING ELSE: defense, education, transportation,

agriculture (think about Cabinet departments)

How did we can into this mess?!?!

• POLITICIANS USE THE BUDGET TO GET ELECTED! DUH!

• Republicans want to lower taxes • SUPPLY SIDE ECONOMICS

• Democrats want to increase social programming and raise taxes on the wealthiest percentages to benefit and lower and middle class• KEYNESIAN ECONOMICS