US Government Mrs. Lacks
The Federal Budget US Government Mrs. Lacks 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 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 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. Sources of Federal Revenue
Income Tax Shares of individual wages and corporate revenues. The 16th Amendment permitted Congress to levy anIncome tax (1913). The individual part is the largest single revenue sourcefor the government. Income tax is progressive: Those with more income payhigher rates of tax on their income. Who pays income tax? Source: Washington Post (2012) Who does pay income taxes? Sources of Federal Revenue
Social Insurance Taxes Additional taxes for specific fund: Social Security andMedicare (FICA Federal Insurance Contributions Act) 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, ordeductions (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 ratesand who pays them. Sources of Federal Revenue
Borrowing The Treasury Department sells bonds - this is how thegovernment borrows money. The federal debt is the sum of all the borrowed moneythat is still outstanding. Oct, 2013 What we owe in billions 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) Sources of Federal Debt
Three major sources of the federal debt: Deficit Debt Unfunded liabilities 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. Debt Debt is the accumulation of deficits over time Two kinds of debt
Public debt: federalgovernment securities (forexample, Treasury bills)purchased and held byAmericans and foreigners Intragovernmental debt:amounts the governmentborrows from trust funds(for example, SocialSecurity) 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 (notincluded in federal debt calculations) 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 Debt Ceiling Affects our international credit rating
Credit ratings measured by Standard & Poors Corp (S&P) US credit rating downgraded in 2011 from AAA to AA+ AAA: extremely strong capacity to meet its financialcommitments (highest issuer credit rating) AA+: high quality, with very low credit risk, butsusceptibility to long-term risks appears somewhatgreater Changes in Federal Expenditures
Big Governments, Big Budgets A big government requires lots of money. As the size of government increases, so does itsbudget. The Rise and Decline of the National Security State In the 50s & 60s, the DOD received more than halfthe federal budget. Defense now constitutes about one-sixth of all federalexpenditures. Trends in national defense spending Washington Post, 2013 Changes in Federal Expenditures
The Rise of the Social Service State The biggest part of federal spending is now for incomesecurity programs. The biggest of these is Social Security. Social Security has been expanded since 1935 toinclude disability benefits and Medicare. These benefit programs face financial problems withmore recipients living longer. Trends in social service spending Federal Expenditures Incrementalism
The idea that last years budget is the best predictor ofthis years budget, plus some. Agencies can safely assume they will get at least whatthey got last year. Focus & debate on the increase over last year. The budgets tend to go up a little each year. Problems? 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 Federal Expenditures Uncontrollable Expenditures
Spending determined by the number of recipients, nota fixed dollar figure. Mainly entitlement programs where the governmentpays known benefits to an unknown number ofrecipients - Social Security. The only way to control the expenditures is to changethe rules. Creating the Federal Budget
US Government the Budget Last budget passed: Dec 2013 First passed since 2009
2009 2013: a series of continuing resolutions (CRs) Fiscal Policy The impact of the federal budget on the economy
Ex. Taxes, spending, & borrowing 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 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 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 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 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 Government Shut Down? a situation in which the government stops providing all but "essential" services police,fire fighting,postal service,armedforces,utilities,air traffic management,andcorrections(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 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) Our Situation, 2012 (Anthony Robbins, 19 mins) https://www.youtube.com/watch?v=nRkyBjf1xRE (truncated version, 11 mins)