Download Ch. 25 - RobbsHistorians

Government Finances
Chapter 25
The Federal Government
Section 1
Preparing the Budget
• Budget= the blueprint for how the
government will raise and spend money.
• The government uses a fiscal year (FY), a
12-month period that may or may not
match the calendar year.
– Federal government budget year begging
October 1 and ends on September 30 the
following year and must be renewed at that
time.
The Budget Process
• By the first Monday is February, the
president proposes a budget to Congress
outlining how the government should
spend its money.
• Congress then passes a budget
resolution.
– This document totals revenues and spending
for the year and sets targets for how much will
be spent in various categories.
Federal Budget
Two types of Spending
• Mandatory Spending= Spending that
does not need annual approval.
– Social Security Checks
– Interest payments on government debt
Two Types of Spending
• Discretionary Spending= Government
expenditures that must be approved each
year.
– Money for highway construction and defense.
– Makes up 1/3 (33%) of the Federal budget.
Appropriations Bills
• These are laws that approve spending for
a particular activity.
• Appropriations bills always begin in the
House of Representatives
• Must be approved by both houses and
either signed into law or vetoed by the
President.
Revenues
• Nearly ½ of the Federal government’s
revenue comes from the income tax paid
by individual Americans.
• Payroll taxes are the second largest
source of Federal income.
– Social Security—provides money to people
who are retired or disabled.
– Medicare—pays some health care costs of
elderly people.
Other Sources of Revenues
• Excise tax when you
purchase gasoline,
tobacco, and telephone
services.
• When wealthy people
die, the federal
government collects
estate taxes on the
wealth passes on to
their heirs.
Progressive Tax
• The tax rate increases as income
increases.
• The higher the income. The larger the
percentage of income is paid as taxes.
Regressive Tax
• The percentage you pay goes down as
you make more money.
Proportional Tax
• Takes the same percentage of income
from everyone, regardless of how much he
or she earns.
• Ex: Tax rate of 10% on all incomes.
Federal Expenditures
1. Social Security
-Large elderly population
3. Income Security
-Retirement benefits for retired government
workers.
Defense
• National Defense is the second largest
federal expenditure.
• $ 0.17 cents for every federal dollar is
spent on defense.
• In times of war defense spending
increases.
How the Budget process has
changed
• George Washington was able to put all
figures for the national government
expenditures on a single sheet of paper.
• Today the federal budget consists of more
than 1,000 pages of small type.
Presidents Role
• The Budget and Accounting Act of 1921
changes the Presidents role.
• He must submit a budget to congress 15
days after congress convenes each
January.
State and Local Governments
Section 2
State Government Revenues
• Intergovernmental Revenues= this
revenue is money that one level of
government receives from another level.
– Most of this comes from the Federal
Government.
– Used for welfare, highway construction,
hospitals, and other needs.
State government Revenues
• Sales Tax= is a general tax levied on
consumer purchases of nearly all
products.
• The tax is a percentage of the purchase
price, which is added to the final price the
consumer pays.
State Government revenues
• Income Tax
• Contributions—retirement plans
– Invested until it is needed to pay retirement
benefits.
Local Government Revenues
• Property Taxes= Taxes people pay on
land and houses they own.
– Real Property—lands and buildings
– Personal property—portable objects or things
that can be moved.
Local Government Revenue
• Revenue from water
and utility systems,
sales taxes, local
income taxes, and fines
and fees.
State Government Expenditures
• Entitlement Programs—health,
nutritional, or income payments to people
who meet established eligibility
requirements.
• States subsidize, or pay part of the cost
of, their citizens college education.
• Maintain state highways
Local Government Expenditures
• Education
– Public Schools and teachers
• Police and Fire Protection
• Water supply
• Sewage and Sanitation
Managing the Economy
Section 3
Surplus and Deficits
• Surplus= when a government spends less
than it collects.
• Deficit= when a government spend more
than it collects in revenues.
From Deficit to the Debt
• When the Federal
government runs a
deficit, it must borrow
money so it can pay its
bills.
• Sells bonds=a contract
to repay the borrowed
money with interest at a
specific time in the
future.
Debt
• All the money that has been borrowed
over the years and has not yet been paid
back is the government’s debt or the
national debt.
• In October 2006 the national debt was
$4.9 Trillion
– $16,365 for every person in America.
A Balanced Budget
• Expenditures = Revenues
• The Federal government is not required to
have a balanced budget but many states
are.
Impact of the National Debt
• The national debts most direct impact on
the federal government is the amount of
tax money needed each year to finance
past borrowing.
• Every year the interest on the national
debt must be paid.
• The larger the debt, the more taxes
needed to pay this interest.
Interest Rate
• When the federal government borrows
money, it leaves less for citizens and
private businesses to borrow.
• As government borrowing increases, the
interest rate rises.
Fiscal Policy
• Many people want lower taxes regardless
of the state of the economy.
• Many people also want government
services.
• So the Federal government has a hard
time cutting spending even when the
economy is strong.
Automatic Stabilizers
• Programs that begin working to stimulate
the economy as soon as they are needed.
• The main advantage of automatic
stabilizers is that these programs are
already in place and do not need further
government action to begin.
Examples of Automatic stabilizers
• Income Tax
– Progressive tax
• Unemployment Benefits
– Help give people money until they can find a
job