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Congress, the President, and the Budget The Budget • Who pays and who receives. • The bigger the budget, the bigger the government. The Budget • The President & Congress must appropriate funds of the Gov would stop. Budget: policy document allocating burdens (taxes)and benefits (expenditures) -translating financial resources into human purpose. (goals with price tags) Vocabulary Expenditures: Government spending on things such as social services and National security. Revenues: The financial resources of government. (money taken in by taxes) Budget Deficits Budget Deficit: when expenditures exceed revenues in a fiscal year. - Gov. spends more than it takes in. • Total national debt rises • Congress & the President struggle to control spending and balance the budget. Sources of Federal Revenue Income Tax: Individuals are required to pay the government a portion of the money they earn. 16th Amendment: permits congress to levy an income tax. Internal Revenue Service (IRS): government agency that collects federal taxes. Progressive tax rate: those who have a higher income, pay a higher percentage. Income Tax • Top 10% pay 2/3 of the income tax in the nation. • Bottom 50% only pay about 10% • Republicans want a “flat tax” -everyone pays the same rate Social Insurance Tax • Social Security Tax • Money deducted from workers pay, matched by their employers. • Money is “earmarked” into the Social Security trust fund. • Pays benefits to the elderly and disabled Borrowing • The Fed. Gov. can borrow money to make ends meet • Treasury department sells bonds (guaranteed to pay interest to the buyer) • People, financial institutions, foreign govs, and companies can buy them. • Most borrowing is to finance day to day activities The Federal Debt Federal (national) Debt: All the Money borrowed over the years that is still outstanding. 9% of our expenditures is to pay off the interest. National Debt: The Bad • The more we borrow now, the more future generations will have to pay. • Owing money to foreign countries can strain foreign relations. Tax Loopholes • Tax breaks or tax benefits • IRS codes are loaded with tax exempt activities. • Businesses have the resources to exploit these issues to save money. Tax Expenditures • Revenue losses attributable to provisions of the federal tax laws which allow a special exemption , exclusion, or deduction. -Subsidies for different activities -allow deductions for charitable giving, business expansion. Capital gains tax rates Tends to favor the wealthy Tax Reductions • • • • Americans push for tax reductions Reagan passed a massive tax cut Greatly benefited the wealthy Clinton passed increase on the top 2% -Created a surplus W. Bush passed a tax cut on the rich -Back into a deficit Federal Expenditures U.S. Budget GDP: Gross Domestic product= a means to measure the size of you economy. • U.S. has a smaller government (compared to our economy) than most industrializes nations. The National Security State • Post WWII, the U.S. has had a permanent military establishment. • Greatly expanded our budget during the Cold War. • Defense spending has decreased compared to spending on social services. Next Week • Multiple Choice Exam Next Tuesday • FRQ Wed (Presidential powers and Budget Process Social Services • Income security expenditures now the largest part of the budget. -direct/indirect aid to the poor, elderly, and disabled • Social Security -Workers pay in, then receive checks after retirement/or disability. -average check 1,044 Social Services Problems with Social Security: -aging population -longer life expectancy Congressed raised S.S. tax Medicare: Hospital and physician coverage to the elderly Incrementalism • The best predictor of this years budget is last years budget plus a little bit more. Agency's usually get the base budget plus some Expenditures are often mandated by law. Many call for reform -Prioritize - cut wasteful spending Uncontrollable Expenditures • Policies that make some group automatically eligible for some benefit or by previous obligations of the government. -Pensions -Interest on the National Debt Government cant decide on these expenditures each year. Entitlements: Number of people eligible and their level of guaranteed benefits -Agricultural subsidies Social Security The Budgetary Process • Budgets go through a long and complex process. • Often the center of political battles Stakes and Strategies • All political actors have a stake -Congressmen -Governors -Mayors • Push for more money in their states, districts, and cities. The Players • Interest Groups: Lobby congress and the President for funds. • Agencies: Head of agencies always push for more funds. • Office of Management and Budget (OMB): Responsible to the president, but have independence to allocate money to agencies. • The President: Makes the final decision on what to propose to Congress The Players • Tax Committees in Congress: The House Ways and Means Committee and the Senate Finance Committee write the tax codes. • Budget Committees and the CBO: set the parameters for the congressional budget process and bind congress within certain limits. The Players • Subject matter committee: Committees that specialize in a subject (Ag. Vets…) • Appropriations Committees: Decides who gets what. From Subject matter com to APP. Comm • Congress as a whole: Congress must approve taxes and a appropriations. -Congressmen want to bring home the bacon • Gov. Accountability Committee (GAO): Monitors what agencies with do with the funds after the budget is passed. The Presidents Budget • Since 1921, Presidents must propose an executive budget Congress. • Office of Management and Budget aids the Pres. Sends requests to agencies sets guidelines for agencies President sets policies and priorities OMB narrows down agency requests President must approve, send to Congress. Current Events • Obama proposes 4 trillion dollar budget. • CDC urges measles vaccinations amid nationwide outbreak; 100 cases confirmed so far Current Events • 'Accountant of Auschwitz' to go on trial in April on 300,000 counts of accessory to murder Congress and the Budget • Congress must approve the budget. • Power of the purse Reforming the Process Congressional Budget and Impoundment Control Act of 1974: -Fixed budget calendar: each step of the budget has a completion date - Budget Committee in Each House: Each must agree on a target total budget size. -Congressional Budget Office: advises Congress on the probable consequences of its budget decisions, and forecasts revenues. Reforming the Process Goal of reform: Push Congress to see the budget as a whole, not in parts. Budget Resolution: A resolution binding Congress to a total expenditure level (the bottom line)of all spending for all programs. -each house is to agree on a Budget resolution 2 Ways to Reach Budget Resolution 1. Budget Reconciliation: Process by which program authorization are revised to achieve required savings . -requires tax/revenue adjustment 2. Authorization Bill: An act of Congress that establishes, continues, a discretionary government program or an entitlement. -Establishes goals -Sets spending limits 2 Ways of Budget Resolution • Must pass an appropriations Bill to fund programs established by authorization bills. Appropriations Bill: An Act of Congress that Actually funds programs within limits established by authorization Bills. Success of the 1974 Reforms • Reforms a failure, Congress still overspends. • Continues to miss budget deadlines. • Resorts to passing Continuing Resolutions - Law that allows agencies to spend at their previous years level.