Download Financing the Government

Financing the
Government
{
Federal Budget
1.
2.
3.
4.
Economic growth
Low unemployment
Stable prices for goods & services
Balanced budget
5.
Federal Govt Economic
Goals
1.
Revenue Collection
a.
b.
c.
2.
Taxes & tariffs
Loan interest
Fees & Misc.
Borrowing
a.
b.
Bonds
Credit from foreign countries
Funding Sources
1.
Tax Collection
A. Income tax
1. Largest percentage of govt revenue (47%)
2. 16th Amendment
a. Progressive tax – more income = more tax
b. 10 % - 35% of a taxpayer’s income
3. All American citizens & resident aliens
Revenue
b. Payroll taxes
1. Social Security, Medicare & other social insurance forms
a. used to pay for these programs
2. 34% of govt revenue
3. regressive tax – higher tax rate for low-income earners
a. tax applicable on income to a certain
amount
4. proportional tax – applied @ same rate for all
Incomes
a. Medicare
Revenue
C. Corporate income tax
1. tax on corporation’s incomes
D. Excise tax
1. tax on certain goods
a. gasoline
E. Tariffs
a. import tax
F. Estate & gift tax
a. tax on inherited money & property
Revenue
E.
2. Nontax sources
A. Federal Reserve System
1. Interest from bank loans
2. Fed provides loans to commercial
banks
B. Fees
1. Entrance fees to National Parks
Revenue
Federal Reserve System
1.
2.
Constitution
a.
Article 1, Section 8, Clause 2
b.
Expressed power of Congress
Bond Sales
a.
Buy bond for a certain amount – on loan to
federal govt – bond is worth more @ a later date –
interest on the bond
b.
Private people
c.
Foreign countries
Borrowing
Bonds
1.
Mandatory Spending
a.
Required by law & not subject to budget process
b.
Used for entitlement programs
1. Social Security, Medicare & Medicaid
a. also include unemployment
compensation, SNAP , EIC & child tax credits
1. Can’t deny funding w/o changing the law
2. Rising funding needs
a. 60% of mandatory spending budget
Government Spending
2. Discretionary Spending
A. Budget process
B. Appropriation power of Congress
1. Allocate limited funds to nonmandatory spending agencies & programs
a. National Defense
b. Government
c. Cabinet departments
Government Spending
President
A. Proposes budget
1. assistance from the OMB
B. Presents to Congress
2. Congress
A. President’s budget = guidelines & makes changes
1. Assistance from Congressional Budget
Office (CBO)
a. non-partisan
b. provides expert economic
analysis
1.
Budget Process
B. Pass concurrent Resolution of total revenue
& spending
*House & Senate Appropriations Committees
*individual funding & revenue
resolutions
Budget Process
*Appropriation bills
*Presidential approval
Budget Process
3. Conflicts in the Budget Process
A. Limited $ for discretionary spending
B. Funding disputes between President
& Congress
C. Government Shutdown
1. no approved budget
Budget Process
Financial policies of the US
a. federal budget creation
b. tax laws
2. Provide adequate government spending w/o adversely
affecting the economy
3. Boost economy
*Increased target gov’t spending
1.
*Stimulate economic sectors to produce more goods & hire
more people
Fiscal Policy
*Cutting taxes
*People have more personal money =
Increased consumer spending &
investment
Fiscal Policy
4. Increased govt spending w/tax cuts can cause
budget deficits & slow the economy
*Increasing interest rates
*Less borrowing & business expansion
Fiscal Policy
5. Too much govt spending can trigger
inflation & reduced standard of living
*Rise in cost of goods & services =
People must buy w/same amount of
money
Fiscal Policy
6. Govt measures to curtail inflation
a. Reduce govt spending
b. Raising taxes
c. Raising interest rates
Fiscal Policy
1.
2.
3.
Control amount of money in circulation
Controls interest rates
Federal Reserve “The Fed”
A. Implements monetary policy
1. adjust interest rates
2. buying & selling govt bonds
Monetary Policy
B. Interest rates
*higher interest rates = lower borrowing
*Less money in circulation
*lower interest rates = more borrowing
*More money in circulation
Monetary Policy
C. Buying & selling govt bonds
*Buying bonds = removes money from
circulation
*Selling bonds = adds money to circulation
Monetary Policy
*More money in circulation
*Economic Growth
Monetary Policy
*Inflation
*Less money in circulation
*Reduce inflation
*Slow economic
growth
Monetary Policy
1.
Limits to effectiveness of fiscal & monetary policy
a.
Takes time to see results
b.
Evolving economic problems
2. Federal Debt
A. All money borrowed by the govt that hasn’t
been repaid
1. National Debt
2. approximately $ 18 trillion
Deficit Spending &
Economic Problems
B. Deficit
1. Govt must spend more than it earns
2. Govt only pays the interest of National Debt
C. Deficit spending common in US budget
1. 2001 – Present
2. Increasing demands on Social Security &
Medicare
a. aging Baby Boomer generation
Deficit Spending