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AP Government 11.30.16 To Do Today Announcements/News • Budget discussion or work day? • RCQ 13.3-13.4 • ? To Do Homework/ Tomorrow • Chapter 13 test - Monday RCQ 13.3-13.4 1. 2. 3. 4. Congress drafts a budget resolution establishing a total expenditure level before it embarks on making the actual budget. T/F (1) Which statement accurately characterizes the politics of budgeting? (1) a. Agencies within the gov’t work to protect their interest over the budget. b. Members of Congress act as policy entrepreneurs to support constituent benefits. c. Presidents try to use budgets to manage the economy. d. State politicians request grants-in-aid to assist local economies. e. All of the above are accurate, as every political actor has a stake in the budget. Incrementalism requires budget makers to build the budget anew for each fiscal year. T/F (1) There are many different players in the national budgetary process. Name three of these players, indicating their role in the process. (6) RCQ 13.3-13.4 1. 2. 3. Congress drafts a budget resolution establishing a total expenditure level before it embarks on making the actual budget. T/F (1) Which statement accurately characterizes the politics of budgeting? (1) a. Agencies within the gov’t work to protect their interest over the budget. b. Members of Congress act as policy entrepreneurs to support constituent benefits. c. Presidents try to use budgets to manage the economy. d. State politicians request grants-in-aid to assist local economies. e. All of the above are accurate, as every political actor has a stake in the budget. Incrementalism requires budget makers to build the budget anew for each fiscal year. T/F (1) 4. There are many different players in the national budgetary process. Name three of these players, indicating their role in the process. (3) The Players---WHO WANT SOMETHING 3 Major Groups Interest Groups! The People The Media CBO The House Ways and Means Committee— Senate Finance Committee---WRITE TAX OMB CODES subject to the The President approval of Government Agencies Congress/President GAO—Government Appropriations Accountability Office— Committees—Decides Auditing/monitory and who gets What evaluating what agencies are doing with the budgets… Deficit: when expenditures exceed revenues National Debt: the total amount of deficits we have had since George Washington was president (Yearly Deficits over time becomes the National Debt) Definition of Budget • A policy document allocating BURDENS (taxes) and BENEFITS (expenditures). »Who bears the BURDENS of paying for government? »Who receives the BENEFITS? 16th Amendment • The Constitutional Amendment adopted in 1913 that explicitly permitted Congress to levy an income tax. – Congress was already levying taxes before this. – IRS was established to collect them at this point. Jobs of the IRS 1. Scrutinize Individual tax returns every year (receives more than 140 million every year). 2. Audit more than 750,000 of them. 3. Investigate suspected criminal violations of tax laws. 4. Prosecute and secure convictions of nontaxpayers or criminal activity. Expenditures: Where the Money Goes 2 PLACES Mandatory •Mandatory spending includes entitlement programs like Social Security, Medicare, Medicaid and interest payments on the federal debt. (usually ~60% of all expenditures) Discretionary •Discretionary expenditures are monies that Congress has the power to cut if it chooses (national defense, education, environmental protection, law enforcement, research, international aid, and government operations) Economic Policy Making • Council of Economic Advisers: professional economists sympathetic to the president’s view of economics • Office of Management and Budget: prepares estimates of amounts to be spent by federal government agencies; negotiates department budgets • Secretary of the Treasury: reflects the point of view of the financial community Copyright © Houghton Mifflin Company. All rights reserved. 18 | 11 United States Secretary of the Treasury Official Seal Jack Lew since: February 27, 2013 First Alexander Hamilton Formation September 11, 1789 Presidential succession Fifth Website www.treasury.gov The Federal Reserve Board • Regulates the supply and price of money • Sets monetary policy: the effort to shape the economy by controlling the amount of money and bank deposits and the interest rates charged for money Copyright © Houghton Mifflin Company. All rights reserved. 18 | 12 Federal Reserve System Seal Chair Janet L. Yellen Central Bank of United States Currency US dollar Base borrowing rate 0–0.25% Base deposit rate 3.5% Website Federalreserve.gov Where Does All The Money Go? • Forty-nine percent, or almost half of all spending, paid for Social Security and health care entitlements (primarily Medicare and Medicaid). • In 2003, the entitlement share of the budget was 44 percent, compared with 49 percent today. Without reform of these massive and growing programs, Washington will have to borrow increasing amounts of money, piling debt onto younger generations and putting the nation on a dangerous economic course. • Social Security is the largest federal spending program and has held this position since surpassing defense spending in 1993. • Medicare is one of the largest and fastest-growing programs in the entire federal budget. Debt Is Too High, and Growing • Federal gross national debt consists of the publicly held debt (borrowed from credit markets) and intragovernmental debt, such as the Social Security Trust Fund. • Publicly held debt exceeded $13 trillion in 2014, and together with nearly $5 trillion in intragovernmental debt, drove the national debt to nearly $18 trillion. • In 2014, the national debt exceeds $145,000 per American household. • In 2014, publicly held debt reached 74.4 percent of GDP. The historical average is about 38 percent. • Baseline budget projections assume that Congress will allow a host of tax provisions to expire, an unlikely proposition. If Congress also ignores future sequestration cuts and continues the “doc fix” (reversing a scheduled payment cut to physicians who serve Medicare patients), publicly held debt would surge to 86 percent of GDP by 2024—the largest share since 1948. Budget Breakdown (Episode 1) http://www.youtube.com/watch?v=fWu8o-ZzUNs Who Creates and Institutes the Budget • The President and Congress • Some SPECIFIC INFORMATION TO KNOW! • *Before 1921, agencies of the executive branch sent their budget requests to the secretary of treasury who then forwarded it on to Congress Incrementalism! REFORMS to CONTROL SPENDING in 1974 with the Congressional Budget and Impoundment Control Act CBO Advises Congress on the Budget •Forecast Revenues •Forecast Consequences/Benefits of the Proposed Budget •Work Horses! Budget Resolution Congress Agrees to Spending Levels •Bottom Line In order to MAKE ANY CHANGES CONGRESS MUST PASS- Reconciliation Take a look at the Presidents Budget and make the necessary adjustments to meet the demands of the Budget Resolution. This is where tax or revenue adjustments are made. Must be PASSED BY CONGRESS Authorization Bill Make any changes to discretionary government programs or entitlement programs Appropriations Bill The ACTUAL funding of the new Budget Continuing Resolution Allows departments to spend at the previous years spending IF THEY CAN”T AGREE Congress How much should be spent Bill that funds programs Last Minute Changes In an attempt to save money within the budget, they changed the way a budget was thought of… Reconciliation is a multiple-step process designed to bring existing law in conformity with the most recently adopted concurrent resolution on the budget. ---In other words—They know what they have to do, but how will they spend within their means? • Authorization Bill allows Congress to change the language of distribution of entitlement programs (Uncontrollable Expenditures) to maximize the available funds – 2/3 of the Federal Government Gramm-Rudman Balanced Budget Act (1985) • Called for automatic cuts from 1986–1991, until the federal deficit disappeared • If there was a lack of agreement between the president and Congress on the total spending level, there would be automatic across-the board cut (a sequester) • The president and Congress still found ways to increase spending – – – – – War Natural Disasters 9/11 New Cabinet Positions: Department of Homeland Security Increase of Coverage for Medicaid Prescription Drug Coverage 18 | 24 1990 Budget Strategy • Congress voted a tax increase and the Budget Enforcement Act capped non-entitlement (discretionary) funding • If entitlement spending increased, there had to be cuts in discretionary spending or taxes had to be raised 18 | 25 Levying Taxes • Most revenue was derived from tariffs until ratification of the Sixteenth Amendment (1913) • Taxes then varied with war (high) and peace (low) 18 | 26 Levying Taxes • George H.W. Bush and Clinton increased tax rates, keeping deductions low • Balanced budget switched policy debates to tax cuts, but Social Security and Medicare policy problems remain Copyright © Houghton Mifflin Company. All rights reserved. 18 | 27 Gov’t Budget Cuts? • http://www.businessinsider.com/50suggested-budget-cuts-for-the-usgovernment-2010-6#