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U.S. Government, Book 2
Lesson 17 Handout 30
(page 1)
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The Budget of the United States
Part A.
Read the following selection, and answer the questions.
The federal budget is the plan detailing how the U.S. government intends to
spend its revenue. The budget indicates how the government will pay for its many
activities, whether through taxes or through borrowing. It both affects and is
affected by the nation's economy. The national economy is affected when revenues
spent increase productivity. The budget is affected during times of high employment, when people are earning more and revenues raised by the government enable it
to fund more programs as well as shrink the national debt. Finally, the federal
budget is a historic record of how the government has spent money in the past, as
well as how the past budgets have been financed.
Generally, the federal government plans its budget like many families do their
budgets. The president and Congress determine how much money they expect the
government to receive in the next few years, its sources, and how to spend it in
order to meet various governmental goals such as national defense, foreign affairs.
Social Security, health insurance, education, law enforcement, transportation,
science, technology, and many others. They also decide how to use the budget to
help the economy grow as well as to redistribute income.
Revenues come from the following sources:
•
individual income taxes, which are estimated to raise $972 billion in
Fiscal Year (FY) 2001 or 9 percent of GDP (Gross Domestic Product,
which measures the size of the national economy)
•
social insurance payroll taxes, which include Social Security taxes,
Medicare taxes, unemployment insurance, and federal employee retirement payments (This area has grown from 2 percent of the GDP in 1955 to
6.8 percent in 2001.)
•
corporate income taxes, which will raise about $195 billion and will
account for 1.9 percent GDP in 2001, down from 4.5 percent in 1955
•
excise taxes on various products including alcohol, transportation fuels,
and telephone services, some of which are earmarked for specific purposes and used by the government, such as highways and airports
•
other revenues collected, including estate and gift taxes, customs duties
and other revenues such as Federal Reserve earnings, fines, penalties, and
forfeitures
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U.S. Government, Book 2
Lesson 17 Handout 30
(page 2)
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The following chart summarizes these revenues and shows projections for receipt of
these through 2005.
Estimate
Source
Individual
income taxes
Corporate
income taxes
Payroll taxes
Excise taxes
Estate and
gift taxes
Customs duties
Miscellaneous
revenues
Total Revenues
1999
Actual
879
2000
20O1
2002
20O3
2004
2005
952
972
995
1,026
1,066
1,117
185
192
195
195
196
200
206
612
650
682
712
742
771
815
70
28
68
30
77
32
80
35
81
36
82
39
83
37
18
35
21
43
21
40
23
41
24
43
26
53
28
55
1,827
1,956
2,019
2,081
2,147
2,236
2,341
Notes: The revenues listed in this table do not include revenues from the Government's businesslike
activities—such as entrance fees at national parks. Instead of counting these collections as revenues, the
Government subtracts them from spending. This produces totals for revenues and spending that show the
level of Government activity without the businesslike activity.
Numbers may not add to the totals because of rounding.
Categories of spending the $1.8 trillion 1 raised in fiscal year 2001 contained in the
federal budget are as follows:
•
Social Security is the largest and provides monthly benefits to over 45 million
retired, disabled workers, and their survivors and dependents and accounts for 23
percent of all federal spending.
•
Medicare provides health care for 40 million elderly (over 65 years of age) and
people with disabilities. It consists of Part A (hospital insurance) and Part B
(insurance for physician costs and other services), which accounts for 12 percent
of the federal budget.
•
Medicaid provides health services to the poor, disabled, and those in nursing
homes and accounts for 7 percent. This particular cost is shared with the states.
The federal government pays between 50 and 83 percent of the total cost
depending upon each state's requirements.
•
Other means-tested programs provide aid to families with incomes lower than a
certain minimum. These include Food Stamps, food aid to Puerto Rico,
Supplemental Security income, Child Nutrition, Earned Income Tax Credit, and
veterans' pensions, and account for 6 percent of the budget.
'This amount does not include all of the Government's spending. As explained under "Revenues," the Government subtracts
collections from its businesslike activities, such as entrance fees at national parks, from spending instead of adding them t o
revenues. These collections are estimated to be almost $215 billion in 2001. If they were not subtracted from spending,
spending would total an estimated $2.0 trillion in 2001, not $1.8 trillion.
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U.S. Government, Book 2
Lesson 17 Handout 30
(page 3)
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•
Another 6 percent is used in mandatory spending programs, such as federal
retirement and insurance programs, unemployment insurance, and payments to
subsidize farmers.
•
National defense discretionary spending totaled $292 billion in FT 2001 and
represented 16 percent of the budget.
•
Non-defense discretionary spending, such as education, training, science, technology, housing, transportation, and foreign aid comprise 19 percent of the 2001
budget, down from 23 percent in 1966.
•
Interest payments account for 11 percent of the budget and have dropped due to
a budgetary surplus. This surplus of 9 percent will not be spent. Several
proposals for its use, such as debt reduction and strengthening of Social Security
and Medicare, have been made.
The following graph illustrates how revenue is spent.
Outlays $1,835 billion
Defense
Discretionary
Non-Defense
Discretionary
19%
Other Means-Tested
Entitlements' 6%
Other Mandatory
6%
'Means-tested entitlements are those for which eligibility is based on income. The Medicaid program is
also a means-tested entitlement.
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U.S. Government, Book 2
Lesson 17 Handout 30
(page 4)
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The process of creating the federal budget for a particular fiscal year begins when
the president submits his proposed budget, by the first Monday in February, for the
fiscal year beginning October 1. The president consults with his advisors and
officials from the Cabinet departments and other agencies, and then a budget is
prepared by the Office of Management and the Budget (OMB). This is just a plan the
president submits to Congress. The federal budget is only official when Congress
passes it in its final form and then the president signs it.
Congress, upon receipt of the president's proposal, must pass a budget resolution.
This is a framework upon which the members of Congress will build a final budget.
They must decide what will be included and targets for total spending, revenues, the
deficit, and allocations within the budget must be considered. Spending is divided
between discretionary spending, which includes money for the Coast Guard, FBI,
housing, education, space exploration, highway construction, defense, and foreign
aid, and is about one-third of all federal spending. Mandatory spending accounts for
two-thirds of the budget and is authorized by permanent laws and includes Social
Security, Medicare, veterans' benefits, and food stamps. Also included is any interest
on the national debt. In other words, Congress must act in order to provide spending
authority for discretionary programs, while a change in spending for mandatory
programs requires a change of current law.
Once the budget resolution is passed. Congress must pass thirteen appropriation
bills and any additional bills authorizing changes in mandatory spending and
revenues.
The proposed budget is examined in numerous congressional committees, each of
which has jurisdiction over a particular portion of it. Cabinet members and other
government officials work with Congress as it accepts or rejects certain portions of
the proposed budget. Once agreement has been reached, Congress passes the budget
in its final form and submits it to the president for his signature.
However, the work on that budget is not complete once the president signs it.
The government must monitor it to see that its provisions are properly fulfilled. This
oversight ensures that the agencies comply with the legal limits on spending, the
programs operate according to existing policy, and the programs are well-managed
and achieve the intended results. This oversight is done through agency program
managers and budget officials, the OMB, congressional committees, and the General
Accounting Office, the auditing arm of the Congress.
1. What is the purpose of the federal budget?
2. How does the federal budget affect the economy?
Source: A Citizen's Guide to the Federal Budget of the United States Government, Fiscal Year 2001, <http://www.gpoaccess.gov/
usbudget/fy01/pdf/guide.pdf> (10 May 2004).
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U.S. Government, Book 2
Lesson 17 Handout 30
(page 5)
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3. How is the federal budget affected by the economy?
4. What are the major sources of income for the federal budget?
5. What are the major areas of spending included in the federal budget?
6. Name and describe the steps in the process of creating the federal budget.
7. Why does work on any particular federal budget not stop with its passage and a presidential
signature?
8. Could the budgetary process be streamlined? If yes, how? If not, why? Be specific in your
response.
Part B.
Your group represents the president and his major budgetary advisors. Your task is to draw up a
proposed budget for the upcoming fiscal year. Use Part A as a guide, and list and describe how the
revenue raised will be distributed in your proposed budget. Prepare a detailed description of how
much money is to be allocated to the various items with each budget category. Include a rationale for
your decisions and a description of how the revenue necessary to support the proposed budget will
be raised.
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