1. Government Spending
Chapter 10

2. Goals & Objectives
Explain how and why gov’t spending has increased since the 1940’s.
Describe 2 kinds of gov’t spending.
Describe how gov’t spending impacts the nation’s economy.
Explain the budgeting process.
Describe parts of the budget process.
Describe State and Local Spending categories.
Explain the federal deficit & debt.
Describe past attempts to lessen the debt.
Relate entitlements to the national debt.

3. The Economics of Government Spending
2013: Federal, State, Local $4.7 Trillion
Per Capita: (per person) $12,000 for every man, woman, and child in the U.S.
Public Sector: 1942 Public Revenue Act
WWII
Public Opinion shifts toward Socialism.
Success of GDP with gov’t spending.

4. Public Jobs & Spending

5. WWII Economy & Gov’t Spending

6. Two kinds of Spending
1. Good and Services: tanks, planes, ships, office supplies, military labor.
The Federal Government is the largest
American consumer.
2. Transfer Payments: “a payment for which the government receives neither goods nor services in return” (TINSTAAFL)

7. Types of Transfer Payments
1. Social Security
2. Welfare
3. Unemployment Compensation
4. Grant-in-aid:
Grant-in-aid: one level of government to the next level: highway funds, public schools, food stamps, welfare, subsidized housing, Obamacare.

8. Transfer Payments & States

9. Discretionary Spending “Façade”

10. Total Federal Spending 2013

11. Impact of Government Spending
Affecting Resource Allocation: Tanks or Milk subsidies?. Welfare or Disabled Veterans?
Redistributing Income: TANF, SDI, Food Stamps, Pell Grants, NITC.
Competing with Private Sector: Public College Costs increases with Pell Grant increases. Obamacare mandates and health insurance premiums/copays.

12. Food Stamp Nation

13. Entitlement Nation

14. Federal Government Expenditures
Federal Budget: a plan on how much to spend.
Mandatory Spending: without the Congress (Interest on debt, SSA, Medicare)
Discretionary Spending: Military & Welfare
Federal Budget Deficit: “Plan” to spend more than receipts
Federal Budget Surplus: “Plan” to receive more tax revenues than expenditures.

15. House & Senate Budget
House: Budget starts in the House of Rep. Discretionary Spending only.
Appropriations Bill: act of Congress authorizing agencies to spend money.
Committee/Subcommittee: Pork-Barrel Spending
Senate: Conference Committee & CBO input or complete rewrite of bill.

16. Congress Budget Compared

17. State Government Expenditures
Intergovernmental expenditures: Public Welfare, medical care, welfare institutions, miscellaneous welfare expenditures, higher education, highway construction.

18. Grant-in-aid Spending

19. Deficits, Surpluses, and The National Debt
1. Deficit Spending: spending in excess of revenues collected.
2. Federal Debt: total amount borrowed from investors to finance the government’s deficit spending
Balanced Budget Admendment: constitutional limitation on spending

20. Presidential Deficits

21. Future Deficit Spending

22. 17.6 Trillion -25 Trillion by 2020

23. Who do we owe?

24. Trust Funds
Debt held in government trust funds: special accounts used to fund: Social Security, Medicare
Al Gore’s Presidential Campaign 2000:
“Lockbox”?

25. Trust Fund Debt

26. Public vs. Private Debt
Private citizens borrow there is a plan to pay it back
Federal Government borrows there is no thought about how, or when to pay it back:
1. Increase taxes to pay
2. Borrow more money to pay

27. Impact of The National Debt
1. Impacts the distribution of income: Gov’t borrows from the wealthy and taxes the middle class to pay for the interest on the debt.
2. Transfer of purchasing power from the private sector to the public sector: The larger the debt the more TAXES needed to pay off the interest.

28. Debt as % of GDP

29. Impact of the National Debt
3. Taxes needed to pay the interest on debt: creates a diminished incentive to work, save or invest.
4. Crowding-Out Effect: Government borrowing takes money out of circulation for the private sector.

30. Taming the Deficit
1990: BEA,(Budget Enforcement Act) pay-as-you-go provision: New spending must accompany cutbacks in other programs
Gramm-Rudman-Hollings: Balanced Budget & limitation on spending failed in the Congress. Why?

31. Taming the Debt 3. Omnibus Budget Reconciliation Act of 1993
President Clinton: Reduce the rate of the deficit not the deficit itself.
4. Balanced Budget Agreement of 1997:
Line-item veto: unconstitutional
Spending caps: legal limits on annual discretionary spending.

32. Success---Failure 1. 2001 recession 2. 2001 Terrorist Attack
Wars in Afghanistan & Iraq
---Entitlements: Largest growth in government spending.