Chapter 14: Congress, The President, and the Budget The Politics of Taxing and Spending Federal Revenue and Borrowing Federal Expenditures The Budgetary Process Understanding Budgeting Summary

Federal Revenue and Borrowing Budget – A ________ document allocating burdens (taxes) and benefits (expenditures). Deficit – ________ of federal _________________ over federal revenues. – Total debt will be about $_____ trillion by To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman

Federal Revenue and Borrowing Expenditures – Government spending – Major areas are ________________ services and national ________________. Revenues – Financial ________________ of the government – Individual income tax and Social Security tax are two major sources. To Learning Objectives LO 14.1

Federal Revenue and Borrowing Personal and Corporate Income Tax – Income tax – Shares of ______________ wages and __________________ revenues collected by the government. – Sixteenth Amendment – Explicitly _______________ Congress to levy a tax on income. To Learning Objectives LO 14.1

Federal Revenue and Borrowing Social Insurance Taxes – Both employers and employees pay Social Security and Medicare taxes. – In 2010, employees and employers each paid a Social Security tax equal to __________ percent of the first $106,800 of earnings, and for Medicare they paid another _______________ percent on all earnings. To Learning Objectives LO 14.1

Federal Revenue and Borrowing Borrowing – Treasury Department sells ____________ when the federal government wants to borrow money. – Federal debt – All the _________________ borrowed by the federal government over the years and still outstanding. – Today the federal debt is about $______ trillion. To Learning Objectives LO 14.1

Federal Revenue and Borrowing Taxes and Public Policy – Tax Expenditures – Revenue _____________ from special exemptions, exclusions, or deductions allowed by federal tax law. – Tax Reduction – In 2001, tax cut gradually lowered tax rates over the next ten years, and in 2003, Congress ______________ the tax rates on capital gains and dividends. To Learning Objectives LO 14.1

Federal Expenditures Big Governments, Big Budgets – Big _______________ are necessary to pay for big _____________________. – National, state, and local government spend an amount equal to ___________________ of the gross domestic product (GDP). – National government’s spending alone currently represent about one-fourth of the GDP. To Learning Objectives LO 14.2

Federal Expenditures The Rise of the National Security State – In the 1950s and 1960s the Department of ______________________ received more than ___________% of federal budget. – Defense now gets about ___________ of all federal expenditures. – This is one reason for growth of government. To Learning Objectives LO 14.2

Federal Expenditures The Rise of the Social Service State – The biggest federal spender is now income security programs. – ____________ ______________ is #1 spender, now it includes disability benefits and _____________________, and its recipients are living longer. – This is another reason for government growth. To Learning Objectives LO 14.2

Federal Expenditures __________________________ – A description of the budget process where the best predictor of this year’s budget is last year’s budget, plus a little bit more (an increment). – According to Aaron Wildavsky, “Most of the budget is a product of previous decisions.” To Learning Objectives LO 14.2

Federal Expenditures Incrementalism (cont.) – Policymakers focus little attention on the _______________ _________________. – Agencies can safely assume they will get at least the budget they had the previous year. – Most of the debate and attention is on the proposed __________________. – Any given agency’s budget tends to grow a little bit every year. To Learning Objectives LO 14.2

Federal Expenditures “____________________” Expenditures – Expenditures determined by how many eligible beneficiaries there are for a program or by previous obligations of the government and that Congress therefore cannot easily control. – Social Security benefits are an example of uncontrollable expenditures. To Learning Objectives LO 14.2

Federal Expenditures “Uncontrollable” Expenditures (cont.) – Entitlements – Policies for which Congress has obligated itself to pay _____ level of benefits to _____ number of recipients. – Social Security benefits are an example of entitlements. To Learning Objectives LO 14.2

The Budgetary Process Budgetary Politics – Stakes and Strategies – Every _______________ actor has a stake in the budget. – Think of budgetary politics as a game in which players adopt various strategies. – There are plenty of players in the budgetary politics game, and they have their own strategies. LO 14.3 To Learning Objectives

The Budgetary Process Budgetary Politics (cont.) – The Players – Interest groups ________ for their needs; agencies push for higher budget requests; Office of Management and Budget (OMB) prepares the president’s budget; and the president makes the final decisions on what to propose to Congress. To Learning Objectives LO 14.3

The Budgetary Process Budgetary Politics (cont.) – The Players – Tax ________ in Congress write the tax codes; Budget Committees and the Congressional Budget Office (CBO) set the parameters of the congressional budget process; and subject-matter committees write new laws, which require new expenditures. To Learning Objectives LO 14.3

The Budgetary Process Budgetary Politics (cont.) – The Players – ____________ Committees decide who gets what and their subcommittees hold hearings on agencies’ requests; Congress as a whole approves taxes and appropriations; and the Government Accountability Office (GAO) audits, monitors, and evaluates what agencies are doing with their budgets. To Learning Objectives LO 14.3

The Budgetary Process The President’s Budget – __________ and ________________ Act (1921) requires presidents to propose an executive budget to Congress and created the Bureau of the Budget to help them. – In the 1970s, President Nixon reorganized the Bureau of the Budget and ____________ it the Office of Management and Budget (OMB). To Learning Objectives LO 14.3

The Budgetary Process The President’s Budget (cont.) – Spring – Budget policy ________________. – Summer – Budget decisions conveyed to _______________. – Fall – ___________________ reviewed. – Winter – President’s ______________ determined and submitted. To Learning Objectives LO 14.3

The Budgetary Process Congress and the Budget – Congressional __________ and ___________________ Control Act of 1974 was designed to reform the congressional budgetary process. – It established a fixed budget calendar; a budget committee in each house; and a congressional budget office. To Learning Objectives LO 14.3

The Budgetary Process Congress and the Budget (cont.) – Congressional Budget Office – To _______ Congress on the probable consequences of its decisions and to forecast revenues. – Budget Resolution – A resolution binding Congress to a total expenditure level, supposedly the ___________ ____________ of all federal spending for all programs. To Learning Objectives LO 14.3

The Budgetary Process Congress and the Budget (cont.) – ___________________ – How program authorizations are revised to achieve required savings. – Authorization Bill – _____________, continue, or change programs. – Appropriations Bill – ____________ programs established by the authorization bills. To Learning Objectives LO 14.3

The Budgetary Process Congress and the Budget (cont.) – Budgets were in _________________ every year between 1974 reforms and – _______________ Resolutions – Allow agencies to spend at last year’s level when Congress can not pass appropriations bills on time. – Omnibus Bills – Appropriations bills all together in one bill and not 13 appropriations bills. To Learning Objectives LO 14.3

The Budgetary Process Congress and the Budget (cont.) – The 1974 reforms have helped Congress view the entire budget early in the process. – The problem is not so much the ________________ as disagreement over how scarce resources should be _____________. To Learning Objectives LO 14.3

Understanding Budgeting Democracy and Budgeting – Many politicians ________ money to ______ votes. – Bigger budgets – Many groups and people ask for government assistance. – People like government programs, but they really do not want to _______ for them, thus there are deficits and federal debt. LO 14.4 To Learning Objectives

Understanding Budgeting The Budget and the Scope of Government – The size of budget is the scope of government. – The bigger the ______________, the bigger the ___________________. – Limits on revenues can limit what the government can do. To Learning Objectives LO 14.4