BUDGET STUDENT NOTES

BUDGET VOCAB Budget deficit Congressional Budget Office Discretionary spending Entitlement programs Fiscal policy Keynesian economics Mandatory spending Means-test programs Monetary policy Non-means tested programs Supply side economics

SOME BASIC INFORMATION Policy document allocating burdens and benefits FEDERAL gov. funds a substantial and diverse range of programs and activities from Pell Grants to scientific research to military operations 2 categories of spending MANDATORY spending: gov. allocates funds to all who are eligible based on legislation regardless of cost to the treasury Entitlement programs Means-tested or defined by legislation (non-means tested) Interest on national debt DISCRETIONARY spending: everything else Deficit occurs when expenditures exceed revenues Nat’l gov. spends more money than it receives = DEFICIT each yr. added to federal DEBT

THE PLAYERS Interest groups POTUS COTUS Agencies OMB – Office of Management and Budget COTUS CBO – Congressional Budget Office Budget Committees Standing Committees Appropriations Committees GAO – General Accounting Office

FEDERAL BUDGET BOTH POTUS and COTUS write the budget CONGRESS CONSTITUTIONALLY Funding levels for fiscal yr. based on incrementalism U.S. Constitution (Article I, section 9, clause 7) “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time." Budget Accounting Act 1921 – required the President to submit to Congress an annual budget for the federal government Congressional Budget and Impoundment Control Act of 1974 – calendar, budget committee, CBO, president cannot impound funds w/o approval

Fiscal Year Executive level Legislative level Funding for fiscal year – Oct. 1st – Sept. 30th Office of Management and Budget (OMB): responsible for drafting budget estimates spending, revenue and borrowing levels Executive level Congressional Budget Office (CBO): responsible for giving Congress budget projections, priorities, and balancing the OMB’s priorities with Congress’s policy interest Legislative level

BUDGET PROCESS - POTUS POTUS submits his budget request to Congress by first Monday in Feb. Proposal is a request – no binding authority Statement of administrations fiscal goals and policy preferences Economic projections and analysis Detailed program by program funding levels Introduces new policies, programs or changes they would like to enact (mandate) Prepared by the OMB

BUDGET PROCESS - COTUS Concurrent Congressional Budget Resolution – sets the TOTAL level of discretionary funding Budget committee (caps TOTAL amount for EACH piece of the pie) Filed by April 15th Send message about fiscal priorities of each chamber Sent to Appropriations committee Determine program by program funding (very specific program allocation) Separate appropriations bills Divide funding into specific programs: hold hearings, accept requests Differences often occur w/I each chamber ALL appropriations bills MUST pass BOTH chambers If not passed: 2 options 1) CR – continuing resolutions: operate government under temporary funds and last years budget 2) SHUTDOWN!

SOURCES OF REVENUE INCOME TAX (individual) Varies 0-35% SOCIAL SECURITY (FICA) Elderly, disabled, widowed, unemployed CORPORATE INCOME TAX EXCISE DUTIES Tax on liquor, tobacco, gas 10% excise tax on tanning Less than 5% CUSTOMS, DUTIES, TARIFFS BORROWING

Why a recession is bad… People are out of work, so they don’t get paid, so they don’t pay taxes, so the government doesn’t collect as much revenue People are out of work, so they don’t buy anything, small business can’t profit, they fire more people, go under and can’t pay as much taxes, so the government doesn’t collect as much revenue You see where I’m going here???

Nation In Debt Deficit Spending = Expenditures exceed revenue FY2011 deficit = $1.27 trillion FY2013 deficit = $901 billion Federal gov only level of gov able to borrow more money than it receives 1930: $16 Billion 1950: $260 Billion 1980: $909 Billion FY2010: $1.56 Trillion

MANDATORY V. DISCRETIONARY Budget allocation divided MANDATORY: MUST be spent aka “entitlements” ENTITLEMENT PROGRAM: Social security, Medicare, Medicaid (all paid for through payroll taxes) SS: 44 million in 2010 to 73 million in 2030 (it’s gonna run out!!! More people being paid than paying in!!! Even I can do that math) May absorb all federal revenues sometime around 2050 :-0 Solutions: raise the age/requirements (work longer) DISCRETIONARY: OPTIONAL EVERYTHING ELSE: defense, education, transportation, agriculture (think about Cabinet departments)

How did we get into this mess?!?! POLITICIANS USE THE BUDGET TO GET ELECTED! DUH! Republicans want to lower taxes SUPPLY SIDE ECONOMICS Democrats want to increase social programming and raise taxes on the wealthiest percentages to benefit and lower and middle class KEYNESIAN ECONOMICS