Chapter 4 additional terms Inflation\unemployment relationship Monetary and fiscal policy How Federal Reserve sets monetary policy Demand side vs. Supply side (as in Lafer curve) Line item veto\Balance Budget Amendment Budgets and Taxes Note: the less important slides are hidden Go to View | Slide Sorter to see them all

Revenues and Spending (Outlays)

FEDERAL BUDGET TIMELINE For Fiscal Year 2015 February to March President submits budget request to Congress. Administration and agency officials testify in support of the budget request. Appropriations subcommittees (House and Senate) hold hearings with agency heads and outside public witnesses. May House and Senate adopt budget resolutions prepared by Budget Committees.<= BUDGET RESOLUTION Appropriations Committees (House and Senate) make 302(b) allocations [SPENDING TARGETS]*. June <= APPROPRIATION BILLS (13) House Appropriations Subcommittees prepare appropriations bills. Senate Appropriations Subcommittees revise the House-passed bills. July-August House passes spending bills; Senate passes revised bills. September House-Senate conference committees resolve differences and agree on final versions of spending bills. President signs or vetoes final bills. October Beginning of fiscal year Congress passes continuing resolutions to maintain funding for any agencies affected by appropriations bills that have not been passed and signed by the beginning of the fiscal year.

Senate Committees Authorization: Agriculture, Nutrition, and Forestry Armed Services Banking, Housing, and Urban Affairs Commerce, Science, and Transportation Energy and Natural Resources Environment and Public Works Foreign Relations Health, Education, Labor, and Pensions Homeland Security and Governmental Affairs Judiciary Small Business and Entrepreneurship Veterans' Affairs Appropriations Subcommittees Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Commerce, Justice, Science, and Related Agencies Dpt of Defense Dpt of Homeland Security Dpt of the Interior, Environment, and Related Agencies Dpts of Labor, Health and Human Services, and Education, and Related Agencies Energy and Water Development Financial Service and General Government Legislative Branch Military Construction and Veterans Affairs, and Related Agencies State, Foreign Operations, and Related Programs Transportation and Housing and Urban Development, and Related Agencies Also: Budget Committee and Finance Committee

Recent House and Senate Budget Resolutions

BUDGET CONTROL ACT OF 2011 Raises the Debt Ceiling in exchange for long term budget cuts (900 Billion 1.2 Trillion) over ten years. “Supercommittee must produce something better by November 23, 2011 (it didn’t) Mandatory cuts now go into place, beginning January SEQUESTER: Cuts: across the board cuts, except Social Security, Medicare and Medicaid beneficiaries

Total Government Surplus\ Deficit, % of GDP OECD Economic Outlook, Statistical Appendix, 2012

Total Government Debt, % of GDP OECD Economic Outlook, Statistical Appendix, 2012

Ten Largest Deficits and Debts, % of GDP, 2012 Health CareHealth Care | Education | Higher Education | Poverty | Crime and Punishment | Debt and Deficits | DefenseEducationHigher EducationPovertyCrime and Punishment Debt and DeficitsDefense OECD Economic Outlook, Statistical Appendix, 2012 Debt Greece 146% Japan 134 Italy 98 United States 86 Portugal 83 Belgium 83 Ireland 80 United Kingdom 73 France 66 Spain 58 Deficits Japan -9.9% United States -8.5 Ireland -8.1 Spain -8.1 Greece -6.9 United Kingdom -6.6 Portugal -5.2 Israel Slovak Republic -4.6 France-4.5

Fiscal 2013 Budget

Surplus\Deficit

Revenues and Spending (Outlays)

Defense and Medicare

Medicare Trust fund exhausted in 2024 Social Security Trust Fund exhausted in 2036

Debt triples Interest Payments go down

Federal Revenues (billions)

Taxation

Fairness? absolute equity – all benefit from government – all should pay equally (head tax) Ability to pay -- justification for progressive taxation (graduated income tax) Benefit principle -- tax in proportion to the benefit (gas tax, social security payroll tax)

Economic Neutrality -- Tax systems should exert minimal impact on the spending and business decisions of individuals and businesses. Violations of neutrality: (create positive and negative externalities) tax subsidies for oil drilling, homeownership, health care Tax incentives for positive social behavior Sin taxes Brick and Mortar Sales tax vs Internet sales

Top 20 Biggest Tax Expenditure of US Govt.

Efficiency and Simplicity Cost of collecting taxes (toll roads vs. IPass) Cost of compliance (tax lawyers and accoutnants)

Visibility Taxes should not be hidden – those who bear the burden should be aware (Hidden taxes: Gross Receipts Tax, Lottery?)

Other principles Broad base (to allow lower rates) Predictable and stable supply of revenue Diverse sources (for stability and lower rates) Addresses geographic competition

RECEIPTS BY SOURCE: %OF GDP: 1950–2015

TAX RATES

National Debt: % of GDP