Government Finances Chapter 25

The Federal Government Chapter 25 Section 1

Words to Know  Budget: A plan for making and spending money  Fiscal Year (FY): 12-month planning period that may not coincide with the calendar year  Budget Resolution: Congressional document that shows total spending and revenues for a year and how much it will be spent in various categories  Mandatory Spending: Federal spending required by law that continues without the need for annual approvals by Congress  Discretionary Spending: Spending for federal programs that must receive annual approval

Words to Know  Appropriations Bill: Legislation earmarking funds for certain purposes  Tax Return: Annual report filed with local, state, or federal govt. detailing income earned and taxes owed  Payroll Tax: Tax on wages and salaries to finance Social Security and Medicare costs  Social Security: Federal programs that provide monthly payments to people who are retired or unable to work  Medicare: Govt. program that provides health care for the aged

Preparing the Budget  Federal govt. spends a huge amount of money  Budget created yearly:  Pres. and Congress create it  Govt. uses Fiscal Year:  Oct. 1 st -Sept. 30 th  Budget starting on 10/1/05 is the fiscal year 2006 budget

The Budget Process  Law= Pres. must propose budget to Congress by 1 st Monday in Feb.:  Pres. outlines where govt. should spend money  Congress then passes Budget Resolution:  Spending divided into 2 categories:  Mandatory  Discretionary

The Budget Process cont.  Mandatory Spending:  Examples:  Social Security Benefit Checks  Interest payments on govt. debt.;  Must be paid yearly  Discretionary Spending:  Examples:  Coast Guard  Agriculture  Space Exploration  Highway Construction  Defense  Makes up about one-third of Fed. Budget

Appropriations Bill  Before Govt. can spend money, Congress must pass appropriations bill:  Congress splits discret. spend. Into 13 separate appropriations bills  Bills go through normal bill process  Each bill must be approved by both houses  Pres. Signs or vetoes

Federal Revenues  Federal Budget has 2 main parts:  Revenues  Expenditures  Pg. 544 chart  Left side  Federal Revenues

Taxes on Incomes and Profits  Income tax supplies nearly ½ of Fed. Govt. revenue  Portion of people’s paychecks withheld  End of year:  Workers file tax return  Paid too much tax=return  Paid too little tax=owes  Corporations pay income tax on earned profits:  10% of federal revenue

Payroll Taxes  2 nd largest source of Federal Income:  Payroll Taxes:  1/3 rd  Social Security  Medicare

Other Revenues  Excise Tax on purchases:  Gasoline  Tobacco  Alcohol  Legal betting  Telephone service  3.4 cents of every dollar collected  Wealthy people die:  Govt. collects estate tax on wealth passed to heirs

Other Revenues cont.  Govt. charges tax on certain gifts  Gift tax and estate tax make-up 1.3 cents of every fed. revenue dollar  Misc. sources account for 2% of fed. revenue:  National Park entry fee  Fees paid by oil companies  Drill on public land

Forms of Taxation  Proportional Tax:  Takes same % of income from everyone  Regardless of how much one makes  Progressive Tax:  Tax rate increases as your income increases  Higher the income, higher the tax

Forms of Taxation cont.  Regressive Tax:  Opposite of progressive tax  % taxed goes down the more money you make  Example:  Poorer families spend larger proportion of income buying gasoline  Sales tax they pay on gasoline takes up larger proportion of their total income

Federal Expenditures  Pg. 544 chart  Right side  Expenditures

SS, Medicare, Income Security, Health  Social Security (SS):  Largest spending category  21.2 cents of every fed. dollar spent in `06  More older people expense grows  Medicare costs will rise as population ages:  4 th largest category

SS, Medicare, Income Security, Health cont.  Income Security:  Retirement benefits:  People who worked in govt.  Served in military  Retirement payments to railroad workers  Disabled coal miners  Payments to poorer Americans for housing and child nutrition

SS, Medicare, Income Security, Health cont.  Health:  Payments for Medicaid:  Health care for low incomes  Spending on research to find cures for diseases

National Defense  2 nd largest category of fed. spending:  2001= 16.4 cents of every Fed. dollar spent:  Change because of wars

Interest on Debt.  Portion goes to pay interest on money the govt. has borrowed  Amount depends on how much has been borrowed  Interest rate %  7 th largest expenditure

Other Expenditures  Money spent on education, highways, natural resources:  Billions of dollars of spending

Homework Chapter 25 Section 1 Worksheets