Government Spending Daniel Camit Derrik Overton Kevin Phipps Billy Raddell

Economics of Government Spending 2 Kinds of Spending: 2 Kinds of Spending: Goods and Services- things people use in the work force, government salary, etc. Goods and Services- things people use in the work force, government salary, etc. Transfer Payments- a payment for which the government receives neither goods nor services in return. Transfer Payments- a payment for which the government receives neither goods nor services in return. 2 Sectors 2 Sectors Public Sector- made up of federal state and local government. Public Sector- made up of federal state and local government. Private Sector- Sells goods and services to the public sector. Private Sector- Sells goods and services to the public sector.

Economics of Government Spending Continued Grant-in-aid: transfer payment from one level of the government to another. Grant-in-aid: transfer payment from one level of the government to another. Impacts of Government Spending- Impacts of Government Spending- Allocations of Resources Allocations of Resources Distribution of Income- the way income is allocated to individuals, families, or other groups. Distribution of Income- the way income is allocated to individuals, families, or other groups.

Federal Government Expenditures Federal budget- annual plan outlining proposed revenues and expenditures for a fiscal year. Federal budget- annual plan outlining proposed revenues and expenditures for a fiscal year. Fiscal year- 12 month financial planning period (not necessarily coinciding with calendar year). Fiscal year- 12 month financial planning period (not necessarily coinciding with calendar year). Federal budget deficit- larger expenditures than revenue. Federal budget deficit- larger expenditures than revenue. Congress: has the power to approve, modify, or disapprove Presidents budget plan. Congress: has the power to approve, modify, or disapprove Presidents budget plan. Appropriations bill- sets federal money aside for a specific purpose. Appropriations bill- sets federal money aside for a specific purpose.

Federal Government Expenditures Continued Major Spending Categories: Major Spending Categories: Social Security Social Security National Defense National Defense Interest on the Federal Debt Interest on the Federal Debt Income Security Income Security Medicare Medicare Health Health Education, Training, Employment, and Social Services Education, Training, Employment, and Social Services Veterans Benefits Veterans Benefits Transportation Transportation Natural Resources and Environment Natural Resources and Environment General Science, Space, and Technology General Science, Space, and Technology Administration of Justice Administration of Justice Other Spending Other Spending

State and Local Government Expenditures Approving Spending- loosely modeled on federal process. Approving Spending- loosely modeled on federal process. Balanced budget amendment- requires states to hold pending in line with revenues. Balanced budget amendment- requires states to hold pending in line with revenues. State Government Expenditures: State Government Expenditures: Public Welfare Public Welfare Higher education Higher education Insurance Trust Funds Insurance Trust Funds Highways Highways Hospitals Hospitals Interest on Debt Interest on Debt Other Spending Other Spending

State and Local Government Expenditures Continued Local Government Spending: Local Government Spending: Elementary and Secondary Education Elementary and Secondary Education Public Utilities Public Utilities Hospitals Hospitals Interest on Debt Interest on Debt Police Protection Police Protection Public Welfare Public Welfare Highways Highways Other Expenditures Other Expenditures

Federal Deficit and National Debt Deficit Spending Deficit Spending Spending more than what is collected in revenues Spending more than what is collected in revenues Federal Debt Federal Debt The total amount borrowed from investors to finance deficit spending The total amount borrowed from investors to finance deficit spending Govt. sells bonds to finance revenue Govt. sells bonds to finance revenue

Debt. Govt. owes itself money Govt. owes itself money Held in Trust Funds Held in Trust Funds Pays for Social Security, Medicare, etc. Pays for Social Security, Medicare, etc. Revenues held in trust accounts Revenues held in trust accounts Money invested in govt. securities until paid out Money invested in govt. securities until paid out

Impact of National Debt Public Debt Public Debt Accounts for most debt Accounts for most debt Money we owe ourselves Money we owe ourselves Private Debt Private Debt Money we owe to others Money we owe to others IS DEBT GOOD? IS DEBT GOOD?

Debt (cont.) Public vs. Private debt Public vs. Private debt Govt. has no real reason to pay debt Govt. has no real reason to pay debt Distribution of income Distribution of income Transfer of Purchasing Power Transfer of Purchasing Power Individual Incentives Individual Incentives Higher Interest Rates Higher Interest Rates

Dealing with the Deficit Gramm-Rudman-Hollings Gramm-Rudman-Hollings Goal to gradually reduce deficit Goal to gradually reduce deficit Failed for two reasons Failed for two reasons Loopholes Loopholes Decline in economy Decline in economy Budget Enforcement Act of 1990 Budget Enforcement Act of 1990 Budget reductions must offset any new programs requiring more spending Budget reductions must offset any new programs requiring more spending

Dealing with Deficit (cont) Omnibus Budget Reconciliation Act of 1993 Omnibus Budget Reconciliation Act of 1993 $500 billion over 5 years $500 billion over 5 years Spending reductions and tax increase Spending reductions and tax increase Made individual income tax more progressive Made individual income tax more progressive Strong economy increased revenues Strong economy increased revenues Line-Item Veto of 1996 Line-Item Veto of 1996 Power to cancel specific budget items Power to cancel specific budget items Can veto after approval of Federal Budget Can veto after approval of Federal Budget

Dealing with Deficit (cont) Growth of Entitlements Growth of Entitlements Fastest growing programs in Federal budget Fastest growing programs in Federal budget Broad social programs designed to provide minimum health, nutritional, and income levels for eligible individuals Broad social programs designed to provide minimum health, nutritional, and income levels for eligible individuals i.e. Social Security, Medicare, unemployment, welfare i.e. Social Security, Medicare, unemployment, welfare Paying off debt means taking from these programs Paying off debt means taking from these programs