Unit IV – Legislative & Executive Taxing & Spending: The Budget Process

Sources of Federal Revenue In the past: –Tariffs and excise taxes –1894 – imposed a 2% income tax Declared unconstitutional by S.C. because it was not proportional to state population 16 th Amendment struck down the proportionality clause Presently: –Individual income tax – 38% –Social insurance (payroll) taxes – 32% –Corporate tax – 8% –Excise tax – 3% –Borrowing – 15% –Other 4% Interactive Taxing /Spending Chart

Where the Money is Spent National Defense –21% –Discretionary Non-defense –16% Grants to states, federal operations, etc –Discretionary Net Interest –9% –Nondiscretionary / mandatory Direct benefit payments to individuals (transfer payments) –54% Social security, Medicare, etc –Nondiscretionary / mandatory

Entitlements (“uncontrollables”) Entitlements –Federal money that is: Provided to those who meet eligibility requirements Automatically spent each year without congressional review –Creates additional budget pressure Accounts for more than 2/3 of the federal budget Examples: Social security, Medicare, federal pensions, interest and national debt

The Budget Process Executive Branch –Agencies prepare budget needs and present to the OMB –OMB reviews and makes recommendations to the President –President reviews OMB recommendations and submits budget to Congress Congress –CBO provides independent analysis of President’s budget – check on the OMB –Roles – Budget, Ways and Means, Finance, and Appropriations Committees –Input and lobbying from agencies –Majority vote in both houses –GAO ensures that money is spent as prescribed by law Political Influence –Political party differences –Interest group/PAC influence –Iron Triangles –Public opinion Presidential Action –Signs or Vetoes Draw a flow chart that represents the process.

The Budget Process Each Agency Submits their Budget Proposal The Office of Management and Budget analyzes their requests.