1. Federal Government Finances Fiscal Year- A 12-month financial planning period that may or may not coincide with the calendar year. The government’s fiscal year starts October 1st and expires September 30th. The Office of Management and Budget (OMB) prepares a budget that is only a REQUEST made by the President. Congress can approve, modify, or disapprove of it

2. Congressional Action Appropriations Bill- An act of Congress that allows federal agencies to spend money for a specific purpose. The House of Reps takes the President’s proposal into consideration and breaks it down into 13 major committees to debate and make a final bill for passage. The Senate then acts on the bill after the House passes it. If the Senate makes any changes, then both houses have to have a joint House-Senate conference committee to work out the differences.

3. I f both houses approve of the final bill, they send it to the President for signature. Continuing Budget Resolution- An agreement to fund a government agency at existing, reduced, or expanded levels. Only happens if there is no agreement on funding by Oct. 1st. This has happened quite often since 2001.

6. Budget Deficit The fiscal year 2015 expected spending is $3.9 trillion, and revenues is expected at $3.3 trillion. This leaves a Budget Deficit- a negative balance that results when expenditures exceed revenue. The last time the Federal government had a Budget Surplus- expenditures less than revenues was 2001 ($127.3 billion).

7. Federal Government Revenue Sources

8. Payroll Withholding System- System that requires an employer to automatically deduct income taxes from a worker’s paycheck and send them to the IRS. Payroll Tax- The Social Security Payroll Tax, official name is FICA (Federal Insurance Contributions Act) tax. Corporate Income Tax- Tax a corporation pays on its profits. Excise Tax- Tax on the manufacture or sale of items like gasoline or liquor. Estate Tax- Tax on the transfer of property when a person dies. Range from 18- 50 percent, estates worth less than 3.5 million are exempt. Fewer than 2% of all estates pay them. Gift Tax- A tax on the transfer of money or wealth and is paid by the person who makes the gift. (Used to make sure wealthy don’t give away their estates before they die to avoid taxes

9. Federal Government Expenditures Public Sector- The part of the economy consisting of federal, state, and local governments. Earmarks or Pork- Term used to describe line-item budget expenditures that circumvents normal budget-building procedures. Mandatory Spending- Spending authorized by law that continues without the need for annual approvals by Congress. (Social Security) Discretionary Spending- Spending that must be approved by Congress. (National Defense) Transfer Payments- Payments for which the government receives neither goods or services for them. (Unemployment, welfare, etc)

10. Medicare- Provides an insurance plan that helps pay for major hospital costs. The cost is going up because we are becoming an older society. Medicaid- Joint federal-state medical insurance program for low-income persons.

11. Deficits to Debt Deficit Spending- Spending in excess of revenue collected. National Debt- The total amount borrowed from investors to finance the government’s deficit spending. Balanced Budget- Annual budget where expenditures equals revenues. Stabilizes the national debt. The national debt has grown almost continuously since 1900 ($1.3 billion). 2014 national debt was $13.3 trillion. Some of this is money it owes itself. A trust fund is a special account used to fund specific types of expenditures such as Social Security and Medicare.

12. Impact of National Debt Private Sector- Part of the economy made up of private individuals and businesses. When the public debt increases, taxes increase and people have less money for themselves. Crowding-Out Effect- Higher-than-normal interest rates caused by heavy government borrowing that squeezes private borrowers out of the market

13. Reducing Deficits and Debt “Pay As You Go” Provision- requirement that new spending must be offset by reductions elsewhere in the budget. This was brought into effect in 1990. This was suspended in 1996 because they couldn’t find enough places to cut spending. Line-Item Veto- The power to cancel specific budget items without rejecting the entire budget. This power is given to the President. Spending Caps- Legal limits on annual discretionary spending. Entitlements- Broad social programs with established eligibility requirements to provide health, nutritional, or income supplements to individuals.

14. Sequester- A law that required automatic budget cuts beginning in 2013. Debt Ceiling- Total amount of money the federal government is allowed to borrow.