1. The Congress, the president, and the budget
Political Economics
The Congress, the president, and the budget

2. Two central questions Who bears the burden of paying for government?
Who benefits?

3. How this is calculated results in a budget

4. The budget allocates burdens (taxes) and benefits (expenditures)
Similar to your personal budget, but the government’s budget has major political effects because it says who is going to get burdened and who is going to get benefits

5. If government expenditures (money spent) is more than revenues (money taken in) a budget deficit occurs
Currently 985 Billion (dollars)

6. This creates a problem for politicians because the average American wants a balanced budget (no deficit)
In order to get a balanced budget you either need to decrease expenditures, or increase revenue (i.e. taxes)
But Americans also want the same amount of spending on most programs, and low taxes
See how this could be a problem?

7. In addition, every year the Congress and the president must appropriate funds to run the government
If they don’t do this, the government (theoretically) could stop
No army, no post office, no benefits to the poor

8. If government needs revenue to keep running, where does this money come from?

9. Three main sources Income tax (personal and corporate)
Social insurance taxes
Borrowing
(Sales taxes are part too, but make up only a small amount of government revenue)
Three main sources

10. Income tax
Shares of your individual wages (i.e. income) collected by the government
Authorized by the 16th amendment

11. The income tax is a progressive tax
Those with more income pay a higher tax rate (a larger percentage)
Also called a graduated income tax
Top 10% of tax payers pay 2/3rds of income taxes

12. Table 1. Tax Brackets and Rates, 2018
For Unmarried Individuals, Taxable Income Over
For Married Individuals Filing Joint Returns, Taxable Income Over
For Heads of Households, Taxable Income Over
10% $0
12%
$9,525
$19,050
$13,600
22%
$38,700
$77,400
$51,800
24%
$82,500
$165,000
32%
$157,500
$315,000
35%
$200,000
$400,000
37%
$500,000
$600,000

13. Social insurance taxes
Social security
Medicare
These taxes go to a specific purpose

14. Borrowing
Sometimes, like the average citizen, the federal government needs to borrow money
To do this, it sells bonds. This means it agrees to pay back the amount plus interest
Who can buy bonds?
Citizens
Financial institutions
Corporations
Other governments

15. Most government borrowing is for the day-to-day operations of the government
But when you owe money, you are in debt

16. The U.S. has accumulated a massive federal debt (all the money borrowed that has not been payed back)
Currently 20 trillion
Your books says 9 trillion; that’s how much it has increased in about 10 years
That’s more than our current GDP
GDP is Gross Domestic Product; it’s basically the value of everything a country produces

17. Many see this as a problem, but disagree on a solution
Republicans – cut taxes, because this will make people spend more, increasing tax revenue in the future
Democrats – when taxes are cut too much, we never make up the lost revenue, which leads to increasing debt

18. Most government income still comes from taxes though

19. Taxes Leads to lots of contentious debates over a variety of issues
Tax loopholes
Hard to define
Basically happens when people or businesses are able to pay fewer taxes than it appears they should

20. Tax expenditures
Revenue losses because of special tax exemptions or deductions
Happens when the government could collect money for something, but instead allows you to deduct it from your taxes or not pay any taxes on it
Charitable contributions
Mortgage interest

21. Tax Reduction Should taxes be lowered? By how much?
Source of much intense debate
Compared to other countries, the U.S. has a fairly low tax rate
However, our government also spends less the public than countries with high tax rates
How to deal with the tax code is referred to as tax reform

22. Federal Expenditures It’s a lot
All American governments combined spend about 1/3rd of GDP
Why so big?

23. Basically, Americans like government services
Realistically, what can we all agree on to cut?

24. How much money should be allocated to the defense budget?
Terms “national security state” and “social service state” are associated with the growth of the government
How much money should be allocated to the defense budget?

25. Social Services Biggest part of the budget
Things like: social security, Medicare, Medicaid, subsidies for environmental programs, drug rehab, aid to the poor

26. Social Security 1935 Social Security Act
Meant to aid the elderly in retirement
What’s the issue? How does it work?

27. Medicare
Provides health coverage to the elderly

28. Why does the budget continue to grow?
Incrementalism
This year’s budget is usually last year’s budget plus a little bit more
It doesn’t feel that bad when you add a little, but over time it adds up

29. “Uncontrollable” expenditures aka entitlements
These are things the government has already agreed to pay to certain eligible people or interests
Social security is an example:
If more people retire in a given year and become eligible to collect social security, then of the course the government has to pay more; hence “uncontrollable”

30. Discretionary spending
The opposite of uncontrollable expenditures is discretionary spending
This is spending that comes through appropriations bills in Congress, and is essentially “optional,” unlike the mandatory spending of entitlements
Examples are foreign aid, education, national defense, and transportation

31. The budget determines who gets what, so naturally it’s a big deal, with lots of people and groups in involved

32. Who’s involved Interest groups Government agencies
Office of Management and Budget (formulates president’s budget)
The president
Tax committee in Congress
CBO
Subject matter committees
Appropriations committee
Government Accountability Office (GAO)
Congress as a whole