1. Government Spending
Chapter 10

2. Government Spending in Perspective
Government spends more then all privately owned businesses combined
Per capita- means per person: government spends almost $10,300 for every man, woman and child in US

3. Government Spending in Perspective
Public sector- the part of the economy made up of federal, state and local governments (did not begin to rise significantly till 1940)
Reasons spending increased:
WW2 required huge amounts of money
Change in public opinion gave government a larger role (Great Depression- regulate banks etc)
Success of large scale government works projects such as the TVA or Tennessee Valley Authority

4. Questions Who things government spending is a good thing?
Who thinks the government spends to much? Who thinks not enough?
Why does the government need to be involved in some aspects?

6. Government Spending in Perspective
Private sector- the part of the economy made up of private individuals and privately owned businesses
Debate on what government should cover and what the private sector should provide
People unsure how much is to much

7. Questions
Did the current administration take control of to much in the private sector?
Should they have or should we have let the banks and auto industry collapse?
When do you draw the like on government involvement?

8. Two Kinds of Spending First is goods and services
Government buys goods such as tanks, planes, ships, office buildings, land and capital goods
The government also hires people to work agencies and staff military
More the government provides, the more goods and services it consumes

9. Two Kinds of Spending
Second kind is transfer payment- which is a payment for which the government receives neither goods nor services in return
Examples are Social Security, welfare, unemployment and aid for people with disabilities
Grant-in-aid: example would be Interstate highway construction…the federal government grants money to cover the majority of the cost

10. Impact of Government Spending
Government spending decisions directly affect how resources are allocated
Spending in rural vs urban can shift where funding goes thus benefiting one over the other
Supporting agriculture products keeps certain industries working

11. Impact on Government Spending
Distribution of income- the ways in which income is allocated among families, individuals, or other designated groups in economy
Buying fighter planes from one factory vs another as an impact on both factories
Government can provide temporary income support such as buying pork in an attempt to support low pork prices

12. Who Agrees???

13. Impact on Government Spending
Competition between the private sector and the public sector…example of this is higher education State Colleges vs Private Colleges
Veteran hospitals vs public hospitals both offer similar services one funded by tax payers

14. Questions What is to much for the government bailout/spending?
What should just be nationalized and what should be privatized?
Who would like to follow a more European model? Who would not?

15. Federal Government Expenditure
Section 2

16. Establishing the Federal Budget
Federal budget- an annual plan outlining proposed revenues and expenditures for the coming year
Mandatory spending- 2/3 of the federal budget it is spending authorized by law that continues without the need for annual approval of Congress
Examples: Social Security and Medicare

17. Establishing the Federal Budget
Discretionary spending- represents the remaining 1/3 of the budget it deals with programs that must receive annual authorization
Examples: how much to spend on the military, Coast Guard and welfare

18. Question What do you think about the budget?
What should be required spending and what should not?
What would you change?

19. Establishing the Federal Budget
Fiscal year- a 12 month financial planning period that may or may not coincide with the calendar year
Starts on October 1 of every year and expires on September 30 of the follow year

20. Establishing the Federal Budget
Executive formulation is the first step in developing a budget. This means that the president establishes the general budget guidelines for a multiyear period.
Talks to other agencies such as the Office for Management and Business
Must be sent to Congress by first Monday in February

21. Deficit vs Surplus
Federal deficit- an excess on expenditures over revenues
Federal surplus- when expenditures are less then revenues
Depends largely on economy and cooperation of Congress

22. Questions Is a surplus always possible? When is a deficit necessary?
When does spending become absolute regardless of the cost it has?

23. Action by the House Presidents budget proposal is only a request
Congress has power to approve, modify or disapprove
House sets initial budget targets for discretionary spending
Once agreed on they various parts get assigned to subcommittees it breaks budget down to 13 smaller ones

24. Action by the House
Appropriation bill is an act of Congress that allows the federal agencies to spend money for specific purposes
House sub-committees hold hearing on each bill, if approved it is sent to full House Appropriations Committee if it pass there sent to entire House for approval
September 15th deadline however due to interests of members in the House it can be delayed

25. Action by Senate After the House approves it, it goes to the Senate
May approve House bill or make own, if differences exist sent to a joint House-Senate conference
Seek advice from the Congressional Budget Office who evaluates impact and projects expenditure as well as revenues

26. Final Approval If all goes well the compromised bill is approved
President can now veto the new budget if it is different from what original was
Worst case the government can shutdown briefly like it did in late 1995 early 1996
Once signed by President is becomes official document for next fiscal year

27. Debt in Every Budget?

28. Major Spending Categories
Payments to aged and disable Americans through Social Security largest amount
Old-Age and Survivors Insurance (OASI) is apart of it
Disability Insurance payments (DI) for those unable to work
Defense/Weapons is largest discretionary category who is approved every year

29. Major Spending Categories
Income security include expenditures for retirement benefits to railroad workers and disabled coal miners etc
Subsidized housing, child nutrition and food programs for low-income families also fall under this category
Most of these are mandatory and require no approval

30. Medicare
Is a health program available to all senior citizens regardless of income
Began in 1966
Provides an insurance plan that covers major hospital costs and offers additional optional insurance
Does not require approval

31. Fair description?

32. More Debt
When the government spends more then it collects it borrows money to make up the difference
Interest on federal debt made up the sixth largest category in federal spending for 2004

33. Healthcare
Healthcare services for low-income people, disease prevention and consumer safety account for part of the federal budget
Medicaid is a joint federal-state medical insurance program for low-income persons
Occupational Safety and Health Administration is a federal agency that monitors occupational safety and health in workplace

34. More Funding in Healthcare
Research for AIDs and breast cancer as well as substance abuse treatment and mental health services all add to government spending
Medicaid is mandatory while others are discretionary

35. Other Categories Education Training Employment Social services
Transportation
Veterans benefits
Administration of justice
Natural Resources
Environment

36. Too Much Spending???

37. Questions What should be cut out of the budget?
What should be added to the budget?
How can we raise more money to help cover costs?
When do you draw the line…legalizing prostitution? Marijuana? Drugs?

38. State and Local Government Expenditures
Section 3

39. Approving Spending
Balanced budget amendment- a constitutional amendment that requires the annual spending not exceed revenues
Can not spend more then you make

40. Approving Spending
Local level: mayor, city council, county judge or some other elected official decides
Money collected from property tax and other local sources limits spending of local agencies
If not able to raise money often can not hire the civil workers Ex: teachers, police, firefighters, county/city jobs

41. State Government Expenditures
Seven categories account for 80% of spending
Largest category is intergovernmental expenditures- funds that one level of government transfers to another level for spending
Sales tax once example distributed to towns/cities

42. State Government Expenditures
Second largest is public welfare
Ex: Cash assistance, medical care, welfare and its various institutions
Retirement funds take up a large part of as well
Higher education and highway constructions/road improvement take up a significant amount

43. Cartoon

44. Local Government Expenditures
Include counties, municipalities, townships, school districts and other special districts
Largest pending is education k-12, utilities, fire/police, interest on debt, public welfare and highways
1/3 of spending is on k-12 education

45. Local Government Expenditures
Spends on all aspects of local government including roads, street repairs, street signs, snow removal, housing , park and community development

46. Deficits, Surpluses and The National Debt
Section 4

47. From the Deficit to the Debt
1998 first federal surplus in 29 years
Deficit spending- spending more then collected
When government runs deficit it adds to debt
We borrow from others to cover this
Department of Treasury sell bonds and other forms of debt to public

49. Deficit to Debt
Federal debt- the total amount the government owes to people
Debt grows whenever the government spends more then it has/collects
Balanced budget- an annual budget were spending and revenue are equal
Trust funds- special accounts used to fund specific things such as Social Security

50. Impact of the National Debt
Depending on where we get the money from it affects a economic class
More debt=more taxes=less money for you
Money spent carelessly can make you less motivated to work
Crowding out effect- the higher then normal interests rates that heavy government borrowing causes

51. Taming the Deficit
Gramm-Rudman-Hollings: set target deficit targets for Congress and presidents to meet over a six year period 85-91
It failed for two reasons: Congress discovered that they could get around it by passing spending bills after it expired, second economy declined in 1990 causing the law to become invalid

52. Taming the Deficit Budget Enforcement Act of 1990
“Pay as you go” provision- a requirement that new spending proposals or tax cuts must be offset by reductions elsewhere
Only applies to discretionary spending
Can be suspended during hard economic times

53. Taming the Deficit Omnibus Budget Reconciliation Act of 1993
Clinton’s goal to reduce debt over 6 years
Spending reductions and tax increase especially on wealthiest 1.2 percent of tax payers

55. Taming the Deficit Balanced Budget Agreement of 1997
Line item veto- the power to cancel specific budget items with out rejecting the whole budget, however deemed unconstitutional
Spending caps- legal limits on discretionary spending to assure balanced budget by 2002

56. Hope or Epic Fail?
1998 surplus due to record tax collections and a reduced rate of spending
Recession 2001 reduced tax collection
9/11 sent the US into a economic spiral as the wars in Iraq and Afghanistan began
Entitlements- broad social programs that use up part of the budget
If people meet requirements they can take from it