2 Government Spending in Perspective Government spends more then all privately owned businesses combinedPer 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 moneyChange 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 businessesDebate on what government should cover and what the private sector should providePeople unsure how much is to much
7 QuestionsDid 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 goodsThe government also hires people to work agencies and staff militaryMore the government provides, the more goods and services it consumes
9 Two Kinds of SpendingSecond kind is transfer payment- which is a payment for which the government receives neither goods nor services in returnExamples are Social Security, welfare, unemployment and aid for people with disabilitiesGrant-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 allocatedSpending in rural vs urban can shift where funding goes thus benefiting one over the otherSupporting 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 economyBuying fighter planes from one factory vs another as an impact on both factoriesGovernment can provide temporary income support such as buying pork in an attempt to support low pork prices
13 Impact on Government Spending Competition between the private sector and the public sector…example of this is higher education State Colleges vs Private CollegesVeteran 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?
16 Establishing the Federal Budget Federal budget- an annual plan outlining proposed revenues and expenditures for the coming yearMandatory spending- 2/3 of the federal budget it is spending authorized by law that continues without the need for annual approval of CongressExamples: 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 authorizationExamples: 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 yearStarts 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 BusinessMust be sent to Congress by first Monday in February
21 Deficit vs SurplusFederal deficit- an excess on expenditures over revenuesFederal surplus- when expenditures are less then revenuesDepends 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 disapproveHouse sets initial budget targets for discretionary spendingOnce agreed on they various parts get assigned to subcommittees it breaks budget down to 13 smaller ones
24 Action by the HouseAppropriation bill is an act of Congress that allows the federal agencies to spend money for specific purposesHouse 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 approvalSeptember 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 conferenceSeek 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 wasWorst case the government can shutdown briefly like it did in late 1995 early 1996Once signed by President is becomes official document for next fiscal year
28 Major Spending Categories Payments to aged and disable Americans through Social Security largest amountOld-Age and Survivors Insurance (OASI) is apart of itDisability Insurance payments (DI) for those unable to workDefense/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 etcSubsidized housing, child nutrition and food programs for low-income families also fall under this categoryMost of these are mandatory and require no approval
30 MedicareIs a health program available to all senior citizens regardless of incomeBegan in 1966Provides an insurance plan that covers major hospital costs and offers additional optional insuranceDoes not require approval
32 More DebtWhen the government spends more then it collects it borrows money to make up the differenceInterest on federal debt made up the sixth largest category in federal spending for 2004
33 HealthcareHealthcare services for low-income people, disease prevention and consumer safety account for part of the federal budgetMedicaid is a joint federal-state medical insurance program for low-income personsOccupational 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 spendingMedicaid is mandatory while others are discretionary
35 Other Categories Education Training Employment Social services TransportationVeterans benefitsAdministration of justiceNatural ResourcesEnvironment
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 SpendingBalanced budget amendment- a constitutional amendment that requires the annual spending not exceed revenuesCan not spend more then you make
40 Approving SpendingLocal level: mayor, city council, county judge or some other elected official decidesMoney collected from property tax and other local sources limits spending of local agenciesIf 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 spendingLargest category is intergovernmental expenditures- funds that one level of government transfers to another level for spendingSales tax once example distributed to towns/cities
42 State Government Expenditures Second largest is public welfareEx: Cash assistance, medical care, welfare and its various institutionsRetirement funds take up a large part of as wellHigher education and highway constructions/road improvement take up a significant amount
44 Local Government Expenditures Include counties, municipalities, townships, school districts and other special districtsLargest pending is education k-12, utilities, fire/police, interest on debt, public welfare and highways1/3 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 yearsDeficit spending- spending more then collectedWhen government runs deficit it adds to debtWe borrow from others to cover thisDepartment of Treasury sell bonds and other forms of debt to public
49 Deficit to DebtFederal debt- the total amount the government owes to peopleDebt grows whenever the government spends more then it has/collectsBalanced budget- an annual budget were spending and revenue are equalTrust 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 classMore debt=more taxes=less money for youMoney spent carelessly can make you less motivated to workCrowding out effect- the higher then normal interests rates that heavy government borrowing causes
51 Taming the DeficitGramm-Rudman-Hollings: set target deficit targets for Congress and presidents to meet over a six year period 85-91It 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 elsewhereOnly applies to discretionary spendingCan be suspended during hard economic times
53 Taming the Deficit Omnibus Budget Reconciliation Act of 1993 Clinton’s goal to reduce debt over 6 yearsSpending 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 unconstitutionalSpending 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 spendingRecession 2001 reduced tax collection9/11 sent the US into a economic spiral as the wars in Iraq and Afghanistan beganEntitlements- broad social programs that use up part of the budgetIf people meet requirements they can take from it