2 Goals & ObjectivesExplain how and why gov’t spending has increased since the 1940’s.Describe 2 kinds of gov’t spending.Describe how gov’t spending impacts the nation’s economy.Explain the budgeting process.Describe parts of the budget process.Describe State and Local Spending categories.Explain the federal deficit & debt.Describe past attempts to lessen the debt.Relate entitlements to the national debt.
3 The Economics of Government Spending 2013: Federal, State, Local $4.7 TrillionPer Capita: (per person) $12,000 for every man, woman, and child in the U.S.Public Sector: 1942 Public Revenue ActWWIIPublic Opinion shifts toward Socialism.Success of GDP with gov’t spending.
6 Two kinds of Spending1. Good and Services: tanks, planes, ships, office supplies, military labor.The Federal Government is the largestAmerican consumer.2. Transfer Payments: “a payment for which the government receives neither goods nor services in return” (TINSTAAFL)
7 Types of Transfer Payments 1. Social Security2. Welfare3. Unemployment Compensation4. Grant-in-aid:Grant-in-aid: one level of government to the next level: highway funds, public schools, food stamps, welfare, subsidized housing, Obamacare.
11 Impact of Government Spending Affecting Resource Allocation: Tanks or Milk subsidies?. Welfare or Disabled Veterans?Redistributing Income: TANF, SDI, Food Stamps, Pell Grants, NITC.Competing with Private Sector: Public College Costs increases with Pell Grant increases. Obamacare mandates and health insurance premiums/copays.
14 Federal Government Expenditures Federal Budget: a plan on how much to spend.Mandatory Spending: without the Congress (Interest on debt, SSA, Medicare)Discretionary Spending: Military & WelfareFederal Budget Deficit: “Plan” to spend more than receiptsFederal Budget Surplus: “Plan” to receive more tax revenues than expenditures.
15 House & Senate BudgetHouse: Budget starts in the House of Rep. Discretionary Spending only.Appropriations Bill: act of Congress authorizing agencies to spend money.Committee/Subcommittee: Pork-Barrel SpendingSenate: Conference Committee & CBO input or complete rewrite of bill.
19 Deficits, Surpluses, and The National Debt 1. Deficit Spending: spending in excess of revenues collected.2. Federal Debt: total amount borrowed from investors to finance the government’s deficit spendingBalanced Budget Admendment: constitutional limitation on spending
26 Public vs. Private DebtPrivate citizens borrow there is a plan to pay it backFederal Government borrows there is no thought about how, or when to pay it back:1. Increase taxes to pay2. Borrow more money to pay
27 Impact of The National Debt 1. Impacts the distribution of income: Gov’t borrows from the wealthy and taxes the middle class to pay for the interest on the debt.2. Transfer of purchasing power from the private sector to the public sector: The larger the debt the more TAXES needed to pay off the interest.
29 Impact of the National Debt 3. Taxes needed to pay the interest on debt: creates a diminished incentive to work, save or invest.4. Crowding-Out Effect: Government borrowing takes money out of circulation for the private sector.
30 Taming the Deficit1990: BEA,(Budget Enforcement Act) pay-as-you-go provision: New spending must accompany cutbacks in other programsGramm-Rudman-Hollings: Balanced Budget & limitation on spending failed in the Congress. Why?
31 Taming the Debt 3. Omnibus Budget Reconciliation Act of 1993 President Clinton: Reduce the rate of the deficit not the deficit itself.4. Balanced Budget Agreement of 1997:Line-item veto: unconstitutionalSpending caps: legal limits on annual discretionary spending.
32 Success---Failure 1. 2001 recession 2. 2001 Terrorist Attack Wars in Afghanistan & Iraq---Entitlements: Largest growth in government spending.