Chapter 14: The Budget

…or why we’re screwed

Focus: Does Your Family Have a Budget?

What happens when you go over?

What if there were no consequences?

What does a trillion dollars look like?

• A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

• Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

• While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...

• And $1 BILLION dollars... now we're really getting somewhere...

• Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

Let’s look at a trillion dollars another way…

Four Major Concepts

1. The national deficit is $ we don’t have and the national debt is $ we owe.

2. Entitlement spending takes up most of the federal budget*.

3. The budget-making process is a political process that often prevents Congress from making tough choices.

4. Since World War II, Americans expect more and more from the federal government but show a reluctance for increases in taxes to pay for it.

Concept #1

Types of Taxes

18

TYPES OFFED SPENDING

PART OF THEFED BUDGET

Congress and Pres.have no direct power To change

Interest on the nationaldebt

Social Security & otherEntitlement programs

Congress and thePres. decide howmuch will be spent

Specific expenditures

Environmental protection,Defense and securityEducation, etc.

ControllableSpending

UncontrollableSpending

Clip

The National Debt

Concept #2

Where are YOUYOU in this cartoon?

Entitlement programs:Social SecurityMedicareMedicaid

What we What we CAN’T cutCAN’T cut

What we What we CAN cutCAN cut

ENTITLEMENT PROGRAMS

GUARANTEED BY LAW

BABY BOOMERS START RETIRING

How Social Security Works

1940

• Workers • Retirees

1950

• Workers • Retirees

2006

• Workers • Retirees

???

• Workers • Retirees

Proposed Reforms

• Increase retirement age

• Raising the payroll tax• Invest some of Social

Security trust fund into the stock market

• Privatized accounts

Concept #3

GAO Budget Agents

Tax Committees

AgenciesOMB

CBO

Incrementalism-The idea that last year’s budget is the best predictor of this year’s budget, plus some.

The Budget Process (in theory)

Concept #4

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Ch. 14- The BudgetFour Major Concepts1.

2.

3.

4.

Types of Taxes:1. Progressive-2. Social Insurance-3. Excise tax-4. Estate tax-5. Custom duties-

Controllable Spending-1.

2.

3.

4.

Uncontrollable Spending-1.

2.

3.

Debt vs. deficit: The Public Debt-1.2.3.4.5.

Social Security Reforms:1.2.3.4.

Budget Agents:

Government Accounting Office (GAO): Congressional Budget Office (CBO):

Office of Management and Budget (OMB): President:

Congress: Tax Committees:

Interest Groups: Agencies:

The Budget Process (In theory):

1.

2.

3.

4.

5.