copyright © 2011 pearson education, inc. publishing … · fiscal year 2011: historical tables •...


Chapter 14: Congress, The

President, and the BudgetThe Politics of Taxing and Spending

• Federal Revenue and Borrowing

• Federal Expenditures

• The Budgetary Process

• Understanding Budgeting

• Summary


Chapter Outline and Learning

Objectives


• LO 14.1: Describe the sources of funding

for the federal government and assess the

consequences of tax expenditures and

borrowing.


• LO 14.2: Analyze federal expenditures and

the growth of the budget.


Chapter Outline and Learning

Objectives


• LO 14.3: Outline the budgetary process and

explain the role that politics plays.


• LO 14.4: Assess the impact of democratic

politics on budgetary growth and of the

budget on scope of government.

Federal Revenue and BorrowingLO 14.1: Describe the sources of funding for

the federal government and assess the

consequences of tax expenditures and

borrowing.

• Budget

• A policy document allocating burdens

(taxes) and benefits (expenditures).

• Deficit

• Excess of federal expenditures over federal

revenues.

• Total debt will be about $15 trillion by 2011.

To Learning ObjectivesCopyright © 2011 Pearson Education, Inc. Publishing as Longman

LO 14.1



Federal Revenue and Borrowing

• Expenditures

• Government spending – Major areas are

social services and national defense.

• Revenues

• Financial resources of the government –

Individual income tax and Social Security

tax are two major sources.

To Learning Objectives

LO 14.1



• Personal and Corporate Income Tax

• Social Insurance Taxes

• Borrowing

• Taxes and Public Policy


LO 14.1


LO 14.1



• Personal and Corporate Income Tax

• Income tax – Shares of individual wages

and corporate revenues collected by the

government.

• Sixteenth Amendment – Explicitly

authorized Congress to levy a tax on

income.


LO 14.1



• Social Insurance Taxes

• Both employers and employees pay Social

Security and Medicare taxes.

• In 2010, employees and employers each

paid a Social Security tax equal to 6.2

percent of the first $106,800 of earnings,

and for Medicare they paid another 1.45

percent on all earnings.


LO 14.1



• Borrowing

• Treasury Department sells bonds when the

federal government wants to borrow

money.

• Federal debt – All the money borrowed by

the federal government over the years and

still outstanding.

• Today the federal debt is about $15 trillion.


LO 14.1


LO 14.1



• Taxes and Public Policy

• Tax Expenditures – Revenue losses from

special exemptions, exclusions, or

deductions allowed by federal tax law.

• Tax Reduction – In 2001, tax cut gradually

lowered tax rates over the next ten years,

and in 2003, Congress reduced the tax

rates on capital gains and dividends.


LO 14.1


LO 14.1

Federal ExpendituresLO 14.2: Analyze federal expenditures and

the growth of the budget.

• Big Governments, Big Budgets

• The Rise of the National Security

State

• The Rise of the Social Service State

• Incrementalism

• “Uncontrollable” Expenditures


LO 14.2



Federal Expenditures

• Big Governments, Big Budgets

• Big budgets are necessary to pay for big

governments.

• National, state, and local government

spend an amount equal to one-third of the

gross domestic product (GDP).

• National government’s spending alone

currently represent about one-fourth of the

GDP.


LO 14.2



• The Rise of the National Security

State

• In the 1950s and 1960s the Department of

Defense received more than 50% of

federal budget.

• Defense now gets about one-sixth of all

federal expenditures.

• This is one reason for growth of

government.To Learning Objectives

LO 14.2


LO 14.2



• The Rise of the Social Service State

• The biggest federal spender is now income

security programs.

• Social Security is #1 spender, now it

includes disability benefits and Medicare,

and its recipients are living longer.

• This is another reason for government

growth.


LO 14.2


LO 14.2



• Incrementalism

• A description of the budget process where

the best predictor of this year’s budget is

last year’s budget, plus a little bit more (an

increment).

• According to Aaron Wildavsky, “Most of

the budget is a product of previous

decisions.”


LO 14.2



• Incrementalism (cont.)

• Policymakers focus little attention on the

budgetary base.

• Agencies can safely assume they will get

at least the budget they had the previous

year.

• Most of the debate and attention is on the

proposed increment.

• Any given agency’s budget tends to grow

a little bit every year. To Learning Objectives

LO 14.2



• “Uncontrollable” Expenditures

• Expenditures determined by how many

eligible beneficiaries there are for a

program or by previous obligations of the

government and that Congress therefore

cannot easily control.

• Social Security benefits are an example of

uncontrollable expenditures.


LO 14.2



• “Uncontrollable” Expenditures (cont.)

• Entitlements – Policies for which

Congress has obligated itself to pay X level

of benefits to Y number of recipients.

• Social Security benefits are an example of

entitlements.


LO 14.2


LO 14.2

The Budgetary ProcessLO 14.3: Outline the budgetary process and

explain the role that politics plays.

• Budgetary Politics

• The President’s Budget

• Congress and the Budget



The Budgetary Process

• Budgetary Politics

• Stakes and Strategies – Every political

actor has a stake in the budget.

• Think of budgetary politics as a game in

which players adopt various strategies.

• There are plenty of players in the

budgetary politics game, and they have

their own strategies.

LO 14.3




• Budgetary Politics (cont.)

• The Players – Interest groups lobby for

their needs; agencies push for higher

budget requests; Office of Management

and Budget (OMB) prepares the

president’s budget; and the president

makes the final decisions on what to

propose to Congress.


LO 14.3




• The Players – Tax committees in

Congress write the tax codes; Budget

Committees and the Congressional Budget

Office (CBO) set the parameters of the

congressional budget process; and

subject-matter committees write new laws,

which require new expenditures.


LO 14.3




• The Players – Appropriations Committees decide who gets what and their subcommittees hold hearings on agencies’requests; Congress as a whole approves taxes and appropriations; and the Government Accountability Office (GAO) audits, monitors, and evaluates what agencies are doing with their budgets.


LO 14.3


LO 14.3



• The President’s Budget

• Budget and Accounting Act (1921) requires

presidents to propose an executive budget

to Congress and created the Bureau of the

Budget to help them.

• In the 1970s, President Nixon reorganized

the Bureau of the Budget and renamed it

the Office of Management and Budget

(OMB).


LO 14.3



• The President’s Budget (cont.)

• Spring – Budget policy developed.

• Summer – Budget decisions conveyed to

agencies.

• Fall – Estimates reviewed.

• Winter – President’s budget determined

and submitted.


LO 14.3


LO 14.3



• Congress and the Budget

• Congressional Budget and Impoundment

Control Act of 1974 was designed to

reform the congressional budgetary

process.

• It established a fixed budget calendar; a

budget committee in each house; and a

congressional budget office.


LO 14.3


LO 14.3



• Congress and the Budget (cont.)

• Congressional Budget Office – To

advise Congress on the probable

consequences of its decisions and to

forecast revenues.

• Budget Resolution – A resolution binding

Congress to a total expenditure level,

supposedly the bottom line of all federal

spending for all programs.


LO 14.3




• Reconciliation – How program

authorizations are revised to achieve

required savings.

• Authorization Bill – Establish, continue, or

change programs.

• Appropriations Bill – Funds programs

established by the authorization bills.


LO 14.3




• Budgets were in red every year between

1974 reforms and 1998.

• Continuing Resolutions – Allow agencies

to spend at last year’s level when

Congress can not pass appropriations bills

on time.

• Omnibus Bills – Appropriations bills all

together in one bill and not 13

appropriations bills.To Learning Objectives

LO 14.3


LO 14.3




• The 1974 reforms have helped Congress

view the entire budget early in the process.

• The problem is not so much the procedure

as disagreement over how scarce

resources should be spent.


LO 14.3

Understanding BudgetingLO 14.4: Assess the impact of democratic

politics on budgetary growth and of the

budget on scope of government.

• Democracy and Budgeting

• The Budget and the Scope of

Government



Understanding Budgeting

• Democracy and Budgeting

• Many politicians spend money to buy

votes.

• Bigger budgets – Many groups and

people ask for government assistance.

• People like government programs, but they

really do not want to pay for them, thus

there are deficits and federal debt.

LO 14.4



Understanding Budgeting

• The Budget and the Scope of

Government

• The size of budget is the scope of

government.

• The bigger the government, the bigger the

budget.

• Limits on revenues can limit what the

government can do.


LO 14.4


LO 14.1Summary


• The personal income tax is the largest source

of revenue for the federal government, with

social insurance taxes a close second.

• Other revenue comes from the corporate

income tax and excise taxes.



LO 14.1Summary

• Federal Revenue and Borrowing (cont.)

• Borrowing helps with funding the government,

and the national debt and expenditures have

grown rapidly in the past decade.

• Interest on the debt will eat up a big portion of

future budgets.

• Tax expenditures represent an enormous drain

on revenues but subsidize many popular

activities.



Approximately what percentage of

federal expenditures goes to paying

interest on the federal debt?

A. 1 percent

B. 7 percent

C. 15 percent

D. 25 percent

E. 40 percent

LO 14.1



Approximately what percentage of

federal expenditures goes to paying

interest on the federal debt?

A. 1 percent

B. 7 percent

C. 15 percent

D. 25 percent

E. 40 percent


LO 14.1


LO 14.2Summary


• Budgets have grown with the rise of the

national security state and the social service

state.

• National security and, especially, social

services such as Social Security and Medicare,

plus interest on the debt, make up most of the

budget.



LO 14.2Summary

• Federal Expenditures (cont.)

• Expenditures for most policies grow

incrementally, with each year’s budget

building on last year’s.

• Much of the budget represents uncontrollable

expenditures, primarily entitlements to

payments that the government has committed

to make at a certain level and that are difficult

to limit.



Which of the following comprises the

largest slice of the budgetary pie?

A. Defense expenditures.

B. Income security expenditures.

C. Foreign aid expenditures.

D. Domestic policy expenditures other

than for income security.

LO 14.2



Which of the following comprises the

largest slice of the budgetary pie?

A. Defense expenditures.

B. Income security expenditures.

C. Foreign aid expenditures.

D. Domestic policy expenditures other

than for income security.


LO 14.2


LO 14.3Summary


• The budgetary process is a long and complex

one that involves the president, agencies,

Congress as a whole, and many important

congressional committees.

• The president submits the budget to Congress,

whose reformed budgetary process has

nonetheless not brought spending in line with

revenues.



Congress drafts a resolution

establishing a total expenditure level before

it embarks on making the actual budget.

A. continuing

B. authorization

C. budget

D. reconciliation

LO 14.3



Congress drafts a resolution

establishing a total expenditure level before

it embarks on making the actual budget.

A. continuing

B. authorization

C. budget

D. reconciliation


LO 14.3


LO 14.4Summary


• Budgets in democracies grow because the

public and organized interests demand new

and larger public services.

• Increasing budgets increase the scope of

government, but decreases in taxes and

increases in debt make it more difficult to add

or expand programs.



The budget the scope of

government, but the budget may also

constrain the scope of government.

A. decreases

B. reduces

C. expands

D. none of the above

LO 14.4



The budget the scope of

government, but the budget may also

constrain the scope of government.

A. decreases

B. reduces

C. expands

D. none of the above


LO 14.4


Text Credits

• Budget of the United States Government, Fiscal Year 2011: Historical Tables

(Washington, DC: U.S. Government Printing Office, 2010), Table 2.1.




(Washington, DC: U.S. Government Printing Office, 2010),Tables 16.1 and 16.3.








Photo Credits

• 404: AP Photos

• 405T: Phillip Wallack/Corbis

• 405TC: AP Photos

• 405TB: Robert Matson

• 405B: Ted Korondy/Corbis

• 410: Mike Keefe/The Denver Post

• 416: AP Photos

• 417: AP Photos

• 419: Robert Matson

• 420: AP Photos

• 426: Ted Korondy/Corbis

• 427: Dana Fradon /The New Yorker Cartoon/www.cartoonbank.com

http://www.cartonobank.com/

copyright © 2011 pearson education, inc. publishing … · fiscal year 2011: historical tables •...

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