Discussion Questions

2. Discussion Questions • What is the difference between fiscal policy and monetary policy? • What is the difference between the deficit and the debt? • What is the difference between mandatory spending and discretionary spending? • What is the highest expenditure by the US government? • Who are the actors involved in the budget?

3. The Budget: The Politics of Taxing and Spending 13

4. Video: The Big Picture 13 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Edwards_Ch13_The_Budget_Seg1_v2.html

5. 13 Learning Objectives Describe the sources of funding for the federal government and assess the consequences of tax expenditures and borrowing 13.1 Analyze federal expenditures and the growth of the budget 13.2

6. 13 Learning Objectives Outline the budgetary process and explain the role that politics plays 13.3 Assess the impact of democratic politics on budgetary growth and of the budget on scope of government 13.4

7. Video: The Basics 13 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg2_TaxesSpending_v2.html

8. Federal Revenue and Borrowing 13.1 • Personal and Corporate Income Tax • Social Insurance Taxes • Excise Taxes • Borrowing • Taxes and Public Policy

9. 13.1 FIGURE 13.1: The federal budget: An overview

10. Sixteenth Amendment (1913) IRS 140 million individual income tax returns Income tax is progressive Higher incomes taxed at higher rates 10-35% current tax rates 13.1 Personal and Corporate Income Tax

11. Who pays taxes? 42% paid no taxes 1% paid 37% 10% paid 70% Bottom 50% paid 2% The flat tax Everyone, regardless of income, pays the same rate 13.1 Personal and Corporate Income Tax

12. 13.1 FIGURE 13.2: Federal revenues

13. Explore the Budget: How High Are Your Taxes? 13.1 http://media.pearsoncmg.com/long/long_edwards_mpslgia_16/pex/pex13.html

14. Social Insurance Taxes Social Security Medicare Both matched by employers Provide 1/3 of federal revenue 13.1

15. Borrowing Tax revenue does not cover expenditures Bonds Sold by Treasury Department Borrowing from itself Intra governmental debt Taking $$ from Social Security to pay for military pensions or farm subsidies 13.1

16. Borrowing National debt = $19 trillion 6% of federal spending = interest payments Debt ceiling Limit on how much the federal government can borrow Powerful bargaining chip for Congress Spending increases when revenue declines More people in need of government assistance Unemployment benefits Food Stamps 13.1

17. 13.1 FIGURE 13.3: Total national debt

18. Video: In the Real World 13.1 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg5_TaxesSpending_v2.html

19. Taxes and Public Policy Tax expenditures Tax revenue lost due to exemptions Charitable contributions Mortgage interest Business equipment Benefit the wealthy and businesses Tax reduction Popular with voters Benefits the wealthy Generally affect income taxes, rather than excise taxes 13.1

20. 13.1 TABLE 13.1: Tax expenditures: The money government does not collect

21. 13.1 13.1 What percentage of federal spending is simply interest payments on the national debt? • 6% • 3% • 11% • None

22. 13.1 13.1 What percentage of federal spending is simply interest payments on the national debt? • 6% • 3% • 11% • None

23. Explore the Simulation: You Are the President During a Budget Crisis 13.1 http://media.pearsoncmg.com/long/long_longman_media_1/2013_mpsl_sim/simulation.html?simulaURL=22

24. Federal Expenditures 13.2 • Big Governments, Big Budgets • Especially since the 1930s • Rise of the National Security State • Rise of the Social Service State • Incrementalism • “Uncontrollable” Expenditures

25. 13.2 FIGURE 13.4: Federal expenditures

26. Big Governments, Big Budgets Big government needs big money ¼ of GDP is govt. spending Why has government grown? Public demand Changes in economy Changes in social conditions Economic downturns Urbanization Pollution 13.2

27. Rise of the National Security State Permanent military establishment Cold War Military-industrial complex - Ike DoD spending half of federal budget during Cold War Decreased until 9/11 1/5 of federal budget today Military expenses 7 million pensions Procurement Cost overruns 13.2

28. 13.2 FIGURE 13.5: Trends in national defense spending

29. 13.2 Stealth bomber

30. Rise of the Social Service State Income security expenditures Social Security (1935) Disability Insurance (1950s) Medicare (1965) Prescription Drug Program added to Medicare (2000s) Intergenerational contract More beneficiaries than workers 13.2

31. 13.2

32. 13.2 FIGURE 13.6: Trends in social service spending

33. Video: Thinking Like a Political Scientist 13.2 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg4_TaxingSpending_v2.html

34. Incrementalism Best predictor of this year’s budget is last year’s Incremental increase for each agency Exceptions 13.2

35. “Uncontrollable” Expenditures Why is the budget uncontrollable? 2/3 of budget automatic Interest 13.2

36. “Uncontrollable” Expenditures 2/3 of budget automatic Interest Entitlements 13.2

37. 13.2 13.2 Why does the federal government have so little discretion over its own budget? • Federal law forbids Congress from tampering with president’s budget • The president is obliged by the Constitution to sign whatever budget bill Congress sends him • Entitlements create uncontrollable obligations • All of the above

38. 13.2 13.2 Why does the federal government have so little discretion over its own budget? • Federal law forbids Congress from tampering with president’s budget • The president is obliged by the Constitution to sign whatever budget bill Congress sends him • Entitlements create uncontrollable obligations • All of the above

39. Video: In Context 13.2 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg3_TaxingSpending_v2.html

40. The Budgetary Process 13.3 • Budgetary Politics • The President’s Budget • Congress and the Budget

41. Budgetary Politics Stakes and strategies “Who gets what, when, and how” Actors adopt strategies Agencies will state how their programs benefit a member’s state(Senator) or district (Representative) Agencies ask for more knowing they will get less than they ask for Players Large cast Roles carefully scripted 13.3

42. 13.3 Government shutdown

43. 13.3 FIGURE 13.7: The players in the budgetary process

44. The President’s Budget Presidents used to play limited role Agencies submitted budget requests directly to Congress Budget and Accounting Act Prepares budget with help of OMB Agency heads can appeal directly to the President if their budget priorities are not met by the OMB Budget schedule Due first Monday in February Process begins a year in advance 13.3

45. Congress and the Budget Power of the purse Budget resolution (step one of the process) Binds Congress to a total expenditure level (budget ceiling); done in the Budget Committees Reconciliation Part of the process in which changes to laws and authorizations enable congress to stick to its budget ceiling Authorization bills Authorizes the activities of an agency or programs of the federal government AND authorizes how much to be spent Appropriations bills (12) Formally decide how much money to be spent Must originate in the House 13.3

46. Congress and the Budget Continuing resolutions Funds the government at last year’s level Omnibus Bills Packages all 12 annual appropriations bills into one large bill Forces people to compromise or vote down the entire budget Government Shutdown Supplemental Appropriations Bill Appropriated funds when the need is too urgent to wait for the enactment of a regular appropriations bill Wars in Afghanistan and Iraq Hurricane Sandy 13.3

47. 13.3 FIGURE 13.8: The budget process

48. 13.3 FIGURE 13.9: Fluctuating deficits

49. 13.3 13.3 What type of bill must follow an authorization bill? • Continuing resolution • Reconciliation bill • Appropriations bill • None of the above

50. 13.3 13.3 What type of bill must follow an authorization bill? • Continuing resolution • Reconciliation bill • Appropriations bill • None of the above