Chapter 15
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Transcript of Chapter 15
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Chapter 15: Congress, The President, and the Budget The Politics of Taxing and Spending
• Federal Revenue and Borrowing• Federal Expenditures• Understanding Budgeting• Summary
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Chapter Outline and Learning Objectives
• Federal Revenue and Borrowing• LO 15.1: Describe the sources of funding for
the federal government and assess the consequences of tax expenditures and borrowing.
• Federal Expenditures• LO 15.2: Describe the major categories of
federal expenditures, and explain why the budget has grown.
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Chapter Outline and Learning Objectives
• Understanding Budgeting• LO 15.3: Assess the impact of democratic
politics on budgetary growth, and explain how the budget can constrain the scope of government.
Federal Revenue and BorrowingLO 15.1: 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
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Revenue and Borrowing
• Personal and Corporate Income Tax• Social Insurance Taxes• Borrowing• Taxes and Public Policy
To Learning Objectives
LO 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Revenue and Borrowing
• 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.
To Learning Objectives
LO 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Revenue and Borrowing
• 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.
To Learning Objectives
LO 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Revenue and Borrowing
• 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.
To Learning Objectives
LO 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Revenue and Borrowing
• 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.
To Learning Objectives
LO 15.1
Federal ExpendituresLO 15.2: Describe the major categories of federal expenditures, and explain why the budget has grown.
• Big Governments, Big Budgets• The Rise of the National Security
State• The Rise of the Social Service State• Incrementalism• “Uncontrollable” Expenditures
To Learning ObjectivesCopyright © 2011 Pearson Education, Inc. Publishing as Longman
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• Big Governments, Big Budgets• Big budgets are necessary to pay for big
governments.• National, state, and local governments
spend an amount equal to one-third of the gross domestic product (GDP).
• National government spending alone currently represents about one-fourth of the GDP.
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• The Rise of the National Security State• In the 1950s and 1960s the Department of
Defense received more than 50% of the federal budget.
• Defense now gets about one-sixth of all federal expenditures.
• This is one reason for growth of government.
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• 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.
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• 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.”
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• 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 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• “Uncontrollable” Expenditures• Expenditures are determined by how many
eligible beneficiaries there are for a program or by previous obligations of the government; Congress therefore cannot easily control.
• Social Security benefits are an example of uncontrollable expenditures.
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Federal Expenditures
• “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.
To Learning Objectives
LO 15.2
Understanding BudgetingLO 15.3: Assess the impact of democratic politics on budgetary growth, and explain how the budget can constrain the scope of government.
• Democracy and Budgeting• The Budget and the Scope of
Government
To Learning ObjectivesCopyright © 2011 Pearson Education, Inc. Publishing as Longman
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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.
To Learning Objectives
LO 15.3
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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.
To Learning Objectives
LO 15.3
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
LO 15.1Summary
• Federal Revenue and Borrowing• 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.
To Learning Objectives
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
LO 15.1Summary
• 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.
To Learning Objectives
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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
To Learning Objectives
LO 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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
To Learning Objectives
LO 15.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
LO 15.2Summary
• Federal Expenditures• 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.
To Learning Objectives
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
LO 15.2Summary
• 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.
To Learning Objectives
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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.
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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.
To Learning Objectives
LO 15.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
LO 15.3Summary
• Understanding Budgeting• 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.
To Learning Objectives
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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
To Learning Objectives
LO 15.3
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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
To Learning Objectives
LO 15.3
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Text Credits
• Budget of the United States Government, Fiscal Year 2011: Historical Tables (Washington, DC: U.S. Government Printing Office, 2010), Table 2.1.
• Budget of the United States Government, Fiscal Year 2011: Historical Tables (Washington, DC: U.S. Government Printing Office, 2010),Table 7.1. Budget of the United States Government, Fiscal Year 2011: Historical Tables (Washington, DC: U.S. Government Printing Office, 2010),Tables 16.1 and 16.3.
• Budget of the United States Government, Fiscal Year 2011: Historical Tables (Washington, DC: U.S. Government Printing Office, 2010),Table 6.1. Budget of the United States Government, Fiscal Year 2011: Historical Tables (Washington, DC: U.S. Government Printing Office, 2010), Table 3.1.
• Budget of the United States Government, Fiscal Year 2011: Historical Tables (Washington, DC: U.S. Government Printing Office, 2010), Table 1.1.