Government FinancesChapter 25

The Federal GovernmentChapter 25 Section 1

Words to Know

Budget: A plan for making and spending money

Fiscal Year (FY): 12-month planning period that may not coincide with the calendar year

Budget Resolution: Congressional document that shows total spending and revenues for a year and how much it will be spent in various categories

Mandatory Spending: Federal spending required by law that continues without the need for annual approvals by Congress

Discretionary Spending: Spending for federal programs that must receive annual approval

Words to Know

Appropriations Bill: Legislation earmarking funds for certain purposes

Tax Return: Annual report filed with local, state, or federal govt. detailing income earned and taxes owed

Payroll Tax: Tax on wages and salaries to finance Social Security and Medicare costs

Social Security: Federal programs that provide monthly payments to people who are retired or unable to work

Medicare: Govt. program that provides health care for the aged

Preparing the Budget

Federal govt. spends a huge amount of money

Budget created yearly: Pres. and Congress

create it

Govt. uses Fiscal Year: Oct. 1st-Sept. 30th

Budget starting on 10/1/05 is the fiscal year 2006 budget

The Budget Process

Law= Pres. must propose budget to Congress by 1st Monday in Feb.: Pres. outlines where govt. should spend money

Congress then passes Budget Resolution: Spending divided into 2 categories:

Mandatory Discretionary

The Budget Process cont.

Mandatory Spending: Examples:

Social Security Benefit Checks

Interest payments on govt. debt.; Must be paid yearly

Discretionary Spending: Examples:

Coast Guard Agriculture Space Exploration Highway Construction Defense

Makes up about one-third of Fed. Budget

Appropriations Bill

Before Govt. can spend money, Congress must pass appropriations bill: Congress splits

discret. spend. Into 13 separate appropriations bills Bills go through

normal bill process Each bill must be

approved by both houses

Pres. Signs or vetoes

Federal Revenues

Federal Budget has 2 main parts: Revenues Expenditures

Pg. 544 chart Left side Federal Revenues

Taxes on Incomes and Profits

Income tax supplies nearly ½ of Fed. Govt. revenue

Portion of people’s paychecks withheld

End of year: Workers file tax return

Paid too much tax=return Paid too little tax=owes

Corporations pay income tax on earned profits: 10% of federal revenue

Payroll Taxes

2nd largest source of Federal Income: Payroll Taxes:

1/3rd

Social Security

Medicare

Other Revenues

Excise Tax on purchases: Gasoline Tobacco Alcohol Legal betting Telephone service

3.4 cents of every dollar collected

Wealthy people die: Govt. collects estate tax

on wealth passed to heirs

Other Revenues cont.

Govt. charges tax on certain gifts

Gift tax and estate tax make-up 1.3 cents of every fed. revenue dollar

Misc. sources account for 2% of fed. revenue: National Park entry fee Fees paid by oil

companies Drill on public land

Forms of Taxation

Proportional Tax: Takes same % of income from everyone

Regardless of how much one makes

Progressive Tax: Tax rate increases as your income increases Higher the income, higher the tax

Forms of Taxation cont.

Regressive Tax: Opposite of progressive tax % taxed goes down the more money you make

Example: Poorer families spend larger proportion of income

buying gasoline Sales tax they pay on gasoline takes up larger

proportion of their total income

Federal Expenditures

Pg. 544 chart Right side Expenditures

SS, Medicare, Income Security, Health

Social Security (SS): Largest spending

category 21.2 cents of every

fed. dollar spent in `06

More older people expense grows

Medicare costs will rise as population ages: 4th largest category

SS, Medicare, Income Security, Health cont.

Income Security: Retirement benefits:

People who worked in govt.

Served in military Retirement payments

to railroad workers Disabled coal miners Payments to poorer

Americans for housing and child nutrition

SS, Medicare, Income Security, Health cont.

Health: Payments for

Medicaid: Health care for low

incomes Spending on research

to find cures for diseases

National Defense

2nd largest category of fed. spending: 2001= 16.4 cents of

every Fed. dollar spent: Change because of

wars

Interest on Debt.

Portion goes to pay interest on money the govt. has borrowed

Amount depends on how much has been borrowed Interest rate %

7th largest expenditure

Other Expenditures

Money spent on education, highways, natural resources: Billions of dollars of

spending

HomeworkChapter 25 Section 1 Worksheets