The Federal Budget!

The Federal Budget• A detailed estimate of revenue and spending– Revenue – Money that comes in to the

government– Spending (Expenditures) – Money that the

government spends

Types of Revenue

• Two main sources of revenue– Taxes• Income, payroll, capital gains, gift, estate, excise

– Borrowing

Types of Spending• Mandatory Spending– Spending mandated by law– This spending is not controlled by Congress each

year• Discretionary Spending– Spending that is decided by Congress each year

Mandatory Spending

• Spending by programs where the amount depends on how many people sign up– Medicare/Medicaid– SNAP– Interest on the Debt– Social Security

Mandatory Spending cont.• Mandatory spending is like spending money

on a birthday party– You make estimates about how much it will cost

per person– How much you spend depends on the number of

people who come

Birthday Example

• Cake and ice cream costs $1.50 per person– If 10 people come, the party costs $15– If 20 people come, the party costs $30

Discretionary Spending

• Spending decided by Congress each year– Defense spending– Education spending– Environmental protection spending

Surplus vs. Deficit

• Surplus– When revenues are greater than spending

• Deficit– When spending is greater than revenues

Are deficits good or bad?

• It depends• Ideally, the government’s budget would be

balanced– Usually that’s not the case

Bad Deficits• When the economy is strong, a deficit is bad• When people make more money, they pay

more in taxes, which should balance the budget or lead to a surplus

Good Deficits

• When the economy is poor a deficit can be neutral or good

• People are making less money, which means the government collects less in taxes

• The government can spend more on unemployment/Social Security/SNAP to give people money directly

• Or the government can spend money on infrastructure to help give people jobs

What about now?

• Most economists say the government should spend money

• Interest rates are low (which means the government doesn’t have to pay much for debt)