Transcript The Federal Budget Process

Wednesday March 12, 2014
• OBJ: SWBAT
demonstrate
understanding of the
budget process through
simulation.
• Drill: What does this say
about the budget?
What problems do you
see? What groups are
left out?
• HW:
Fiscal Policy vs. Monetary Policy
• Fiscal policy relates to government spending and
revenue collection. For example, when demand is
low in the economy, the government can step in and
increase its spending to stimulate demand. Or it can
lower taxes to increase disposable income for people
as well as corporations.
• Monetary policy relates to the supply of money,
which is controlled via factors such as interest rates
and reserve requirements (CRR)for banks. For
example, to control high inflation, policy-makers
(usually an independent central bank) can raise
interest rates thereby reducing money supply.
What is the Federal Budget?
• The federal budget is:
• a plan for how the government spends
taxpayers’money.
• What activities are funded? How much should
we spend for defense, national parks, the FBI,
Medicare, and meat and fish inspection?
• a plan for how the government pays for its
activities.
• How much revenue does it raise through different
kinds of taxes--income taxes, excise taxes (taxes
applied to various products, including alcohol,
tobacco, transportation fuels and telephone services),
and social insurance payroll taxes.
• a plan for government borrowing or the
repayment of borrowed funds.
• If revenues are greater than spending, the
government runs a surplus. If expenses are
greater than revenues (as is currently the
case), the government runs a deficit.
• something that affects the nation's economy.
• Some types of spending--such as
improvements in education and support for
science and technology—increase productivity
and raise incomes in the future.
•
Taxes, on the other hand, reduce incomes,
leaving people with less money to spend.
• something that is affected by the nation's
economy.
• When the economy is doing poorly, people are
earning less and unemployment is high. In this
atmosphere, revenues decrease and the deficit
grows.
• an historical record.
• The budget reports on how the government
has spent money in the past, and how that
spending was financed.
• The 2011 budget document embodies the
President's budget proposal to Congress for fiscal
year 2011, which begins on October 1, 2010. It
reflects the President's priorities and proposes his
initiative to meet our national and international
needs.
•
• The federal budget, of course, is not the only budget
that affects the economy or the American people.
The budgets of state and local governments have an
impact as well. State and local governments are
independent of the federal government, and they
have their own sources of revenue (taxes and
borrowing).
The 1974 Budget Act
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•
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Centralized and Regularized the Budget Process
Created Budget Committee in each chamber
Created Congressional Budget Office (CBO)
House Committee
– rotating membership
– partisan
– Members have “turf“ interests, Committee is Privileged
• Senate Committee
– Traditional in many ways
– Prestigious/powerful committee
Some Details
• CBO: Provides Estimates and Baselines
• The Timetable's Lack of Teeth
• The Budget Resolution’s “dimensions”
– Revenues, Expenses,
– Multi-year forecasts
• The Budget Resolution as a “Soft" Upper
Limit
– Establishes points of order
What is a Deficit? What is a Surplus?
• When President Clinton was first elected in 1992, the
federal budget was in a deficit. During the 1990’s, as a
result a strong economy, the government brought in
much higher revenues than expected and began, by
the end of the decade, to run a budget surplus. In
2002, as a result of September 11, increased military
spending and anti-terrorism spending, tax cuts, and
the downturn in the economy, the federal budget
went back into deficit. In October 2009, the
Congressional Budget Office (CBO) estimated a deficit
for FY 2009 of $1.4 trillion—a figure that includes the
cost of the cost of TARP and stimulus spending for the
fiscal year. See Chart 4 (the dollars represent billions
of dollars).
300
Deficit\Surplus in Billions of Dollars
200
FIGURE 12.1. Annual surplus (+) or deficit (-) in billions of dollars, for fiscal years 1946-2006. Source: Congressional Budget Office.
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0
-100
-200
-300
-400
-500
46 9 50 9 54 9 58 9 62 9 66 9 70 9 74 9 78 9 82 9 86 9 90 9 94 9 98 0 02 0 06
9
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
Spending
• To better understand federal spending, let’s
look briefly at the FY 2010 federal budget in
which the government projected it would
spend approximately $3.6 trillion. Federal
spending is divided into mandatory spending
which is required by law, and discretionary
spending which is decided upon yearly by the
President and Congress.
• Social Security is the largest mandatory
spending.
Entitlements
• Federal programs that guarantee a specific
level of benefits to persons who meet
requirements set by law
• Person is “entitled” to benefits if they meet
the criteria set by the federal government
• Spending on entitlements is mandated by the
Federal law
Examples
-Social Security
-Medicare
-Medicaid
-V.A. Programs
-Unemployment
Programs
-Food Stamps
-Retirement Plans
for Federal
Employees
Entitlements
Positives
• Provides needed benefits to
American citizens
• Government cannot delay
or avoid payment in the
budget
Negatives
• No Congressional discretion
on money allotted
• 2/3 of budget
• Less money for
discretionary spending
The Budget Process
Proposed at the State of the Union
Message in January
Office of Management and Budget
(OMB)
• OMB sends instructions to agencies
• Agencies send requests to OMB
• OMB revises the budget
Congressional Budget Office
(CBO)
• President submits budget to Congress by the
first week in February
• CBO looks over and sends report to both
chambers of Congress
Appropriations Committee
• The appropriations
committee holds
hearings and sets
budget targets
• Reconciliation bills are
made of budget does
not meet targets
Finalizing the Budget
• By October 1st, all
appropriations bills
should be passed
• If they are not passed,
Congress has to pass a
continuing resolution
where agencies run on
last year’s budget
Creating the Budget
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Read the Rules of the Game
Get into a group of 4-5.
You will be creating your own Federal Budget
In your groups discuss the mandatory
spending (will you increase it or decrease it)
use the descriptions to help you make up your
mind.
• Red Chips can be used for deficit spending.
• Write up a summary of your budget and why
it looks the way it does.
Wrap Up
• What problems did you run into while trying
to complete your budget?
• Why do you think the government has so
much trouble?