Transcript The Congress, The President, and The Budget

Chapter 14: The Congress,
The President, and The
Budget: The Politics of Taxing
and Spending
Sources of Federal Revenues
• Income Taxes: individual wages &
corporate revenues
• Social Insurance Taxes: money taken from
employee’s paychecks & match with
employer.
• Borrowing:
• Excise Taxes:
Budgetary Demands & Borrowing Money
• The two contradictory budgetary demands of
most Americans are to increase the level of
governmental spending and to keep taxes
low.
• The government borrow money by the
Treasury Department sells bonds,
guaranteeing to pay interest to the
bondholder.
Instruments for Controlling the
Economy
• Monetary Policy and “the Fed”
– Supply of money – too much cash and credit
produces inflation and affects the interest rate
– The Fed influences the supply of money in
circulation:
• Sets discount rates
• Sets reserve requirements
• Buying / selling government bonds
Instruments for Controlling the
Economy
• Fiscal Policy: The impact of the federal budget
on the economy – Taxing and Spending
– Keynesian Economic Theory: Government spending
and deficits help the economy; assist in creating
demand
– Supply-Side policy: Too much taxation and not
enough money in circulation leads to hardship;
reducing taxation and regulation will create a greater
supply of goods
Congressional Budget & Impoundment
Control Act of 1974
•
Was designed to reform the congressional
budgetary process.
The act accomplished the following:
1. A fixed budget calendar: Now has a time line
mandated by law which has been amended several
times.
2. Established Budget Committees in each House
3. Forecasts revenues (CBO)
4. Ends Presidential impoundments
Ten Main Actors in in the budgetary
process
• Interest groups: lobbyists lay the foundation for interest
groups by advertising the group’s cause.
• Agencies: agencies are motivated groups of people that
push for higher budget requests and can get a chance to
present themselves before congressional committees.
• Office of Management and Budget: responsible to the
president but is divided up into may agencies because of
the vast of amount of information; major actors in
budgetary process
Ten Main Actors in in the budgetary
process continued…..
• President: makes decisions about what will be proposed
to Congress concerning the budget and governmental
spending
• Tax Committees in congress: the House Ways and
Means and the Senate Finance Committee are in charge
of writing tax codes which require the approval of
Congress.
• Budget committees: sets parameters of congressional
budget process by examining expenditures and
revenues; propose resolutions to ensure the limits of
Congress.
Ten Main Actors in in the budgetary
process continued…..
• Appropriations Committees: “who gets what”; take old/
new policies from subject matter committees and decide
how much to spend.
• Congress as a whole: approves taxes and
appropriations; members look for places of interest to
add into the budget (dams and military bases).
• Government accountability office: audits, monitors and
evaluates how and what agencies are doing with their
budget.
• Subject matter committees: writes new laws, leads to
new expenditures
Balanced Budget
• A balanced budget is when the total sum of
money a government collects in a year is equal
to the amount it spends on goods, services, and
debt interest.
The Budgetary Process
1. Agencies direct budget requests through the OMB &
president
2. OMB & president negotiate with agencies
3. President presents his budget to Congress; hearings
are held in committees
4. Congressional budget resolution sets the total budget
expenditure
5. Budget items reconciled
6. Budget authorized and appropriated
Budget Resolution
• A budget resolution is a resolution binding Congress to a total
expenditure level, supposedly the bottom line for all federal
spending for all programs.
• The way laws change to meet it are:
– Reconciliation- process through which program authorizations
are revised to achieve required savings. It usually also includes
tax or other revenue adjustments.
– Authorization bill- an act of congress that establishes, continues,
or changes a discretionary government program or entitlement. It
specifies program goals and maximum expenditures for
discretionary programs.
Gramm-Rudman-Hollings Act
(1987-1990)
• Balanced Budget and Emergency Deficit Control Act
• Co-sponsors: Senators Phil Gramm, Warren Rudman,
Ernest Hollings
• Mandated maximum allowable deficit levels for each
year until 1993 when budget supposed to be balanced
• Hard caps abandoned in 1990 and replaced with PayGo
• 2011 – Budget Control Act - Sequestration: (automatic
cross-the-board spending cuts) be ordered by president
if congress failed to meet the deficit goals
• ½ from defense and ½ from domestic programs
Government Growth
• Congress incentives:
– Use both constituency services and pork-barrel
policies to deliver benefits to folks back at home
• Politicians spend money to “buy” votes
– Not corruptly
– Rather policymakers spend money to earn votes
Equality of suffrage: parties must appeal to a majority of
voters
Review Questions
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1. What are the four sources for federal revenues?
A. interest groups, agencies, tax committees, and Congress
B. President, tax committees, the subject, and agencies
C. Income tax, social insurance tax, borrowing, and taxes & public
policy
• 2. What does the phrase "military industrial complex" mean?
• A. revenue losses that result from special exemptions, exclusions, or
deductions on federal tax law
• B. to characterize the close relationship between the military
hierarchy & the defense industry that supplies its hardware needs
• C. an act of Congress that actually funds programs within limits
established by authorization bills.
• 3. What are 4 expenditures of the federal budget?
• A. interest groups, tax committees, Office of Management & Budget,
and appropriations committees
• B. individuals, national defense, non-defense, and net interest
• C. Office of Management & Budget, Government accountability
office, tax committees, and Budget Committees & the Congressional
Budget Office
• 4. The following are provisions of the Congressional Budget and
Impoundment Control Act of 1974 except
• A. Authorization bill
• B. a fixed budget calender
• C. a budget committee in each house
• D. a congressional budget office