Transcript Section 3, p. 267 Terms

CH 10, Section 3:
• Balanced budget amendment
• a proposed Constitutional amendment that
requires that annual spending not exceed
revenues
• Some states already have such amendments
in place.
Intergovernmental expenditures
• funds that one level of government transfers
to another for spending
• Largest category of state spending
• Distributed to counties, cities, towns
– Sales Tax Revenue
Section 4:
• Deficit spending
• government spending in excess of revenues
collected.
• What are some of the reasons we take on
deficit spending?
– War
– Financial Crisis
Federal debt
• all the outstanding federal bonds, borrowed
moneys, payments to investors
• Used to finance government deficit spending
– To make up the shortage of revenue the
government sells bonds and other forms of debt
to the public.
Balanced budget
• annual budget in which expenditures equal
revenues.
Trust funds
• special accounts used to fund specific types of
expenditures.
– Social Security Insurance (SSI)
– Medicare
• Principle funds are increased using payroll tax
• Invested in various schemes and earn interest
• Distributed, mostly from the interest,
– Not supposed to touch the principle funds
Public vs. Private Debt
• Most of the Federal debt is owed to ourselves.
– Bond holders
– The American Public
•
Private debt is owed to another.
– Banks
• Private debt is usually planned to be repaid
– 30 year mortgage
• Federal Government give little thought of repayment
because they can issue more bonds.
Jon Stewart National Debt
• Why would our country be auctioned off to a couple
from Beijing?
• Why would the Republican’s put out their own
budget plan? (2012)
• Why did the White House invite Paul Ryan to the
press conference?
• What program would see cuts to increase the
healthcare of seniors?
• Our tax rate is at its lowest rate since when?
• Why would Obama say “More spending reductions in
the tax code?”
Crowding-out effect
• Excessive government borrowing pushes up all
interest rates, even private.
• Above normal market interest rates.
• Banks will have to pay out more interest when
issuing their bonds.
Pay-as-you-go provision
• a requirement that new spending proposals or
tax cuts must be offset by reductions elsewhere
in the budget.
– Budget Enforcement Act (BEA), 1990.
• Helps prevent deficit spending
• Weaknesses include:
– Only applies to discretionary spending
– Can be suspended
• in a low-performing economy
• if the president declares an emergency.
Line-item veto
• President could select parts of a bill and veto
them, but still pass the rest of the bill.
• Supreme Court declared it unconstitutional.
Spending caps
• legal limits on annual discretionary spending
• Balanced Budget Agreement, 1997
• Some item limits were unpopular:
– Education
– Health
– Science
Entitlements
• broad social programs
• Established eligibility requirements make
payments mandatory…..
– Health
– Nutrition
– Income supplementation
Assessments: Checking for Understanding
• 1 What are some of the services that state and
local government provide for in their budget?
• Education
• Hospitals
• Public welfare
• Interest on debts
• Highways
Assessment
• 3 Describe how state governments handle the
spending approval process.
• There are many different methods, but in
most states the process is loosely modeled
after the federal government’s system.
Assessment
• 4 List seven major categories of state
spending.
• Intergovernmental expenditures
• Public welfare
• Insurance trust
• Higher education
• Highways
• Hospitals
• Interest on debt
Assessment
• 5 Identify the seven major categories of local
government spending.
• Elementary and secondary spending
• Public utilities
• Police protection
• Hospitals
• Interest on debt
• Public welfare
• Highways
Assessments: Checking for Understanding
• 1 What is the difference between the federal
debt and the federal deficit?
• Federal deficit:
– The government’s expenditures exceed its
revenues in a given year
• Federal deficit adds to the federal debt.
Assessment
• 3 Describe how the federal deficit affects the
debt.
• When the federal government runs a deficit, it
must borrow to cover the shortage of
revenue, adding to the total federal debt.
Assessment
• 4 List five ways the national debt can affect
the economy.
• May reduce purchasing power of economy
• affect the distribution of income,
• transfer purchasing power from private to
public sector,
• reduce the incentive to work, save, and invest,
• cause a rise in interest rates.
Assessment
• 5 Identify four recent attempts to bring the
federal deficit under control.
• Balanced Budget and Emergency Deficit
Control Act of 1985 (Gramm-RudmanHollings)
• Budget Enforcement Act, 1990
• Omnibus Budget Reconciliation Act of 1993
• Balanced Budget Agreement, 1997
Assessment
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6 Identify three entitlement programs.
Social Security
Medicaid
Medicare
Agricultural price supports
Federal employee retirement and health benefits
Unemployment compensation
Aid to the poor
Image, p. 269
• What are the three largest spending
categories for local governments? For state
governments?
• Elementary and secondary education
• Utilities
• Police protection
• Intergovernmental expenditures
• Public welfare
• Higher education
Image, p. 270
• Which level of government has the major
responsibilities for higher education?
• State
Image, p. 273
• What caused the deficit to return in 2002?
• Tax reductions and a recession in 2001
Image, p. 274
• What happened to the size of the federal debt
since 2001?
• It has increased
• + Why do you think it increased? (consider:
GOP Congress had legislated a balanced
budget requirement in the late 1990s and it
should NOT have increased)
• Wars in Afghanistan and Iraq
• Tax cuts to the richest sector (individuals and
corporations over $200,000/year income)
Image, p. 275
• Why do economists regard the public portion
of the federal debt as the economically
relevant part of the debt?
• They tend to disregard the portion of the debt
held in trust funds
– Because the funds represent money the
government owes to itself
• Economists focus instead on the public
portion of the debt.
Image, p. 276
• How does the federal debt impact the
economy
• May reduce purchasing power of economy
• Affect the distribution of income
• Transfer purchasing power from private to
public sector
• Cut down incentive to work, save, and invest
• Cause rise in interest rates