Rajat Goyal 12th Grade

Due: 13 November 2011

Advanced Placement U.S. Government & Politics

Budget

A policy document allocating burdens (taxes) and benefits (expenditures).

The United States federal budget in 2012 is expected to run a $1.101 trillion deficit; since the total expenditures ($3.729 trillion) are greater than the total revenues, which are mainly from taxes (2.627 trillion).

Deficit

An excess of federal expenditures over federal revenues.

The United States federal deficit in the past year was caused mainly due to excessive defense spending and government programs.

State governments are usually not allowed to run a deficit in their budgets; however, the federal government is allowed to run deficits and it does, thus, the U.S. debt constantly increases.

Expenditures

Federal spending of revenues. Major areas such as spending are social services and the military.

In 2010, the federal expenditures of Medicare & Medicaid was $793 Billion, exceeding the $689 billion in defense spending.

Federal expenditure in defense is often criticized by tax payers and republicans, since it is considered wasteful and contributes greatly to the federal deficit.

Revenues

The financial resources of the federal government. The individual income tax and Social Security tax are two major sources of these.

Continually there is an ongoing debate between Republicans and Democrats on weather the national government should raise income taxes (and the effect it would have on the economy) to increase revenue and thus reduce the national deficit without making spending cuts.

Income Tax

Shares of individual wages and corporate revenues collected by the government. The Sixteenth Amendment explicitly authorized Congress to levy this.

Currently the U.S. government collects 35% income tax from the top income bracket (which is families or individuals earning over $350,000) and there is a debate whether or not to raise this to 39.5%.

Sixteenth Amendment The constitutional

amendment adopted in 1913 that explicitly permitted Congress to levy an income tax.

The sixteenth Amendment does not state how much income tax the U.S. government can impose, but instead says Congress has the right to collect taxes without apportionment.

The Sixteenth Amendment is necessary since from it most of the countries revenue is generated which will fund the many aspects of government that are necessary to run the country.

Congress

Federal Debt All the money borrowed by the

federal government over the years and still outstanding. Today it is more than $8 trillion (Correction: over $14 trillion).

The federal government borrows money when people, investors, or countries (today it is primarily China) purchase government bonds, which have proven to be good stable investments.

During the two terms (eight years) President George W. Bushs was in office, the federal debt doubled, because of immense spending and tax cuts.

Because there is a large federal debt, a part of the yearly federal expenditures go to paying interest on this debt (nearly 9%).

Tax Expenditures

Revenue losses that result from special exemptions, exclusions, or deductions on the federal tax law.

Recently, there have been many tax expenditures since there have been cuts and deductions from taxes to help stimulate the economy.

Often, people and businesses are motivated to donate to a non-profit because of the tax expenditure they receive.

Despite such positive things tax expenditures bring, they contributes to a majority of the deficit ($925 billion in 2009), and as a result Republicans want to cut them to help solve the deficit and debt problem.

Rank Tax Expenditures Billions($)

Social Security Act

A 1935 law passed during the Great Depression that was intended to provide a minimal level of sustenance to older Americans and thus save them from poverty.

The Social Security Tax rate has steadily increased from when it was introduced to sustain similar benefits for the elderly Americans who contributed to the fund even though there is an increasingly aging population of the United States.

All working Americans (who must pay social security tax) expect to receive benefits when they are older; however, some Americans are questioning whether or not they will.

Medicare

A program added to the Social Security system in 1965 that provides hospitalization insurance for the elderly and permits older Americans to purchase inexpensive coverage for doctor fees and other health expenses.

Medicare is a large contributing factor to todays deficit and when a presidential candidate who talks about cutting it is likely to loose the election (due to the many elderly voting members).

The American Association of Retired Persons (AARP) wants Medicare benefits to continue for all, since they believe those who receive it have earned the benefits it provides.

Incrementalism

The belief that the best predictor of this year's budget is the last year's budget, plus a little bit more.

Incrementalism budget decision making would makes it easier for Congress to decide on the following years budget for each existing government agency, as they only would have to look at last years budget and add a small percentage to determine the agencies budget for the next year. It would be an easier but more devastating alternative to today's complex budgeting process in which Congress determines how much to cut or add (typically 5-10%) to the budget of each agency and whether to cut the agency entirely (and then determine how best they could appropriate the budget by analyzing the effects of their decision to the economy).

1990 1991 1996

2012

Year-Year Budget

Uncontrollable Expenditures Expenditures that are determined

not by a fixed amount of money appropriated by Congress but by how many eligible beneficiaries there are for a program or by previous obligations of the government.

Today, about two-thirds of the federal budget is uncontrollable expenditures such as Social Security Benefits, Medicare, and Medicaid.

Entitlements

Policies for which Congress has obligated itself to pay X level of benefits to Y number of recipients that must be eligible for the benefits.

Social Security, Medicare, Veteran Benefits, Unemployment insurance, Welfare, Student Loans, and Food stamps are just some of the government entitlement programs (that lead to uncontrolled expenditures) in which Congress is obligated to pay a certain amount of benefits for its recipients.

House Ways and Means

Committee The House of Representatives committee

that, along with the Senate Finance Committee, writes the tax codes, subject to the approval of Congress as a whole.

The House Committee on Ways and Means restricts its members from serving on any other House Committee unless they apply for a waiver

The House Committee on Ways and Means is where all revenue raising policy (including but not limited to taxation and tariffs) originate as the U.S. Constitution requires all bills regarding taxation have to originate in the House of Representatives and it is an influential committee on deciding the details on all matters regarding taxation.

We

Approve!

Senate Finance Committee

The Senate committee that, along with the House Ways and Means Committee, writes the tax codes, subject to the approval of Congress as a whole.

The Senate Finance Committee, like the House Ways and Means Committee is extremely influential in the tax code writing process and its approved tax codes generate almost all of the revenues for the United States.

Link to diagram of budgetary process timeline

Congressional Budget and

Impoundment Control Act of 1974

An act designed to reform the congressional budgetary process. Its supporters hoped that it would also make Congress less dependent on the president's budget and better able to set and meet its own budgetary goals

Less Dependent On

Budget

We want

to Control

Budget!

Congressional Budget Office Advises Congress on the probable consequences

of its decisions, forecasts revenues, and is a counterweight to the president's OMB (Office of Management and Budget).

The Congressional Budget Office plays an important part in the budgetary process and Congress takes its input on future forecast it provides to make informed decisions on taxation and expenditure limits when establishing a budget.

Budget Resolution

A resolution binding Congress to a total expenditure level, supposedly the bottom line of all federal spending for all programs.

Every year by the month of April, Congress is supposed to have the budget resolution, the amount of total expenditures for all government programs, and only then do they appropriate the budget into sections.

Total

Expenditures

=

$ ????.??

Billion

Budget Item 1

Budget Item 2

Budget Item 3

Reconciliation

A congressional process though which program authorizations are revised to achieve required savings. It also usually also includes tax or other revenue adjustments.

Reconciliation helps allow spending totals to meet the strict budget resolution laid out by Congress before apportionment.

Authorization Bill

An act of Congress that establishes, continues, or changes a discretionary government program or an entitlement. It specifies program goals and maximum expenditures for discretionary programs.

Talk about an authorization bill being issued to set the maximum amount that can be spent by an entitlement program by changing benefits and eligibility standards often leads to many American people who are benefiting from such programs unhappy.

Government Program

Appropriations Bill

An act of Congress that actually funds programs within limits established by authorization bills. It usually covers one year.

The appropriations bill appropriated less money than what was authorized for the construction of roads and highways, thus the workers were not able to complete rebuilding the highway.

Continuing Resolutions

When Congress cannot reach agreement and pass appropriations bills, these resolutions allow agencies to spend at the level of the previous year.

The heated debate over the funding for infrastructure led to Congress passing a continuing resolution instead of appropriating a certain amount of money for that year. Government Agency Spending

We cannot reach

an agreement and

pass an

Appropriations bill.

Lets resort to a Continuing

Resolution.

That

was

easy

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End of Visual Dictionary

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Picture/Pictures

Budgetary Process Timeline