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Government SpendingIn 2001, total government expenditures amounted to
nearly $2.9 trillion. On a per capita basis, this amounted to almost $10,300 for every man, woman,
and child in the United States. Where are we now?
Government Spending in Perspective
Three reasons why government spending has increased since the 1940s:
• WW II• GD = Favorable public opinion for
government oversight (regulation)• Success of large-scale public works projects
• Goods and Services– Tanks, planes, ships to
toilet paper and soap for gov’t employees
• Transfer Payments– Social Security, welfare, unemployment
compensation, disability benefits• Grant-in-aid: $$ provided from one level of
government (fed) to another level (state)• Subsidy: $$ to individuals or industries to
encourage/protect a certain economic activity
Two Kinds of Spending
Impact of Government Spending• Remember, everything has a
cost!– Can either stimulate economic
activity or affect the FOP• Affecting Resource Allocation• Redistributing Income– May affect family incomes;
provide/lose jobs• Competes with the Private
Sector
Establishing the Federal BudgetMandatory Spending (2/3 of
federal budget)• Spending authorized by law that
continues w/out annual approval by Congress
• Interest on borrowed $$• Social Security• Medicare• Veteran’s benefits
Discretionary Spending (1/3 of remaining budget)
• Programs that must receive annual authorization
• Defense spending• Welfare• Education• Social services• Transportation• Natural resources• Environment
**The government’s fiscal year is from October 1 to September 30
How it’s Done• Step One: Executive Formulation– Prez confers with advisors to draft a budget
• Step Two: Action by the House– Has the power to approve, modify, or disapprove of proposed
budget sent to various subcommittees House Appropriations Committee
• Step Three: Action by the Senate– May approve House bill or draft its own version– If differences exist, a joint House-Senate conference committee
works out a compromise bill• Step Four: Final Approval – Sent to Prez for approval or veto. Once signed, it becomes the
official budget for the new fiscal year.
http://www.atpe.org/Advocacy/PoliticalInvolvement/basicSteps.pdf
See what our government is up to these days…
State and Local Government ExpendituresState Gov Expenditures- passed by state leege which requires annual spending not to exceed revenues
• Intergovernmental expenditures (80%)- state $$ aid to local communities– Public welfare (TxDOT)– Retirement/Insurance trust for
state employees– Higher Education– Highways– Hospitals– Interest on public debt
Local Gov Expenditures-approved by mayor, city council, or county judge• Elementary/Secondary
education• Utilities• Hospitals• Police protection• Public welfare• Highways• Housing and community
development• Fire protection• Parks and recreation
**(2/3 of totalSpending)
Deficits, Surpluses, and The National Debt
• Deficit Spending: spending in excess of revenues collected
• Finance shortage of revenue by borrowing from others (sell treasury bonds to public) = federal debt
Section 4
Impact of the National DebtFirst Consequence
Distribution of Income• If gov’t borrows $$ from wealthy, AND the
burden of taxes falls on the middle class and the poor, taxes would be transferred to the rich in the form of interest payments on the debt
• hmmm… sound familiar?
Impact of the National DebtSecond Consequence
Purchasing Power• The larger the public debt, the larger the
interest payments • More taxes needed to pay off loans • Less $$ to spend on our own needs
Impact of the National DebtThird Consequence
Reduced Incentives• Higher taxes = less incentive to work, save, or
invest
Deficit Legislation
• Gramm-Rudman-Hollings (1991)– Set federal deficit targets for Congress and the
president over a 6-year period• Budget Enforcement Act of 1990– “pay-as-you-go” provision
• Omnibus Budget Reconciliation Act of 1993– Trim $500 billion from deficit over 5-year period
• Balanced Budget Agreement of 1997– Spending caps to limit annual discretionary
spending