Notebook # 30 Economics 10-2

Federal

Government

Expenditures

Pages 260-265

Federal Government Expenditures

ESSENTIAL QUESTION:• What is the impact of government spending on the U.S. economy?

Pages 260-265

Federal Government Expenditures Pages 260-265

GPS STANDARDS:

SSEMA3- Explain how the government uses fiscal policy to promote…. [price stability, full employment, economic growth & social goals]

b.) Explain the government’s…spending decisions

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• The federal government’s budget supplies money for many services and programs.

•Taking action on spending bills is but one step in the preparation of the federal budget — an annual plan outlining proposed revenues and expenditures for the coming year.

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• Approximately two-thirds of the federal budget consists of mandatory spending— spending authorized by law that continues without the need for annual approvals of Congress.

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Mandatory Spending Remember those FICA taxes deducted from your paycheck?

The government does not save your FICA taxes until you retire. As soon as this money is collected from you, the government spends it as Social Security payments to others, which is why they are called transfer payments.

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•The remaining one-third of the budget deals with discretionary spending– programs that must receive annual authorization.

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• Discretionary spending decisions include how much to spend on programs such as the military, the Coast Guard, and welfare.

•The government’s fiscal year is from October 1

to September 30.

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• Congress has the power to approve, modify, or disapprove the president’s proposed budget.

• The House sets budget targets for each category of the discretionary budget, then assigns appropriations bills to various subcommittees where subcommittee members study and debate each bill.

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• If the bill is approved in subcommittee, it is sent to the full House Appropriations Committee.

• If approved there, it goes to the entire House for a vote.

•All these congressional steps must be completed by September 15 each

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• The next step is Senate action—the Senate may approve the House bill or it may draft its own version. If differences exist, a joint House-Senate conference committee works out a compromise bill.

• The last step is final approval—the House and Senate send the bill to the president for his approval or veto. Once signed, it becomes the official budget for the new fiscal year.

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• What problems may arise when the president and the majority of Congress are from different political parties?

• The last step is final approval—the House and Senate send the bill to the president for his approval or veto. Once signed, it becomes the official budget for the new fiscal year.

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• Mandatory spending categories include: Social Security; income security; medicare; interest on the federal debt; some health programs; and veterans’ benefits.

•Discretionary spending categories include; education, employment, social services, transportation, administration of justice, natural resources, and the environment.

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Major Spending Categories:1980-2004

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• What has the administration of justice become the fastest-growing category of expenditures since 1980?

• Expenses include the federal government’s intensified war on crime and drugs and maintaining a large federal prison inmate population.

l Federal Government Expenditures

• List the five largest components of federal government spending:

1.Social Security2.national defense3. income security4.Medicare5.net interest on the federal debt

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• People are living longer, and families have fewer members. How will the combination of these two factors affect transfer payments, such as Social Security?

• There will be more older people receiving Social Security but fewer people making contributions. The resulting shortfall will be corrected by cuts in benefits or increases in contributions.

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• When the federal government spends more than it collects, how does it make up the difference?

• It borrows money to make up the difference.

• We have borrowed over $ 500 billion dollars from China to help make up this difference.

•Secretary of State Hillary Clinton went to China at the beginning of the Obama Administration to “beg” them to keep lending us money during the current economic crisis.

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