The Federal Budget and Social Security

Key TermsBUDGET: a financial plan for the use of money,

personnel, and property The federal budget for 2016 is $ 4 Trillion

BALANCED BUDGET: expenditures = revenues

BUDGET DEFICIT:• Expenditures exceed revenue in a fiscal year• 2015 deficit = $468 billion• 2015 national debt $18 trillion (accumalation of deficits)

• Fiscal Year = 10/1 to 9/30

POLICY TOOLS FOR INFLUENCING THE ECONOMY

Monetary Policy• Controlled by Federal Reserve• Regulating money supply and adjusting interest rates to control for inflation

Fiscal Policy• Controlled by POTUS and Congress• Raising/lowering taxes and spending

John Maynard Keynes(1883-1946)

• British economist who invented the theory of “deficit spending”

The government is the only organization working in the economy powerfulenough to affect the economy . At times the economy needs to be stimulated, at times it will need to be cooled off. Through fiscal spending and taxation, the government can properly regulate the economy.

In shortest terms, the government should spend into deficit. Government needs to be willing to create inflation with injecting mass amounts of money into the marketplace.

FDR and the New Deal Obama and the 2009 Stimulus Package

Sources of Federal Income (REVENUE)A. INDIVIDUAL INCOME TAX

- 16th Amendment (1913)- Types of taxation: Progressive Tax: tax proportionate to income

Regressive Tax: levied at a flat rate. All pay the same.

- 46% of federal tax revenue B. CORPORATE TAX - corporations pay a tax ranging from 15% to 35%

- 12% of federal tax revenue

C. SOCIAL INSURANCE TAXES- employers and employees each pay 6.2% on first $106,800- Medicare: employers and employees each pay 1.45% on total

annual income. - these taxes are regressive.

- 36% of federal tax revenue

D. EXCISE TAXES- tax on a manufacture, sale, or consumption of a good or service- gasoline, tobacco, alcohol, airline tickets, national park usage… et al

- 2.7% of federal tax revenue

E. ESTATE and GIFT TAXES- Estate tax is a levy on the assets of a deceased person. Gift tax

imposed on a gift from one living person to another.

- 1.2% of federal tax revenue

F. CUSTOM DUTIES- revenue secured from tariffs on imported goods

- 1.1% of federal tax revenue

FEDERAL EXPENDITURESA. NON – DISCRETIONARY SPENDING (UNCONTROLLABLE)

- POTUS and CONGRESS have no power to directly alter this type of spending.

- over 60% of spending !!!!!!! Why? Entitlement Programs guarantees specific level of benefits to persons who meet requirements set by law. SOCIAL SECURITY…MEDICARE…MEDICAID…FOOD STAMPS… UNEMPLOYMENT INSURANCE…VETERANS PAYMENTS… Medicare and Social Security -

Over 44% of all federal expenditures !!!!!

Borrowing - federal debt exceeds $17 trillion

- almost 10% of federal expenditures needed to pay interest on the debt.

B. DISCRETIONARY SPENDING- spending not required by law

DEFENSE…EDUCATION…AGRICULTURE…HIGHWAYS…RESEARCH GRANTS … GOVERNMENT OPERATIONS !!!!!!!

Defense takes 20% of the total budget

THE BUDGETARY PROCESSPOTUS and the Budget

1. POTUS initiates the process by sending a budget to Congress.2. The Office of Management and Budget (OMB). It has the primary responsibility for preparing the budget .3. The budget reflects POTUS priorities and goals.

CONGRESS and the Budget4. The Congressional Budget and Impoundment Control Act (1974)

• Designed to reform process = check POTUS• Created a fixed calendar for the process• Established budget committees in Senate and House• Created the Congressional Budget Office (CBO) to advise Congress thru forecasting revenues and evaluating probable consequences of budget decisions.

2. POTUS budget goes to both Appropriation s committees for hearings3. Tax proposals go to House Ways and Means and Senate Finance committees4. 13 appropriation bills need to be passed by Congress before October 1

1. Entitlement Programs/Debt = Non Discretionary spending2. Incrementalism: built in budget increases per agency3. Decentralization of power enables interest groups to resist tax increases and defend favored programs. iron triangle pork barrell

ear marks logrolling

Consequences of Budget Deficits?

1. Deficits require huge interest payments 2014 = $431 billion.2. Deficits put heavy burden on future generations.3. Deficits make it difficult to fully fund key policy goals

SOCIAL SECURITY ( 1935 – PRESENT)

Medicare created in 1965

FUTURE ?

1935: 25 :1 payer to payee2015: 3:1 ratioAverage life expectancy ever increasing