Current Events: Topic 1

The Federal Budget

 Where do Tax Dollars Go?

• Introduction
– Between the two parties the national debt has become a
controversial discussion which has brought unprecedented
attention from the public eye.. The budget battle will always
continue.
– In return the federal government has to determine which ways
are the most appropriate to spend tax payer dollars.
 The Democratic Stance

• “Bigger” or “Expanding” the Government?

– Democrats tend to favor using government
programs to invest in infrastructure and
address economic and social problems
• Infrastructure: Highways, Communication, Water,
Electric, etc.
• Social Problems: Economic Inequality, Welfare,
some Individual Rights.
• Sometimes, this requires higher taxes… usually on
the wealthiest individuals and corporations
 The Republican Stance
• “Smaller” or “Contained” Government?
– Republicans generally prefer a smaller government
role and lower taxes
• They believe wealth created at the top of the
economic chain will “trickle down” and that the
private sector is better suited to address most
issues.
• This can be seen as controversial as the classes
below the wealthy believe this wealth does not
“trickle down”.
• The current Republican leadership is deeply
opposed to any new or increased taxes
 A Balanced Budget?

• Can it Work?
– Some economists argue that a balanced
budget is the only way to ensure the United
States' future economic stability
• Balanced Budget: where a government is able to
bring in money while keeping their expenses below
what is made.
– Most Americans agree that the ballooning US
debt (currently about $21 trillion) is a huge
concern
 The Process

• Where do Priorities Lie?

– Setting Precedent
– The President and Congress collaborate year to year to develop a
proposed federal budget.
• Portrays the top priorities for the upcoming year, and gives a
suggestion(s) as to how it will be achieved.
– Example… if border security is a priority, more government funds will be spent on
building fences and policing the border
 Cooperation/Conflict of Interests
• Working together (and sometimes against each
other), the president and Congress decide how
much will be spent on defense, health care,
education, “safety net” programs like
unemployment, etc., etc.
– Democratic President and Republican Congress, or vice
versa can cause tension.
– Same party affiliations can make the process of either
party move more effectively.
• It also has to be taken into account how much total
revenue will be brought in by the tax payers.
– Lawmakers determine this by rough estimations as
nothing is absolute.
 Development of a Budget

• The President Develops a Budget

– The Office of Management and Budget is responsible for drawing
up the president’s budget for the coming fiscal year (Oct – Sep)
• A fiscal year is the time/period where taxing and accounting purposes
are considered.
• The president sends the administration’s budget to Congress no later
than the first Monday in February
 Congress Takes the Reigns
• Congress grants approval for all governmental programs
by passing an authorization bill
– States the program’s goals, Congress’s rules and
regulations, and the agency’s spending limits
• Lawmakers then approve an appropriations bill to give the
agency money
– This dual system creates a fiscal “check” by having
programs discussed on their merits and then on their
costs
 Congress take the Reign Cont.
– Congress is also responsible for raising money through the
collection of taxes or borrowing
• The House and Senate are supposed to approve a joint budget
resolution by April of each year
• Problematic as Congress can sometimes not agree leading to
government shutdowns.
– Public faith in government officials has gone down over the years as a result.
 The Basics of the Budget

• The Whole Enchilada

– Government spending is divided into four main
categories
• Defense
• Non-Defense Discretionary
• Mandatory
• Interest on National Debt
– Revenues come from taxes (45%), payroll
Social Security deductions (34%), corporate
taxes (14%), and other sources
 Why these Four Categories?
– Every year defense spending is the largest
– N-D Discretionary pays for budgetary programs like education,
highways, flu vaccines, etc.
– Mandatory covers Social Security, Medicare, & Medicaid
– Interest on National Debt must be paid to keep our credit rating
high and keep interest rates down
• Otherwise other countries won’t want to invest in the US Dollar as the
most trusted currency.
 Mandatory Spending in Trouble?

• Entitlement Spending
– Social Security, Medicare, & Medicaid are all in
trouble
• Estimates predict that they will run out of money in
coming years
– Due to the Baby Boomer generation aging, and not
enough Millennials/Generation X babies being able to
support them.
• These programs are popular and the public is
demanding that they continue… so the government
must find new ways to properly fund them
 A Government Beyond its Means

• Budget Deficits
– Deficits occur when the government spends more than it takes in
• To make up any difference, the Treasury must borrow money…
increasing the national debt
 A Government Beyond its Means

• The National Debt

– Currently more than $21 trillion (roughly $64,000 per citizen)
• Total sum of money borrowed by the government from citizens
• Lending institutions, foreign banks
• Government’s own holdings like the Social Security Trust Fund
– Economists predict that growing debt could dampen long-term investment
and lead to an economic depression