Breaking Down the Federal Budget

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Breaking Down the Federal Budget

• Steps in the Budget ProcessandWhere the Money
  Goes

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Federal Budget

• Annual plan outlining proposed revenues and
  expenditures for the coming year
• If balanced revenuesexpenses
• If a deficit expensesgtrevenues

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Spending Priorities

• Based upon broad economic goals
• Wishes of Executive and Legislative branch
• Special Interest Groups
• Citizens

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The Budget Process

• Executive branch agencies submit requests for
  funds to the Office of Management and Budget.
• President prepares and then submits to Congress a
  proposed budget for next fiscal year (begins Oct.
  1)
• Congress reviews proposed budget submitted by
  President, develops its own budget, and votes on
  spending and revenue bills.

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Budget Process (continued)

• After Congress reviews and passes, and the
  President signs, the required spending bills, the
  budget is created.

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Specific Role of Congress in Budget Process

• Passes a budget resolution which outlines the
  basic parameters within which Congress makes its
  spending and taxing decisions.
• Includes targets for Mandatory spending (2/3 of
  all spending) which is authorized by permanent
  laws. Includes Social Security and other social
  safety net programs.
• Includes targets for Discretionary spending (1/3
  of all spending) which is decided upon through 13
  annual appropriations bills. Includes money for
  foreign aid and defense.

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Restrictions to Budget

• Law imposed Cap (or limit) through 2002 on total
  annual discretionary spending. Levels of spending
  can be changed for funded programs. (Being
  Ignored!)
• Law requires the increases in spending be offset
  by increases in revenues (i.e. increases in
  taxes). Pay-as-you-go plan designed to prevent
  new spending priorities from increasing the
  deficit.

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Breaking down the Budget
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The Budget Breakdown Basics

• Expected budget expenditure will be nearly 1.8
  trillion in FY2000
• Expected surplus of over 117 billion in FY2000
• Total of nine (9) spending categories
• 52 of all federal spending is for Mandatory
  Spending priorities

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Major Mandatory Spending Categories

• Social Security (Largest Federal Program)
• 22 of all Federal Spending
• Medicare
• 12 of all Federal Spending
• Medicaid
• 6 of all Federal Spending

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Major Mandatory Spending Categories

• Means-tested entitlements (such as Food Stamps,
  Veterans pensions, Earned Income Tax Credit,
  etc.)
• 6 of Federal Spending
• Remaining Mandatory Spending (Federal retirement
  and insurance programs, unemployment insurance,
  payments to farmers, etc.)
• 6 of Federal Spending

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Discretionary Spending Categories

• National Defense Spending
• 16 of Federal Budget
• Non-Defense discretionary spending for programs
  such as education, technology, science, foreign
  aid, etc.
• 17 of Federal Budget
• Interest payments resulting from previous budget
  deficits. Currently a surplus.
• 11 of Federal Budget

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Breakdown of President Bill Clinton's proposed
fiscal year 2000 budget
Revenues 1.883 trillion Outlays 1.766
trillion Surplus 117.3 billion Discretionary
outlays 591.5 billion Mandatory outlays
959.0 billion Interest 215.2 billion
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Budget Surpluses and Deficits

• Impact on Public Policy

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Senate Majority Leader Trent Lott, R-Miss.,
became the first leader to bid farewell to
spending caps, which until recently leaders were
still pledging to uphold. (AP Photo)
By A.B. Stoddard ABCNEWS.com
W A S H I N G T O N, Nov. 4 Its an open secret
on Capitol Hill The GOP leadership in Congress
has quietly killed spending restrictions that
helped create the historic budget surplus and is
planning to bury them without a funeral.
The time of death came Tuesday, when the Senate
sent its final appropriations bill to President
Clinton to veto, marking congressional
Republicans official abandonment of spending
restraints they imposed upon themselves in the
Balanced Budget Act of 1997.
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Budget Surplus

• As a result of cost cutting, 6 of the federal
  dollar will not be spent and is considered a
  surplus. Approximately 117 billion.
• Off-budget Social Security program had a 124
  billion surplus in FY1999
• Only by combining the on-budget and off-budget
  numbers into a unified budget figure can it be
  claimed that the federal government ran a surplus
  for fiscal year 1999

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Surplus is to be reserved until a Social Security
revitalization plan is enacted.
Treasury Secretary Lawrence
Summers said that "reducing the supply of
Treasury debt held by the public brings enormous
benefits for our economy". (Discussion with BBC
on how to use the surplus)
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Last year, the government
had a surplus of 69.2 billion. For the
first time in 25 years, the US government plans
to reduce the size of the national debt.
The news represents a transformation of the US
budget position, after struggling with huge
deficits for most of the last decade.
Data from BBC Wednesday, August 4, 1999 Published
at 1654 GMT 1754 UK
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Official projections suggest trillions of dollars
in budget
surpluses over the next 15 years, boosted by a
strong economy
and strict controls on spending.
Data from BBC Wednesday, August 4, 1999 Published
at 1654 GMT 1754 UK
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Democrats and Republicans dont agree on what to
do with the growing US budget surplus.

• Republicans are proposing a tax cut
• President Clinton and the Democrats want to add
  funds to the social security
  retirement program and Medicare,
  which provides health care for
  older people.
• Clinton administration indicated that it was
  also prepared to consider using some
  of the surplus to reduce the overall
  government debt.

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The Budget Deficit and the National Debt

• According to Keyensian theory, deficit spending
  to stimulate the economy is acceptable.
• When government spends more than they take in
  (expenses greater than revenues) this is called
  deficit spending.
• The Federal Debt represents money we borrowed to
  make up the difference in revenues collected and
  revenues spent.

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The Deficit

• The Deficit is the yearly amount by which
  spending exceeds revenue.
• Current deficit shrank to just 1 billion (for
  on-budget accounts) in fiscal year 1999 without
  counting the social security surplus
• Reducing the deficit means we're adding less to
  the Debt this year than we did last year.

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The National Debt

• The National Debt is the total amount of money
  owed by the government.
• It is calculated by adding up all the deficits
  (and surpluses) incurred by the government over
  the past 200 plus years.
• The National Debt has continued to increase an
  average of 211 million per day since November
  30, 1998 (compliments of Ed Hall, The National
  Debt Clock edhall_at_brillig.com)

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National Debt Clock
The estimated population of the United States is
273,998,792 so each citizen's share
of this debt is 20,679.22.
Total National debt projected in FY2000 is 2.07
Trillion rising to 4.09 trillion (or 36.4 of
GDP) by FY2005
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Ownership of the National Debt
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Burning Questions to Answer
The FY2000 budget projected budget anticipates a
surplus of over 117 billion. Should this
surplus be used to help eliminate the deficit,
shore up the social security safety net, increase
funding for other socially desirable programs, or
be returned to the tax payer via tax cuts? Our
government is trying to make those very decisions
as we sit here in class today! Your assignment
is to Review current expenditure proposals and
priorities. Read the public opinion and the
national budget debate articles on the handout I
will provide. Develop a plan on how the U.S.
should spend the budget surplus.