Economic Policy and the Budget

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Economic Policy and the Budget

• POLS 21 The American Political System

The government deficit is the difference between
the amount of money the government spends and the
amount it has the nerve to collect. Sam Ewing
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Where the Money Comes From
The money that the federal government uses to pay
its billsits revenuescomes mostly from taxes

• Individual income taxes
• Payroll taxes
• Corporate income taxes

106.1 billion 904 billion 222 billion
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Where the Money Comes From
The money that the federal government uses to pay
its billsits revenuescomes mostly from taxes

• Individual income taxes raised an estimated 967
  billion in 2005, equal to about 8 percent of
  Gross Domestic Product (GDP)about the same
  percent as in each of the last 40 years.
• Social insurance payroll taxesthe fastest
  growing category of Federal revenuesinclude
  Social Security taxes, Medicare taxes,
  unemployment insurance taxes, and Federal
  employee retirement payments. This category has
  grown from two percent of GDP in 1955 to seven
  percent in 2005.
• Corporate income taxes, which will raise an
  estimated 220 billion in 2005, have shrunk
  steadily as a percent of GDP, from about 5
  percent in 1955 to less than 2 percent today.

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And Where it Goes
Discretionary spending
X
Mandatory spending
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Federal Budget Deficits
2.38 trillion Projected receipts 3.55
trillion Projected outlays ___________________
________________________________________________ -
1.71 trillion Deficit in 2010
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The Federal Debt Common Questions

• What is the difference between the deficit and
  the federal debt?
• What is the current debt?

The outstanding public debt as of April 26, 2011
is 14,308,142,273,488.20 Since the estimated
population of the United States is 310,457,289.
Each citizens share of the debt amounts to
46,087.31!
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The Federal Debt Common Questions

• What is the difference between the deficit and
  the federal debt?
• What is the current debt?

• Why has the size of the debt grown?
• Arent budget deficits bad?
• But isnt accumulating long term debt a bad
  thing?
• But wont this bankrupt the nation? Isnt the
  government in danger of being unable to pay its
  creditors?
• Still, even if we never pay off the debt, wont
  our children and grandchildren be burdened by
  heavy interest payments?
• What about a balanced budget amendment? Whats
  so bad about forcing the government to live
  within its means?

The outstanding public debt as of April 26, 2011
is 14,308,142,273,488.20 Since the estimated
population of the United States is 310,457,289.
Each citizens share of the debt amounts to
46,087.31!
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Family Budgeting vs. National Budgeting
Does this comparison make sense?
Source The Citizens Guide to the Federal Budget
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Who Owns the Debt?
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Balancing the Budget
In February 2011, The Harris Poll asked a random
sample of American adults in how they felt about
persistent budget deficits, and what they might
do to fix the problem Below is a list of
different areas of federal government spending.
For each, please indicate if you would favor a
major cut in spending, a minor cut in spending,
no cut at all, or would you increase spending in
this area?
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Balancing the Budget
In 1995, the Gallup Organization asked a random
sample of American adults in how they felt about
persistent budget deficits, and what they might
do to fix the problem As you know, the
president and the Congress will be trying to cut
federal programs in order to reduce the budget
deficit. For each of the following programs,
please tell me whether you think it is more
important to reduce the federal budget deficit,
or more important to prevent that program from
being significantly cut
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What is the Solution?

• Deficits dont matter
• Cut spending
• Increase taxes

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Rift appears in GOP over cutting taxes and
spendingby Sue Kirchhoff and Richard Wolf, USA
TODAY
WASHINGTON -- Republican leaders return to the
Capitol this week determined to cut both taxes
and spending, a combination that is fraying party
unity as the GOP prepares for next year's
elections. While tax-cut packages in both
the House and Senate skew toward investors and
other middle- and upper-income taxpayers, the
spending cuts fall partly on programs aimed at
lower-income Americans, such as student loans,
food stamps and Medicaid. The House of
Representatives and the Senate Finance Committee
postponed action last week when rebellions by GOP
moderates left leaders short of votes for two
packages. The Senate panel stalled on a bill to
cut taxes by almost 70 billion over five years.
The House put off action on a package to cut
spending in the same period by more than 50
billion. Both chambers must eventually agree on
some version of both bills. "You're denying
resources to programs that serve the middle class
and neediest of the needy on the eve of a
projected vote to provide tax benefits and breaks
to the most advantaged in our society," said Rep.
Sherwood Boehlert, R-N.Y. He was one of the
moderate Republicans who pressured leaders to
modify the spending cuts. GOP leaders can't
afford to lose many of their own, since the issue
has energized Democratic opposition. House
Minority Leader Nancy Pelosi, D-Calif., said,
"They'll take food out of the mouths of children
in order to give tax cuts to the wealthiest."
Republican leaders are caught between party
loyalty to tax cuts and growing pressure to cut
spending. During the past four years,
Republicans, with limited Democratic support,
have been able to enact large tax cuts without
making offsetting reductions in spending.
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After Congress' approval of 62 billion for
recovery from Hurricane Katrina, GOP
conservatives are demanding greater cuts in
social programs while refusing to scale back
their plans for a fifth round of tax cuts. That
has divided the party and invigorated Democratic
activists, who are attacking wavering Republicans
in their home states and districts. Brad
Woodhouse, spokesman for a coalition of liberal
interest groups, said Republicans who support
cutting anti-poverty programs risk having
opponents run damaging TV ads against them
featuring the faces of Katrina's overwhelmingly
poor victims. "Many of those people were
barely surviving before Hurricane Katrina, and
the reason they were barely surviving was because
they had Medicaid and food stamps," Woodhouse
said. Acting House Majority Leader Roy
Blunt, R-Mo., called last week's delays a
temporary setback. He said Republicans needed
time to counter the "so-called facts" being
spread by liberal activists in the districts of
key moderates. But others said Republicans
are in a bind. "This is where they have to make
it all add up, and it doesn't," said Robert Bixby
of the non-partisan Concord Coalition, which
supports deficit reduction. The legislation
involved provides a sharp tradeoff between
spending and tax cuts. The non-partisan
Congressional Budget Office estimates that about
300,000 lower-income people, many of whom work,
would lose food stamps under the House bill. As a
result, 40,000 children would be cut from the
free school lunch program. The House measure
would let states impose premiums, restrict
benefits and raise co-payments for poor families
who receive Medicaid. About 70,000 low-income
Americans would lose benefits in 2010 because of
the higher premiums, according to the CBO.
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Republicans argue that restraints are
reasonable because many of the programs have been
growing at double-digit rates. Governors have
asked Congress to tighten Medicaid, jointly
funded by states and the federal government.
Senate Finance Committee Chairman Chuck Grassley,
R-Iowa, denied Republicans are taking from the
poor to help the rich. The Senate's spending bill
would trim spending by 39 billion and avoid some
of the House's cuts to anti-poverty
programs. Grassley said many of the tax cuts
under consideration are popular, including making
college tuition deductible, expanding businesses'
ability to deduct investments, and applying a
short-term fix to shield 14 million taxpayers
from the costly alternative minimum tax. Stuart
Butler, vice president of domestic and economic
policy studies at the conservative Heritage
Foundation, said the House spending plan is
"lousy politics, and it doesn't have to be done
that way." But Butler said there is a basic clash
between those who want to keep taxes low and
those who want to maintain social spending.
Further, there are signs that Republicans are
rethinking their focus on tax cuts. Sen. Judd
Gregg, R-N.H., has called for tax increases to
fund heating assistance for low-income Americans.
Ohio Republican Sen. George Voinovich has said
more tax cuts are not needed, given the federal
budget deficit. Carl Forti, spokesman for
the National Republican Congressional Committee,
which helps elect and re-elect GOP House members,
says the spending cuts will be hard to use
against Republicans. "When was the last time
that (a budget bill) was ever featured in a TV
ad?" Forti said. "I don't believe that there are
any political implications to this vote."
Democrats disagree. "Even if they prevail in the
passage of some form of this legislation, it's
not going to sit well with the American people,"
said Rep. John Spratt, D-S.C.