Chapter 14: The Budget

…or why we’re screwed

Focus: Does Your Family Have a Budget?

What happens when you go over?

What if there were no consequences?

What does a trillion dollars look like?

• A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

• Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

• While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...

• And $1 BILLION dollars... now we're really getting somewhere...

• Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

Let’s look at a trillion dollars another way…

Four Major Concepts

1. The national deficit is $ we don’t have and the national debt is $ we owe.

2. Entitlement spending takes up most of the federal budget*.

3. The budget-making process is a political process that often prevents Congress from making tough choices.

4. Since World War II, Americans expect more and more from the federal government but show a reluctance for increases in taxes to pay for it.

Concept #1

Types of Taxes

18

TYPES OFFED SPENDING

PART OF THEFED BUDGET

Congress and Pres.have no direct power To change

Interest on the nationaldebt

Social Security & otherEntitlement programs

Congress and thePres. decide howmuch will be spent

Specific expenditures

Environmental protection,Defense and securityEducation, etc.

ControllableSpending

UncontrollableSpending

How a Surplus Works

Clip

The National Debt

Concept #2

Where are YOUYOU in this cartoon?

Social Security: A federal Ponzi scheme?

The future?

Entitlement programs:Social SecurityMedicareMedicaid

What we What we CAN’T cutCAN’T cut

What we What we CAN cutCAN cut

ENTITLEMENT PROGRAMS

GUARANTEED BY LAW

BABY BOOMERS START RETIRING

How Social Security Works

1940

• Workers • Retirees

1950

• Workers • Retirees

2006

• Workers • Retirees

???

• Workers • Retirees

Proposed Reforms

• Increase retirement age

• Raising the payroll tax• Invest some of Social

Security trust fund into the stock market

• Privatized accounts

The Third Rail

Concept #3

GAO Budget Agents

Tax Committees

AgenciesOMB

CBO

Incrementalism-The idea that last year’s budget is the best predictor of this year’s budget, plus some.

CBO Projects debt to double by 2021 under the Obama budget

The Budget Process (in theory)

Concept #4

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or…

Ch. 14- The BudgetFour Major Concepts1.

2.

3.

4.

Types of Taxes:1. Progressive-2. Social Insurance-3. Excise tax-4. Estate tax-5. Custom duties-

Controllable Spending-1.

2.

3.

4.

Uncontrollable Spending-1.

2.

3.

Debt vs. deficit: The Public Debt-1.2.3.4.5.

Social Security Reforms:1.2.3.4.

Budget Agents:

Government Accounting Office (GAO): Congressional Budget Office (CBO):

Office of Management and Budget (OMB): President:

Congress: Tax Committees:

Interest Groups: Agencies:

The Budget Process (In theory):

1.

2.

3.

4.

5.