Fiscal Policy/Federal Budget 15.3

• Federal Budget—the Federal Gov’t plan for the use of government revenues.

• 3 Reasons for development of Federal Budget:– Wartime Spending—Rises sharply during war– Increased Corruption—Believed to reduce– Progressive Reform—More accountable to the

public.

The Budget and Accounting Act of 1921

• President submits annual budget to Congress for its approval.

• In 1974, the Office of Management and Budget was created ( OMB).

• The Budget Process Today:– Developed by the President and his staff– Analyzed by the Congress– After analysis, returned to President for his signature– President can veto if he disapproves

Government Committees

• House Appropriations Committee– 40% of total federal spending

• Armed Services Committee

• Foreign Relations Committee

• Committee, Committee, Committee, etc.– Why do our elected representatives want to be

on these committees?

Federal Budget Deficits 15.3

• Fiscal Year—is a 12 month financial period that typically does not duplicate the dates of the calendar year.

• Federal Budget Deficits:– Deficit—when the government spends more

money than it collects.– Surplus—when the government collects more

money than it spends.

Federal Budget Deficits 15.3

• Deficit Spending—the policy of the government spending more money for programs than it is able to cover with it’s revenues.– 1992 budget deficit was $300B– 2003 budget deficit was around $600B

Why Budget Deficits ? 15.3

• 1. National Emergencies—ex. Wars• 2. Social Programs• 3. Stimulate economy during recessions

• The National Debt: is the total amount of money that the federal government has borrowed, and includes all deficits from previous years.– 1790 = $75 million– 1917 = $ 1 billion– 1996 = $5 trillion– 2003 = $7 trillion

The National Debt 15.3

• Debt Ceiling—Is the limit on the size of the national debt. – 1918-- $12.5 Billion– 1986 -- $2 Trillion– 1996 -- $5.5 Trillion– 2003--$8.0 Trillion Impact of National Debt:

1995—Government paid $232 Billion in interestCould that money be used in other places?What do we get for this $232 B ?

Balancing the Federal Budget

• Two Ways to Balance Budget:– 1. Increasing Revenues– ex. Raise taxes– 2. Decreasing Expenditures—

• 1990’s closed many military basesLegislating a Balanced Budget—

Gramm-Rudman Act—1985, said that the federal budget must be balanced within 5 years.

Every program was cutDid not achieve full budget balancing