The Congress, the President, and the Budget: The Politics of Taxing and Spending

Transcription

1 The Congress, the President, and the Budget: The Politics of Taxing and Spending

2 National Debt, Budget Deficits and Surpluses How much money the government owes. Deficit: expenditures exceeds revenues in a fiscal year Surplus: revenues exceeds expenditures in a given year

3 Sources of Federal Revenue Income Tax (16 th Amendment 1913) 1998 law reined in IRS Corporate taxes Individual income taxes Social Security regressive Excise taxes Custom Duties and Tariffs Borrowing

4 Federal Receipts (2000) based on about $2 trillion

5 Progressive Tax Progressive marginal income tax: on additional levels of income, tax rate increases 10% of taxpayers with highest incomes pay about 2/3 of all income taxes and those in the bottom 50% of taxable income pay less tan 4% of all income taxes

6 Other type of taxes Flat (proportional): Everyone pays the same tax rate Regressive: As income increases, the tax rate (or the percentage as compared to income) decreases

7 Social Insurance Taxes Grown faster than any other source of federal revenue 40% of federal revenues (only 12% in 1957) In 2004, employees and employers each paid a SS tax equal to 6.2% of the first $87,900 of earnings and for Medicaid 1.45% on all earnings Social Security and Medicare are 1/3 of federal budget

8 Borrowing Treasury Department sells bonds 9% of all federal expenditures go to paying interest on the debt Crowding out: government borrowing raises interest rates, which decreases investment borrowing

9 To Raise or Lower Taxes Republicans: lower taxes to increase consumption and raise tax revenues in long run Democrats: raise taxes to increase revenue now

10 Taxes and Public Policy Tax Loopholes: presumably a tax break or tax benefit. Costs the treasury relatively little

11 Taxes and Public Policy Tax expenditures: defined by 1974 Budget Act as revenue losses attributable to provisions of the federal tax laws which allow a special exemption, exclusion, or deduction. Difference between what the government actually collects in taxes and what it would have collected without special exemptions Charity contribution deductions Mortgage interest deductions Capital depreciation deductions Benefits middle and upper income taxpayers and corporations

12 Taxes and Public Policy Tax reductions Indexing taxes: starting in 1985, the government no longer received a share of income when inflation pushed incomes into higher brackets while the tax rates stayed the same. High income families benefitted but lower income families were not affected

13 Total Government Tax Revenue as a % of GDP

14 Incrementalism Current budget = Last year s + a little bit more Very little attention focused on budget base Agencies assume they will at least get the budget they received for this year Most debate and attention is on the increment Budget for any agency tends to grow by a little bit each year

15 Uncontrollable Expenditures Expenditures that are determined not by a fixed amount of money appropriated by Congress but by how many eligible beneficiaries there are for a program or by previous obligations of the government Entitlements: policies for which Congress has obligated itself to pay X level of benefits to Y number of recipients (e.g., Social Security, agricultural subsidies, veterans aid) Congress writes the eligibility rules

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17 House Ways and Means Committee and Senate Finance Committee Writes tax codes, subject to approval of Congress as a whole

18 Congressional Budget Office and Senate and House Budget Committees CBO is congressional equivalent of OMB Senate and House Budget Committees parent committees These committees set parameters of congressional budget process through examining revenues and expenditures and proposing resolutions to bind Congress within certain limits

19 Appropriations Committee and their subcommittees Decides who gets what from new or old policies coming from subject matter committees and decide how much to spend Hold hearings

20 Government Accountability Office The watchdog for Congress Audits, monitors and evaluates what are agencies are doing with their budgets

21 Office of Management and Budget responsible to but very independent from the President

22 President Must submit a budget by first Monday in February

23 Congressional Tax Committees House Ways and Means Committee and Senate Finance Committee: Write tax codes which have to be approved by Congress

24 Subject Matter Congressional Committees Write new laws that might require new or additional spending Hold hearings to gain support for their budget proposals Scrutinize and question agency waste and overspending

25 Congress (House and Senate) Approve taxes and appropriations

26 President s Budget: An Approximate Schedule

27 Spring: Budget Policy Developed OMB presents president with analysis of economic situation and discuss budgetary outlook and policies OMB gives guidelines to agencies Agencies review current programs and submit to OMB their projections of budgetary needs for coming year OMB reviews projections and prepares recommendations for president on final policy, programs and budget levels President establishes guidelines and targets

28 Summer: Agency Estimates Submitted OMB conveys president s decision to agencies, and advises and assists them in preparing budgets

29 Fall: Estimates Reviewed Agencies submit formal budget estimates for coming fiscal year and projections for future years to OMB OMB holds hearings, reviews its assessment of economy, and prepares budget recommendations for the president President reviews these recommendations and decides on agencies budgets and overall budgetary policy OMB advises the agencies of these decisions

30 Winter: President s Budget Determined and Submitted Agencies revise their estimates to conform with president s submitted decisions OMB reviews the economy and then drafts president s budget document President revises and approves budget message and transmits budget document to Congress

31 Congress and the Budget: Reforming the Process Congressional Budget and Impoundment Control Act of 1974: Fixed budget calendar Budget Committee in each house: recommend target figures to Congress for total budget size by April 1. Budget Resolution: By April 15, Congress is to agree on total size of budget which guides Appropriations Committee to juggling figures for individual agencies Congressional Budget Office: advises Congress on probably consequences of its budget decisions and forecasts revenues

32 Fiscal versus Monetary Policy Methods To Fight Unemployment To Fight Inflation Fiscal Policy: Congress and President Government Spending and Taxes Expansionary : Raise G and/or Lower T Contractionary : Lower G and/or Raise T Monetary Policy: Federal Reserve Money Supply and Interest Rates Loose, Easy: Increase M lowers Interest Rates Tight: Decrease M raises Interest Rates Terms of Office 2, 4, 6 years 14 years nonrenewable (usually) How to get in office Election Appointed by President Confirmed by Senate