What’s the Deal with the Federal Budget?
- Every year Congress is supposed to approve a budget. What does the budget do? List below some examples of federal programs it funds.
The budget details how much the gov’t will spend each year and on what.
- Federal spending is divided into several groups, which are listed below. Explain each.
- Discretionary spending:Is at the discretion of president and Congress. They have some choice; They have some control. Congress must decide every year how much to spend on each discretionary program.Most recent budget:$1.64 trillion is discretionary. Usually about 1/3 of the budget.
More than half of discretionary budget is military spending. Almost 60% of funds go to the Pentagon, US wars in Iraq and Afghanistan, and nuclear weapons.
- Mandatory spending:. It has to happen. Not approved by Congress or president. Only .
Represents 73% of U.S spending – usually between 2/3 and 3/4 of federal budget. So Congress and President do NOT have control over this spending.
Also called entitlement programs. They provide benefits to ppl who are entitled to them. Those benefits happen by law. I’m entitled to received Social Security by a certain age. I am entitled to received Medicaid if my income falls below a certain amount. If you qualify, you qualify.
Social Security is the largest of our entitlement programs. Other big entitlement (mandatory spending) programs are Medicare (health care for the elderly); Medicaid (health care for low-income); Temporary Assistance for Needy Families TANF (WELFARE), and Supplemental Nutrition Assistance Program (SNAP)
- Interest on debt: Interest payments we pay on the money the U.S. has borrowed to cover its overspending.
- Tax Breaks (aka Tax expenditures): Tax breaks or tax expenditures that Congress writes into the federal tax code. Tax breaks promote activities that Congress deems beneficial to society (e.g., donate money to charity, get child care so you can go to work, buy an electric car, borrow money to but a house).
- Where does most of the money come from to pay for our U.S. govt’s spending?
Most of the money comes from taxes: income taxes, Social Security taxes, etc.
- What is the deficit?
The deficit is the difference between what the federal government spends and collects in taxes in a given year.
- How does the federal gov’t get the money it needs to function if it does not have enough tax revenue?
It has to borrow it, usually from private investors and foreign gov’ts that purchase U.S. Treasury bonds.
- In 2016, the federal government collected $2.99 trillion in tax revenues and spent a total of $3.54 trillion. Did the nation have a deficit or surplus that year, and what was the amount? (Please show the math.)
Deficit was $550 billion. $3.54 trillion - $2.99 trillion = $550 billion
- What is the national debt? Draw a diagram below to help someone understand the relationship between the budget deficit and the nation’s national debt.
The total of all of the money that the U.S. gov’t owes. (It is all of the deficits added up.)
$$$$
$$$$$$
Our annual U.S. deficit = $ Our national debt = $$$$$$$$
HW: It’s Time to Make Some Executive Decisions!
Imagine you are running for president of the United States. You know that our country is reaching a national debt level of $20 trillion. You also know that you should do something to bring that debt level down. Nonetheless, you also want to get elected.
__B__ 1. If elected president, what will help you lower next year’s deficit?
a. significantly increase gov’t spending
b. significantly decrease gov’t spending
c. the level of gov’t spending is not a factor in lowering the deficit
___A__ 2. If you decide to decrease gov’t spending, which programs will be easiest to decrease, or eliminate entirely?
a. discretionary programsb. entitlement programs (aka mandatory programs)
__C__ 3. As president, you know you will worry about the baby boom generation (born between the years 1946 and 1964); more and more of its members are entering their retirement years during your term in the presidency. This will certainly mean:
a. an increase in Medicaid spending
b. a decrease in Medicaid spending
c. an increase in Medicare spending
d. a decrease in Medicare spending
__B__ 4. In addition to healthcare, another program will begin to lose more money with the number of baby boomers entering retirement and seeking retirement benefits from the federal gov’t. That program is
a. National Defenseb. Social Security c. AARP (American Ass’n of Retired Persons)
__A__ 5. To fully fund the programs providing retirement and healthcare benefits for the elderly, it would be easiest to do so – provided Congress goes along with you –
a. by raising taxesb. by cutting back on entitlement programs
__A__ 6. If you promise the American people that you will raise taxes to help solve our deficit and funding programs, you will
a. less likely be elected as the next president of the U.S.
b. more likely be elected as the next president of the U.S.
EXTRA CREDIT: According to most economists, what two things must the U.S. government do to solve the problem of the growing national debt?
The first step is to balance the budget every year so that no more deficits are added to the nat’l debt. The second – and more difficult step – is starting to pay off the debt by spending less than the gov’t receives in taxes – involves tough choices that involve raising taxes and cutting funding of some of our federal programs.