The Budget: The Politics of Taxing and Spending

2. The Budget: The Politics of Taxing and Spending 13

3. Video: The Big Picture 13 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Edwards_Ch13_The_Budget_Seg1_v2.html

4. 13 Learning Objectives Describe the sources of funding for the federal government and assess the consequences of tax expenditures and borrowing 13.1 Analyze federal expenditures and the growth of the budget 13.2

5. 13 Learning Objectives Outline the budgetary process and explain the role that politics plays 13.3 Assess the impact of democratic politics on budgetary growth and of the budget on scope of government 13.4

6. Video: The Basics 13 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg2_TaxesSpending_v2.html

7. Federal Revenue and Borrowing 13.1 • Personal and Corporate Income Tax • Social Insurance Taxes • Borrowing • Taxes and Public Policy

8. 13.1 FIGURE 13.1: The federal budget: An overview

9. Sixteenth Amendment (1913) IRS 140 million individual income tax returns Income tax is progressive 10-39.6% current tax rates 13.1 Personal and Corporate Income Tax

10. Who pays taxes? 42% paid no taxes 1% paid 37% 10% paid 70% Bottom 50% paid 2% Corporate taxes account for only about 10%; Individual taxes about 47% The flat tax 13.1 Personal and Corporate Income Tax

11. 13.1 FIGURE 13.2: Federal revenues

12. Explore the Budget: How High Are Your Taxes? 13.1 http://media.pearsoncmg.com/long/long_edwards_mpslgia_16/pex/pex13.html

13. Social Insurance Taxes Social Security Medicare Both matched by employers Provide 1/3 of federal revenue 13.1

14. Borrowing Tax revenue does not cover expenditures Bonds Sold by Treasury Department Borrowing from itself Intra governmental debt 13.1

15. Borrowing National debt = $17.5 trillion 6% of federal spending = interest payments Debt ceiling Powerful bargaining chip for Congress Spending increases when revenue declines Economic downturn Bailouts Stimulus packages 13.1

16. 13.1 FIGURE 13.3: Total national debt

17. Video: In the Real World 13.1 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg5_TaxesSpending_v2.html

18. Taxes and Public Policy Tax expenditures Tax revenue lost due to exemptions Charitable contributions Mortgage interest Business equipment Benefit the wealthy and businesses Tax reduction Popular with voters Benefits the wealthy 13.1

19. 13.1 TABLE 13.1: Tax expenditures: The money government does not collect

20. 13.1 13.1 What percentage of federal spending is simply interest payments on the national debt? • 6% • 3% • 11% • None

21. 13.1 13.1 What percentage of federal spending is simply interest payments on the national debt? • 6% • 3% • 11% • None

22. Explore the Simulation: You Are the President During a Budget Crisis 13.1 http://media.pearsoncmg.com/long/long_longman_media_1/2013_mpsl_sim/simulation.html?simulaURL=22

23. Federal Expenditures 13.2 • Big Governments, Big Budgets • Rise of the National Security State • Rise of the Social Service State • Incrementalism • “Uncontrollable” Expenditures

24. 13.2 FIGURE 13.4: Federal expenditures

25. Big Governments, Big Budgets Big government needs big money ¼ of GDP is govt. spending Why has government grown? Public demand Changes in economy Changes in social conditions Economic downturns Urbanization Pollution 13.2

26. Rise of the National Security State Permanent military establishment Cold War Military-industrial complex DoD spending half of federal budget during Cold War Decreased until 9/11 1/5 of federal budget today (20%) Military expenses 7 million pensions Procurement Cost overruns 13.2

27. 13.2 FIGURE 13.5: Trends in national defense spending

28. 13.2 Stealth bomber

29. Rise of the Social Service State Income security expenditures Biggest part of the budget Social Security (1935) Reduce poverty among the elderly Medicare (1965) Part of Johnson’s Great Society Health insurance for the elderly Prescription drug program (2003) Intergenerational contract More beneficiaries than workers 13.2

30. 13.2

31. 13.2 FIGURE 13.6: Trends in social service spending

32. Video: Thinking Like a Political Scientist 13.2 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg4_TaxingSpending_v2.html

33. Incrementalism Best predictor of this year’s budget is last year’s Incremental increase for each agency Exceptions NASA 13.2

34. “Uncontrollable” Expenditures Why is the budget uncontrollable? 2/3 of budget automatic Interest 13.2

35. “Uncontrollable” Expenditures 2/3 of budget automatic Interest Entitlements Biggest part of the budget Social Security, Medicare, Veteran’s Benefits Only way to change is to alter the program, i.e., raise the eligibility age 13.2

36. 13.2 13.2 Why does the federal government have so little discretion over its own budget? • Federal law forbids Congress from tampering with president’s budget • The president is obliged by the Constitution to sign whatever budget bill Congress sends him • Entitlements create uncontrollable obligations • All of the above

37. 13.2 13.2 Why does the federal government have so little discretion over its own budget? • Federal law forbids Congress from tampering with president’s budget • The president is obliged by the Constitution to sign whatever budget bill Congress sends him • Entitlements create uncontrollable obligations • All of the above

38. Video: In Context 13.2 http://media.pearsoncmg.com/ph/hss/SSA_SHARED_MEDIA_1/polisci/presidency/Seg3_TaxingSpending_v2.html

39. The Budgetary Process 13.3 • Budgetary Politics • The President’s Budget • Congress and the Budget

40. Budgetary Politics Stakes and strategies “Who gets what, when, and how” Actors adopt strategies Players Large cast Roles carefully scripted 13.3

41. 13.3 Government shutdown

42. 13.3 FIGURE 13.7: The players in the budgetary process

43. The President’s Budget Presidents used to play limited role Budget and Accounting Act Prepares budget with help of OMB Budget schedule Due first Monday in February Process begins a year in advance 13.3

44. Congress and the Budget Power of the purse Budget resolution Reconciliation Authorization bills Appropriations bills Continuing resolutions Omnibus bills Supplemental Appropriations bill Items too urgent to wait Wars in Iraq and Afghanistan 13.3

45. 13.3 FIGURE 13.8: The budget process

46. 13.3 FIGURE 13.9: Fluctuating deficits

47. 13.3 13.3 What type of bill must follow an authorization bill? • Continuing resolution • Reconciliation bill • Appropriations bill • None of the above

48. 13.3 13.3 What type of bill must follow an authorization bill? • Continuing resolution • Reconciliation bill • Appropriations bill • None of the above

49. Understanding Budgeting 13.4 • Democracy and Budgeting • The Budget and the Scope of Government

50. Growth in government tied to democracy Do elites oppose big government? Bailouts Contracts and subsidies Interest groups want their piece, too Americans tax and spend less Americans want lower taxes but more pork Deficits result 13.4 Democracy and Budgeting