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Government Spending

Government Spending. In 2001, total government expenditures amounted to nearly $2.9 trillion. On a per capita basis, this amounted to almost $10,300 for every man, woman, and child in the United States. Where are we now ?. Government Spending in Perspective.

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Government Spending

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  1. Government Spending In 2001, total government expenditures amounted to nearly $2.9 trillion. On a per capita basis, this amounted to almost $10,300 for every man, woman, and child in the United States. Where are we now?

  2. Government Spending in Perspective Three reasons why government spending has increased since the 1940s: • WW II • GD = Favorable public opinion for government oversight (regulation) • Success of large-scale public works projects

  3. Two Kinds of Spending • Transfer Payments • Social Security, welfare, unemployment compensation, disability benefits • Grant-in-aid: $$ provided from one level of government (fed) to another level (state) • Subsidy: $$ to individuals or industries to encourage/protect a certain economic activity • Goods and Services • Tanks, planes, ships to toilet paper and soap for gov’t employees

  4. Impact of Government Spending • Remember, everything has a cost! • Can either stimulate economic activity or affect the FOP • Affecting Resource Allocation • Redistributing Income • May affect family incomes; provide/lose jobs • Competes with the Private Sector

  5. Establishing the Federal Budget Mandatory Spending (2/3 of federal budget) Discretionary Spending (1/3 of remaining budget) Programs that must receive annual authorization Defense spending Welfare Education Social services Transportation Natural resources Environment • Spending authorized by law that continues w/out annual approval by Congress • Interest on borrowed $$ • Social Security • Medicare • Veteran’s benefits **The government’s fiscal year is from October 1 to September 30

  6. How it’s Done • Step One: Executive Formulation • Prez confers with advisors to draft a budget • Step Two: Action by the House • Has the power to approve, modify, or disapprove of proposed budget  sent to various subcommittees  House Appropriations Committee • Step Three:Action by the Senate • May approve House bill or draft its own version • If differences exist, a joint House-Senate conference committee works out a compromise bill • Step Four: Final Approval • Sent to Prez for approval or veto. Once signed, it becomes the official budget for the new fiscal year. http://www.atpe.org/Advocacy/PoliticalInvolvement/basicSteps.pdf

  7. See what our government is up to these days…

  8. State and Local Government Expenditures State Gov Expenditures-passed by state leege which requires annual spending not to exceed revenues Local Gov Expenditures-approved by mayor, city council, or county judge Elementary/Secondary education Utilities Hospitals Police protection Public welfare Highways Housing and community development Fire protection Parks and recreation • Intergovernmental expenditures (80%)- state $$ aid to local communities • Public welfare (TxDOT) • Retirement/Insurance trust for state employees • Higher Education • Highways • Hospitals • Interest on public debt **(2/3 of total Spending)

  9. Deficits, Surpluses, and The National Debt Section 4 • Deficit Spending: spending in excess of revenues collected • Finance shortage of revenue by borrowing from others (sell treasury bonds to public) = federal debt

  10. Impact of the National DebtFirst Consequence Distribution of Income • If gov’t borrows $$ from wealthy, AND the burden of taxes falls on the middle class and the poor, taxes would be transferred to the rich in the form of interest payments on the debt • hmmm… sound familiar?

  11. Impact of the National DebtSecond Consequence Purchasing Power • The larger the public debt, the larger the interest payments  • More taxes needed to pay off loans  • Less $$ to spend on our own needs

  12. Impact of the National DebtThird Consequence Reduced Incentives • Higher taxes = less incentive to work, save, or invest

  13. Deficit Legislation • Gramm-Rudman-Hollings (1991) • Set federal deficit targets for Congress and the president over a 6-year period • Budget Enforcement Act of 1990 • “pay-as-you-go” provision • Omnibus Budget Reconciliation Act of 1993 • Trim $500 billion from deficit over 5-year period • Balanced Budget Agreement of 1997 • Spending caps to limit annual discretionary spending

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