Government Spending

Government Spending Matt Timmons Vince D’Alanno Dan Curtis

Section 1 • In 1997, government spent 2.6 trillion • Per Capita- per person • Ex. In 1997, government spent $9,610 per capita. Two kinds of spending • Public Sector- federal, state, and local gov. • Private Sector- goods and services from private businesses

Goods and Services • Ex. Tanks, planes, ships • Parks, highways, presidents, governors Transfer Payments- a payment for which the government receives neither goods nor services. Ex. Social Security, Welfare Grant-in-aid Ex. Inter-state highway construction

Distribution of Income- the way in which income is allocated to people • The income of poor people can directly be affected bt change in transfer payment • Incomes are also affected when the government decides where to make expenditures

Section 2 • Federal Budget- annual plan outlining proposed revenues and expenditures • Developed in two main phases • 1) president submits financial plan • 2) congress approves financial plan • Fiscal year- a 12 month financial planning period • Federal budget deficit- when the expenditures are larger than the revenues

Appropriations bill- sets federal money aside for a specific purpose Spending Categories • Social security • National defense • Medicare • Health • Transportation

Section 3 • Under the balanced budget amendment, states are forced to cut spending when state revenues drop. • The mayor, city council, county judge, or elected representatives approve spending

State Government Expenditures • 73% of all state spending are public welfare, higher education, insurance trust, highways, hospitals, and interest on state debt. • Public Welfare • Largest category of expenditures • (Cash assistance, Medicare) • Higher Education • Traditional responsibility of state governments with their networks of state colleges.

Insurance Trust Funds • Funds are invested until people either retire, become unemployed, or injure themselves • Highways • The federal government builds and maintains much of the interstate highway system, but states maintain the state roads and other highways • Hospitals • The government spends money because hospitals don’t charge enough to fully recover all of their costs

Interest of Debt • States issue bonds to cover everything from general revenue to highways to university dorms • Other Spending • 27% of direct state government expenditures consist of a variety of expenditures

Local Government Spending • Local governments include countries, municipalities, townships, school districts, and other special districts • Elementary and Secondary Education • Includes teachers and administrators salaries, textbooks, and construction and maintenance of school buildings • Public Utilities • Local government pays for water and electricity because fewer utilities server people on a state-wide basis

Hospitals • Many are city or municipal owned • Interest on Debt • Nearly the same as federal government spending • Police Protection • Most localities have a full-time police force, so it’s a significant cost for local governments • Highways • Highways, roads, and street repairs • (Potholes, street signs)

Other Expenditures • Approx. 1/3 are a wide variety of categories • (Housing, and community development, fire protection, and parks and recreation)

Section 4 and Other Info • Inflation • The Government tries to increase the price of goods so citizens don’t hoard money, which can cause economic slowdown • US regulates Economy in two ways: • Economic Regulation • Social Regulation

Deficit spending: spending more than is collected in revenues. In other words the government spends even though they are in debt. • The government actually plans their deficit spending and estimates how much further they are going to be in debt after certain expenses.

Impact of National Debt • Public Debt: federal debt that we owe to ourselves • Private Debt: Debt that is owed to others, in theory the borrowing party is supposed to repay individual, but in this case the government shows little signs of repaying party. With Private Debt the party repaying loses purchasing power because they have to give up a source of revenue.

Crowding out effect: the higher than normal interest rates that cause an increase in the repayable amount a party owes. • Balanced Budget: A budget that creates neither a profit or a deficit. Any profit that is created is spent, and any deficit is immediately paid.

GRH: Gramm Rudman Hollings, Balanced Budget and Emergency Control Act of 1985, created to fix Federal Deficit and decrease debt until it reached zero in 1991. • BEA: Budget Enforcement Act: “Pay as you go” • Created to limit discretionary spending

Economic Regulation: Using the Antitrust Law, The Government attempts to prevent monopolies from forming in the Market and control prices. • Social Regulations: US spends money on meeting the demands of the public through providing health and safety.

National Debt • The National Debt is the overall collective sum of yearly budget deficit owed by all branches of the United States government, plus interest. • About $9 trillion

Government Spending