Chapter 14: The Congress, The President, and The Budget: The Politics of Taxing and Spending

1. Chapter 14: The Congress, The President, and The Budget: The Politics of Taxing and Spending

2. Sources of Federal Revenues • Income Taxes: individual wages & corporate revenues • Social Insurance Taxes: money taken from employee’s paychecks & match with employer. • Borrowing: • Excise Taxes:

3. Budgetary Demands & Borrowing Money • The two contradictory budgetary demands of most Americans are to increase the level of governmental spending and to keep taxes low. • The government borrow money by the Treasury Department sells bonds, guaranteeing to pay interest to the bondholder.

4. Instruments for Controlling the Economy • Monetary Policy and “the Fed” • Supply of money – too much cash and credit produces inflation and affects the interest rate • The Fed influences the supply of money in circulation: • Sets discount rates • Sets reserve requirements • Buying / selling government bonds

5. Instruments for Controlling the Economy • Fiscal Policy: The impact of the federal budget on the economy – Taxing and Spending • Keynesian Economic Theory: Government spending and deficits help the economy; assist in creating demand • Supply-Side policy: Too much taxation and not enough money in circulation leads to hardship; reducing taxation and regulation will create a greater supply of goods

6. Congressional Budget & Impoundment Control Act of 1974 • Was designed to reform the congressional budgetary process. The act accomplished the following: • A fixed budget calendar: Now has a time line mandated by law which has been amended several times. • Established Budget Committees in each House • Forecasts revenues (CBO) • Ends Presidential impoundments

7. Ten Main Actors in in the budgetary process • Interest groups: lobbyists lay the foundation for interest groups by advertising the group’s cause. • Agencies: agencies are motivated groups of people that push for higher budget requests and can get a chance to present themselves before congressional committees. • Office of Management and Budget: responsible to the president but is divided up into may agencies because of the vast of amount of information; major actors in budgetary process

8. Ten Main Actors in in the budgetary process continued….. • President: makes decisions about what will be proposed to Congress concerning the budget and governmental spending • Tax Committees in congress: the House Ways and Means and the Senate Finance Committee are in charge of writing tax codes which require the approval of Congress. • Budget committees: sets parameters of congressional budget process by examining expenditures and revenues; propose resolutions to ensure the limits of Congress.

9. Ten Main Actors in in the budgetary process continued….. • Appropriations Committees: “who gets what”; take old/ new policies from subject matter committees and decide how much to spend. • Congress as a whole: approves taxes and appropriations; members look for places of interest to add into the budget (dams and military bases). • Government accountability office: audits, monitors and evaluates how and what agencies are doing with their budget. • Subject matter committees: writes new laws, leads to new expenditures

10. Balanced Budget • A balanced budget is when the total sum of money a government collects in a year is equal to the amount it spends on goods, services, and debt interest.

11. The Budgetary Process • Agencies direct budget requests through the OMB & president • OMB & president negotiate with agencies • President presents his budget to Congress; hearings are held in committees • Congressional budget resolution sets the total budget expenditure • Budget items reconciled • Budget authorized and appropriated

12. Budget Resolution • A budget resolution is a resolution binding Congress to a total expenditure level, supposedly the bottom line for all federal spending for all programs. • The way laws change to meet it are: • Reconciliation- process through which program authorizations are revised to achieve required savings. It usually also includes tax or other revenue adjustments. • Authorization bill- an act of congress that establishes, continues, or changes a discretionary government program or entitlement. It specifies program goals and maximum expenditures for discretionary programs.

13. Gramm-Rudman-Hollings Act(1987-1990) • Balanced Budget and Emergency Deficit Control Act • Co-sponsors: Senators Phil Gramm, Warren Rudman, Ernest Hollings • Mandated maximum allowable deficit levels for each year until 1993 when budget supposed to be balanced • Hard caps abandoned in 1990 and replaced with PayGo • 2011 – Budget Control Act - Sequestration: (automatic cross-the-board spending cuts) be ordered by president if congress failed to meet the deficit goals • ½ from defense and ½ from domestic programs

14. Government Growth • Congress incentives: • Use both constituency services and pork-barrel policies to deliver benefits to folks back at home • Politicians spend money to “buy” votes • Not corruptly • Rather policymakers spend money to earn votes Equality of suffrage: parties must appeal to a majority of voters

15. Review Questions • 1. What are the four sources for federal revenues? • A. interest groups, agencies, tax committees, and Congress • B. President, tax committees, the subject, and agencies • C. Income tax, social insurance tax, borrowing, and taxes & public policy • 2. What does the phrase "military industrial complex" mean? • A. revenue losses that result from special exemptions, exclusions, or deductions on federal tax law • B. to characterize the close relationship between the military hierarchy & the defense industry that supplies its hardware needs • C. an act of Congress that actually funds programs within limits established by authorization bills.

16. 3. What are 4 expenditures of the federal budget? • A. interest groups, tax committees, Office of Management & Budget, and appropriations committees • B. individuals, national defense, non-defense, and net interest • C. Office of Management & Budget, Government accountability office, tax committees, and Budget Committees & the Congressional Budget Office • 4. The following are provisions of the Congressional Budget and Impoundment Control Act of 1974 except • A. Authorization bill • B. a fixed budget calender  • C. a budget committee in each house • D. a congressional budget office