Top Federal Expenditures and the National Debt

Government Spending, Pt. 2

What are the three top expenditures of the federal gov’t? • Social Security (#2) • Medicare (#3) • National Defense (#1)

State and Local Expenditures • Intergovernmental expenditures (Funds sent to another level of gov’t) • Public education • Public welfare

Deficits, Surpluses, and the National Debt • Deficit spending = spending > revenue • Sometimes this is planned and intentional • The difference is made up by borrowing • Deficits add to debt

Surpluses • A surplus = Revenue > spending • Last president to run a surplus : Clinton • A surplus helps reduce the debt

The Federal Debt • What is it ? • The total amount borrowed by investors to finance our deficit spending • It grows from deficits • It shrinks with surpluses • It remains unchanged if we BALANCE THE BUDGET

How big is the debt today? • As of 12:37 p.m. on 3/23/12, the national debt was $15,571,367,306,891. • Just round that to the nearest TRILLION.

Impact of the Debt • Higher taxes • Purchasing power moves from private sector to public sector • Higher taxes reduce incentive to work • The “crowding out effect” higher than normal interest rates caused by heavy government borrowing

FISCAL POLICY • Definition : the deliberate taxing and spending policies of Congress and the Presidentintended to manage the business cycle. • ****The two tools of fiscal policy are TAXING AND SPENDING*****

Using fiscal policy to manage the business cycle • During a recession, the problem is lack of money . • Fiscal policy : Cut taxes Increase gov’t spending Run a deficit

continued During expansion the problem is inflation; there is too much money. Fiscal policy : Raise taxes Cut gov’t spending Run a surplus

Top Federal Expenditures and the National Debt