Fiscal Responsibility

1. Fiscal Responsibility

2. Indiana State Revenue Pg. 386 #6 Identify at least three kinds of state taxes and fees that businesses pay. Pg. 386 #9 What are the main sources of state revenue? Skip B

3. Make Up of State Budget Pg. 386 #4

4. Entitlements • Benefits people MUST receive if they meet certain requirements. • Ex. Social Security, Military Pension, Medicare • Not everyone receives means-tested entitlements. Pg. 380 #1 • Ex. Medicaid, Section 8 * People learn to expect these benefits because they are guaranteed under certain conditions. *

5. Shared State and Federal SpendingPg. 380 #7 • Medicaid - pg. 380 #6 • Provides health insurance for low-income families • Unemployment • Education • Lower-income housing • Highway construction • Mass-transit • Healthcare • Employment training

6. Make Up of the Federal Budget Pg. 380 #8 Discretionary: Mandatory:

8. Social Security and Medicare Balance

9. Pg. 380 #5 ; Whose retirements are funded by the money today’s wage earners are now paying into Social Security?

10. Needy Seniors or Greedy Geezers Pg. 380 #9 What problems do entitlement programs cause? b. Why might it be difficult for lawmakers to make changes to entitlement programs?

11. “Don’t ever argue with me [about health]. I’ll go a hundred million or billion on health or education. I don’t argue about that any more than I argue about Lady Bird [Mrs. Johnson] buying flour. You go to have flour and coffee in your house. Education and health. I’ll spend the money. I may cut back some tanks. But not on health.” - Lyndon B. Johnson, 1965

15. Pg. 380 #10a. Why have some members of Congress pushed for additional government programs related to healthcare?b. Describe their suggestions to help solve this problem?

17. In Summary • Our current outlook on health care and social security cannot continue to support our growing population. • What do you think we should do differently?

18. What is Fiscal Policy? • The use of government spending and revenue collection to influence the economy (Pg. 398 #3) • The federal government makes key fiscal policy decisions each year when it establishes the federal budget. (Pg. 398 #3) • The federal government prepares a new budget for every fiscal year, which goes from October 1 to September 30. (Pg. 398 #4)

19. The Federal Budget Process Pg. 398 #7 • Federal agencies send requests for money to the Office of Management and Budget. • Office of Management and Budget works with President to create budget. President sends budget to Congress. • Congress makes changes to budget and sends new budget to President. • President signs budget into law. • OR President vetoes budget. • A. Congress overrides veto by 2/3 majority. • B. Congress and President compromise to create a new budget.

20. Budget Hold Ups • Appropriations bills must be adopted and submitted to the President by 9/30. • Appropriations bill – a bill that authorizes a specific amount of spending by the government (Pg. 398 #5) • If Congress cannot finish them in time, it must pass “Stopgap funding”. • If Congress and the President cannot agree on temporary funding, then the government shuts down.

21. Types of Fiscal Policy Expansionary (pg. 398 #6) Contractionary Reduces economic growth Decreased spending OR Higher taxes Implemented to slow down inflation • Encourages economic growth • Increased budget spending • OR • Tax cuts • Usually implemented during recessionary periods

22. Which type of fiscal policy?Pg. 398 #9 Situation Policy • Inflation is rising, and real GDP is up by 4% • GDP is down, and the unemployment rate has increased to 10%

23. National Budget Simulation • Go to this website: • http://bit.ly/MpQP3p • Work with a partner to change the budget the way you think it should be changed. (15 minutes) • Discuss as a class.

24. Budget Deficit and National Debt

25. Budget surplus- more revenue(taxes) was collected than spent (pg. 414 #3) Budget deficit- more money was spent than collected

26. Response to the Deficit Print Money Borrow Money To avoid hyperinflation, the government borrows money to pay deficits. (pg.414 #4) Treasury bills – short term maturity: 26 weeks or less Treasury note – medium term maturity: 2 – 10 years Treasury bond – long term maturity: 30 years • The government controls the treasury and can have money printed at any time. • An increase in the money supply can cause inflation to rise. • Happened in Germany after WWI

27. National Debt (pg. 414 #5) • Deficit is the amount borrowed for ONE fiscal year (October 1 – September 30). • Debt is the amount of money the government owes to bondholders.

29. Is the debt a problem? • “crowding-out effect” – the loss of funds for private investment caused by government borrowing (pg. 414 #6) • People buy bonds instead of stock. • Government must pay interest to bondholders • The more money borrowed the more interest that must be paid. • About ¼ of the National Debt is owned by Japan, China and the U.K.

30. Recent Deficit / Debt Problems • Clinton created a surplus. • The Bush administration planned to use the surplus to secure Social Security, provide additional medical benefits to seniors and reduce income taxes. • His plan was thwarted when the stock market slowed down, tax revenue decreased and the Terrorist Attacks of 9/11 required unexpected military spending.

31. Think:Pair:Discuss • Answer questions 7 – 9 on page 414 on your own paper. (5 minutes) • Pair with your neighbor and discuss your answers. (2 minutes) • Discuss answers as a class.

32. Questions: • #7 Why does the federal government usually not create new money to cover a budget deficit? • #8 What are the three possible problems with national debt? Which problem do you see as the most serious? • Why did the federal government budget show a large deficit for several years following 2001?