I. Where the money is spent (2010 figures):
A. Medicare & Medicaid: 23%
B. Social Security: 20%
C. Net Interest payments: 6%
D. Defense: 20%
E. Other Mandatory Spending: 12%
F. Discretionary Spending (negotiated between Congress and Pres
annually): 19%
G. Where the money is spent historically.
H. Bar Graph of US Government spending
I. See a pie chart of 2010 U.S. government spending:
(Some of the numbers above combine the more specifically broken down
categories on the following slide).
II. The problem of entitlements.
A. Entitlements are federal money that is provided to those who
meet eligibility requirements, and is automatically spent each
year without congressional review.
B. Examples: Social Security, Medicare, federal pensions, interest
on national debt.
C. These normally account for about 2/3 of the federal budget
and make it very difficult to balance the budget.
III. The Budget Process
A. Executive Branch
1. Agencies prepare their estimates of budget needs and
present them to the OMB. The amount requested is typically
based upon the amount granted in the previous year (plus
inflation and any additional needs) .
2. The OMB reviews these requests and makes
recommendations to the President.
3. The President reviews the OMB recommendations and then
submits a budget to Congress.
B. Congress.
1. The Congressional Budget Office provides an
independent analysis of the president’s budget.
This acts as a check on the OMB.
2. Congressional committees: Budget, Ways and
Means, Appropriations Committees.
3. Input and lobbying from agencies.
4. Majority vote needed in both houses.
5. The Government Accountability Office (GAO) is a
congressional watchdog agency that ensures the
money is spent as prescribed by law.
C. Political influences.
1. Political party differences.
2. Interest group/PAC influence.
3. Iron triangles.
4. Public opinion.
D. Presidential action.
1. President signs or vetoes the entire bill—no line
item veto.
2. Congress can override a veto with 2/3 vote in
both houses.
IV. Deficit-spending.
A. Budget deficit: these occur when government
expenditures exceed income during a one year period.
B. National debt: an accumulation of past budget deficits.
C. Huge budget deficits during the 1980’s (>$200 billion
per year) ---> national debt tripled From $1 trillion to $3
trillion during the 1980’s. Tax cuts and increases in
defense spending were among the main causes.
D. In 1990, Congress and Bush agreed on a pay-as-you-go
proposal that would allow Congress to increase
spending only if that increase was offset by higher taxes
and/or spending cuts elsewhere. The pay-as-you-go
agreement expired in 2002.
E. The government shutdown in mid-90s as a result of
budgetary politics.
F. Current national debt (2010): now exceeds $10 Trillion .
Until 2002, as a percentage of Gross Domestic Product, the
national debt was less than it was in the early 1950s. That is
no longer true.
G. Failure of Congress to pass the Balanced Budget
H. Reduction of deficits under Clinton and development of
surpluses led to political differences over what to do with
these surpluses: Republicans favored tax cuts, Democrats
wanted to apply the surpluses to the Social Security System
to bolster it.
I. George W. Bush $1.36 trillion tax cut in 2001, recession,
terrorist attacks of 9/11, wars in Afghanistan and Iraq, and
the end of pay-as-you-go ended budget surpluses in 2002.
J. This has led to the resumption of budget deficits and the
increased dependence on foreign lenders.
V. The National Debt vs. the Deficit