Ch. 25
Section 1
The Federal Government
Preparing the Budget
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Each year, the President and Congress are
responsible for creating the federal budget – a
plan for how the government will raise and spend
money.
A budget will cover a fiscal year – a 12 month
period that may or may not match the calendar
year.
The government’s budget actually begins Oct. 1
and ends Sept. 30 of the following year calendar
year.
Preparing the Budget (cont.)
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By law, the President must present a
budget (an outline of where government
should spend its money) to Congress by
the first Monday in February
The date can be pushed back for an
incoming President
Ex. 2008 McCain or Obama
Preparing the Budget (cont.)
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When the budget is presented, Congress
then passes a budget resolution – a
document which totals revenues and
spending and sets targets for how much
will be spent in various categories
These categories are broke down into 2
types:
mandatory spending
discretionary spending
Preparing the Budget (cont.)
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Mandatory spending – spending that
does not need annual approval; has to be
paid regardless
Ex. Social Security, interest payments on
the national debt
Discretionary spending – spending that
must be authorized each year.
Ex. Space exploration, national defense,
agriculture, etc.
Preparing the Budget (cont.)
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The next step before the government can actually
spend money is:
Congress must pass an appropriations bill –
legislation which authorizes spending for a
particular activity
Congress splits all discretionary spending into 13
separate bills which follow the normal process
through the House and then the Senate and then
finally signed by the President.
Preparing the Budget (cont.)
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Appropriation bills must be finalized by
Sept. 15. If not, Congress can agree to a
temporary extension until the bill becomes
a law.
Revenues and Expenditures
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The 2 main parts of a federal budget are
revenues and expenditures
Nearly half of the federal government’s
revenue (money it brings in) comes from
individual income tax.
45% comes from individual income tax
Revenues (cont.)
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Part of a worker’s paycheck is withheld every
payday.
At the end of the year, workers file a tax return
that calculates the income tax the worker owes.
If too much is was withheld, the worker will
receive a refund; if too little was withheld, the
worker must pay the difference.
Revenues (cont.)
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36% of federal revenues come from Payroll
Taxes deducted from a worker’s paycheck to
fund Social Security and Medicare.
Social Security – a program that provides
money to people who are retired or disabled.
Medicare – program that pays some health care
costs of elderly people.
Revenues (cont.)
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11% of federal revenue comes from
corporate income taxes
3.5% comes from Excise Tax which is
added on to such items such as gasoline,
tobacco, and alcohol. Also cell phone
service and legal gambling
Also referred to as a vice tax.
Revenues (cont.)
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The federal government also collects an
estate tax on wealth passed on to a
person’s heirs.
Charges are also added to certain gifts
Forms of Taxation
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Taxes in the United States are classified as
proportional, progressive, and regressive.
A proportional tax takes the same % of income
from everyone regardless of how much he or she
earns
At 10% on income:
$10,000 = $1,000
100,000 = $ 10,000
Forms of Taxation (cont.)
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With a progressive tax, the tax rate
increases as income increases
The higher the income, the larger the %
of income paid as taxes
http://www.moneychimp.com/features/tax_brackets.htm
Forms of Taxation (cont.)
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With a regressive tax, it is the opposite
of a progressive tax
The % you pay goes down as you make
more money
The higher the income, the smaller the %
of income is paid to taxes.
Ex. Gasoline tax
Expenditures
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Social Security is the largest federal
expenditure or spending category.
$.21 of every dollar is spent on Social
Security
Our population continues to get older so
the amount of money we spend on this
program is sure to increase.
Expenditures (cont.)
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National Defense is second when it comes
to federal expenditures.
$.17 of every dollar is spent on this
country and its protection
During times of conflict, spending for this
category increases
Expenditures (cont.)
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$.09 -$.10 of every dollar is spent to pay
down the interest on the national debt.
The amount paid depends on the size of
the debt and the interest rates at the
time.
On top of this the government spends
billions on education, highways, and
natural resources.