Karina Edouard
Chapter 14
Terms:
Budget: a policy document allocating burdens (taxes) and benefits (expenditures)
Deficit: an excess of federal expenditures over federal revenue
Expenditures: federal spending of revenues. Major areas of such spending are social services and the
military.
Revenues: the financial resources of the federal government. The individual income tax and Social
Security tax are two major sources.
Income Tax: shares of individual wages and corporate revenues collected by the government.
16th Amendment: the constitutional amendment adopted in 1915 that explicitly permitted Congress to
levy an income tax
Federal debt: all the money borrowed by the federal government over the years and still outstanding.
Tax expenditures: Revenue losses that result from special exemptions, exclusions, or deductions on
federal tax law
Tax loophole: a tax break or tax benefit
Social Security Act: a 1935 law passed during the Great Depression that was intended to provide a
minimal level of sustenance to older Americans an thus save them from poverty
Uncontrollable expenditures: expenditures that are determined not by a fixed amount of money
appropriated by Congress but by how many eligible beneficiaries there are for a program or by previous
obligations of the government
Entitlements: policies for which Congress has obligated itself to pay X level of benefits to Y number of
recipients. Social Security benefits are an example
House Ways and Means Committee: the House of Representatives committee that, along with the
Senate Finance Committee, writes the tax codes, subject to the approval of Congress as a whole
Senate Finance Committee: the Senate committee that, along with the House Ways and Means
Committee, writes the tax codes subject to the approval of Congress as a whole
Budget resolution: a resolution binding Congress to a total expenditure level, supposedly the bottom
line of all federal spending for all programs.
Reconciliation: a congressional process through which program authorizations are revised to achieve
required savings. It usually also includes tax or other revenue adjustments
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Authorization bill: an act of Congress that establishes, continues, or changes a discretionary
government program or an entitlement. It specifies program goals and maximum expenditures for
discretionary programs
Appropriations bill: an act of Congress that actually funds programs within limits established by
authorization bills. They usually cover one year
Continuing resolution: when Congress cannot reach agreement and pass appropriations bills, these
resolutions allow agencies to spend at the level of the previous year
Phases of a budget
Phase One: The budget proposal is first prepared. They lobby congressional members for funds. They
work with the Office of Management and Budget.
Phase Two: The budget proposal is crafted to specifics. Congress reviews the new budget, ending with
the approval from both houses.
Phase Three: The final budget is formatted. A new occurrence is the initiation of floor debate. Congress
sends its bills to the president, where it is either signed or vetoed.
Phase Four: A newly passed budget is usually put into full effect in the new fiscal year.
Graphs:
Federal Revenue
Main Source
Income tax
Tax directly on people’s salaries
Social insurance taxes
Corporate tax
Excise tax
Brief Description
This tax is a direct tax that
contributes the largest amount
of money to the all federal
revenues.
Social security- also taken from Social insurance tax pays for
an individual’s salary
three
different
programs:
Medicare, unemployment, and
old age survivors and disability.
A tax that is paid for by workers Non-profit organizations and
charities are not taxed. It is a
type of progressive tax.
Sale of goods
Indirect
tax
that
the
government places on certain
items such as beer and
telephones.
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Mandatory Spending
Discretionary Spending
 Can be altered only by special legislation
 Budget that is debated in Congress.
that changes the amount to be spent.
 Funding for discretionary items can be
 For example, the interest on the national
raised or lowered as Congress sees fit.
dent and entitlements.
Spending is thus more flexible.
 Makes up only one third of government
 Most of this spending goes to the
spending.
Department of Defense to support our
armed forces.
State
Both
Federal
Face more limitations in creating Make decisions every year about Bulk of spending goes to
the budget
how to collect revenue
entitlements for the elderly and
national defense
Approved a balanced budget How to spend tax dollars
Citizens play a lesser role in tax
each year
policy
Prohibit certain types of taxes to Raise most revenue from taxes
Set same rate for an indirect tax
be enacted
through the United States
Devote large shares of revenues Not allowed to borrow money to -May not tax state or local
to services that affect young fill the gap between revenue and governments doing federal
people and families.
expenses
government projects, such as
building roads.
-They also have the power to tax
items they find to be harmful
A. Progressive Tax v. Regressive Tax
The main differences between progressive taxes and regressive taxes have to deal with financial
statuses. A progressive tax is any tax that places more of a financial burden on the rich. The wealthier
are taxed at a higher rate than the poor. Some examples of progressive taxes include state and federal
income taxes, while a regressive tax is the exact opposite. It consists of any tax that places more of a
financial burden on the poor. The regressive tax does so because it is a flat rate tax. If the tax is the same
across all incomes, then an individual with a lesser income is affected more. An example of such includes
sales taxes.
B. Incrementalism: means simply that the best predictor of this year’s budget is last
year’s budget plus a little bit more (an increment). Incremental budgeting has the following
features: 1) very little attention is focused on the budgetary base, 2) agencies can usually
assume they will get at least what they got the previous year, 3) most of the debate on the
budget is focused on the proposed increment, and 4) the budget for any given agency
grows by a little bit every year.
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C. A. Big Governments, Big Budgets
Big budgets are necessary to pay for big governments. America has one of the smallest
public sectors relative to the size of the gross domestic product.
D. The Rise and Decline of expenses
A generation ago the most expensive part of the federal budget was its military budget. In
the 1950s and early 1960s, spending for past, present, and future wars amounted to more
than half the federal budget. The defense budget now only constitutes about one-sixth of all
federal expenditures. Payrolls, pensions, research, development, and procurement are the
major parts of the defense budget. The biggest slice of the budget pie belongs to income
security expenditures.
E. Budgetary Politics
The main groups in the budgetary process include interest groups, agencies, the Office of
Management and Budget, the president, the tax committees in Congress, the budget
committees and the Congressional Budget Office, the subject-matter committees, the
Appropriations Committees, the Congress as a whole, and the General Accounting Office.
F. The President’s Budget
Until 1921, the various agencies of the executive branch sent their budget requests to the
secretary of the treasury, who in turn forwarded them to the Congress. The Budget and
Accounting Act of 1921 required presidents to propose an executive budget to Congress and
created the Bureau of the Budget (later called the Office of Management and Budget) to
help them
G. Congress and the Budget
According to the Constitution, Congress must authorize all federal appropriations. The
Congressional Budget and Impoundment Control Act of 1974 reformed the congressional
budgetary process. It created a fixed budget calendar, a budget committee in each house,
and a Congressional Budget Office. An important part of the process of establishing a
budget is to set limits on expenditures on the basis of revenue projections. This is done
through a budget resolution. These changes are legislated in two ways. A Budget
reconciliation or other revenue adjustments.
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Multiple Choice:
1. A solution to the budget problems has been difficult to achieve because of the lack of
A. will by public officials.
B. power among relevant interest groups.
C. desire by the public.
D. consensus on policy.
2. The only way to "control" uncontrollable expenditures is
A. for Congress to pass a constitutional amendment.
B. for the president to disband an agency.
C. for Congress to change a law or existing benefit levels.
D. when the original purpose of the policy is no longer relevant.
3. The majority of government expenditures are determined by
A. how much Congress appropriates to an agency.
B. whether the president requests a budgetary increase for an agency.
C. how many eligible beneficiaries there are for some particular program.
D. agency requests.
4. The most prevalent model of budgetary decision-making in practice is
A. uncontrollable budgeting.
B. incrementalism.
C. allowance budgeting.
D. rational party bargaining.
5. The ability of businessmen to deduct the cost of a "three-martini lunch" was an example of a
A.tax reduction.
B. social welfare tax.
C. tax loophole.
D. tax reform.
6. A policy document allocating burdens and benefits is called a
A.bill.
B.public budget.
C.executive order.
D. appropriation.
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7. The biggest uncontrollable expenditure in the federal budget is
A. the Social Security system.
B. interest on the national debt.
C. veterans aid.
D. government retirement benefits
8. A major feature of incremental budgeting is that it
A. greatly inflates government spending each year.
B. reevaluates the budgetary base on which past budgets were built.
C. reduces current budgets by small amounts over successive years.
D. provides small increases in the current budget over the previous year's budget.
9. The biggest slice of the budget pie belongs to
A. income security expenditures.
B. national defense.
C. health expenditures.
D. education aid.
10. A generation ago, the most expensive part of the federal budget was its
A. social services.
B. military budget.
C. operating costs.
D. interest payments.
FRQ: 3 Points
In recent years, entitlement programs have constituted a substantial portion of the United States
Federal Budget. Social Security is the largest entitlement program in the United States. Using your
knowledge of the United States budget, answer the following tasks:
(a) Define entitlement programs
(b) What is the primary source of the Social Security program?
(c) Identify one possible threat to the future of the Social Security system
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Chapter 14
Answer Key:
Multiple Choice
1. Answer D: Because there is a lot of varying opinions on policy, it is hard to agree on where budgetary
spending should be cut or expanded. This adds a lot of red tape to pass and revise budgets.
2. Answer C: Because these expenditures are determined not by a fixed amount of money appropriated
by Congress but by how many eligible beneficiaries there are for a program or by previous obligations of
the government, only a law could justifiably change its policies
3. Answer C: Congress examines how many eligible beneficiaries there would be for a particular program
and sets its expenditures accordingly. Congress would not invest a substantial amount of money on a
program that only accounts for a small number of people.
4. Answer B: Incrementalism is the best determinant because incremental budgeting has the
following features: 1) very little attention is focused on the budgetary base, 2) agencies can
usually assume they will get at least what they got the previous year, 3) most of the debate
on the budget is focused on the proposed increment, and 4) the budget for any given
agency grows by a little bit every year.
5. Answer C: Tax reductions are a form of tax loopholes.
6. Answer B: A budget is defined as a policy document allocating burdens (taxes) and benefits
(expenditures)
7. Answer A: Social Security accounts for the biggest slice of the budget pie and makes up nearly half of
all government expenditures.
8. Answer D: One reason incrementalism is so important is that it uses useful techniques to determine
next year’s budget. One of these techniques is using the previous year’s budget.
9. Answer A: Income security expenditures requires the most funding from the federal government
10. Answer B: A generation ago the most expensive part of the federal budget was its military budget. In
the 1950s and early 1960s, spending for past, present, and future wars amounted to more than half the
federal budget. The defense budget now only constitutes about one-sixth of all federal expenditures
FRQ
1 Point Part A
Karina Edouard
Chapter 14
Entitlement programs are government sponsored programs providing mandated, guaranteed, or
required benefits to those who meet eligibility requirements/qualifications
1 Point Part B
For identifying one of the following:
 Payroll taxes
 Wages from existing wage earners
 Tax based on income
 Targeted/ earmarked taxes
1 Point Part C
For identifying one of the following threats to Social Security:
 Run out of money
 Outputs exceed inputs
 Declining reserve