Economics Unit 4 Lesson 4 Understanding Government Budgets

Economics Economics

Unit 4Unit 4Lesson 4Lesson 4

Understanding Government Budgets

Government BudgetsGovernment Budgets

A government budget is a plan for outlays (expenditures or spending) and revenue (collecting taxes)

All governments - local, state, and federal - are required to revise budgets every fiscal year

Only the federal government is not required to balance its budget annually

The US Constitution does not require a balanced budget

Two Categories of Government Spending

Mandatory – Required by law

Discretionary – Voted on by Congress

What is Mandatory Spending?

Social Security (1st largest #) 21%

Medicare (3rd largest) 12%

Interest on National Debt (sixth largest #) 10%

Admin. of Justice 1%

What is Discretionary Funding

Defense/Military (2nd largest #) 20%

Health–Medicaid (5th largest) 11%

Education 4%

Agriculture 1%

Welfare and Food Stamps (4th largest) 14%

Transportation 2%

Science, Energy, and Natural Resource Development 3%

International Affairs and Aid 1%

From 2005

What is Government Debt?

A deficit in the budget occurs when government expenditures are greater than revenues US Deficit for 2009 was over $1 trillion

(highest ever) Increased by 50% since 2003 Biggest cause is $700 billion bank bailout

The National Debt is the total accumulated deficits

$13 Trillion in 2010 81% of GDP (National Wealth)

Newscast on National Debt Clock

http://dailybail.com/home/national-debt-gets-too-big-for-debt-clock.html

http://www.usdebtclock.org/

Government Surplus

Occurs when government revenues exceed government expenditures 1997-2001 were the only surplus in five decades

History of Deficit and Surplus

Creditors

Those people or entities to whom the U.S. government owes money

Owed $8 trillion in Treasury bonds and US notes 1/3 American people 1/3 Foreign governments

China and Japan largest creditors Buy US bonds to strengthen their currency

US Government borrows $4 trillion from itself Mostly to Social Security Interest is $450 million a year $1.5 Trillion due in 2011

Budget Battles: 2010-11 Issues

2010 National Budget Commission• Bi-partisan Committee• Recommend: Cuts in Social Security, Defense, and

Domestic Programs Obama 2010 Budget

• $30 billion for Afghanistan war• $30 billion for small business that hire new workers• More money for education and Pell grants• Money for high speed rail system• Cuts in agriculture, oil, and corporate subsidies• Fees on large banking firms• 3 Year spending freeze after 2010

President Obma’s Proposed 2011 Budgethttp://www.nytimes.com/interactive/2010/02/01/us/budget.html

Budget Battles: 2010-11 Proposal

New York Times Interactive Spending Budget–2010-11

Key Budget Issues

2010 Compromise

•Extend Bush Tax Cuts–2 years

• “Middle class”: focus on Social Security; cost $485 billion

• “upper class” (earning over $250,000/yr); cost $139 billion.

Continue unemployment benefits–13 months

Cost $33 billion But help 2.5 million

unemployed pay bills