Government SpendingIn 2001, total government expenditures amounted to

nearly $2.9 trillion. On a per capita basis, this amounted to almost $10,300 for every man, woman,

and child in the United States. Where are we now?

Government Spending in Perspective

Three reasons why government spending has increased since the 1940s:

• WW II• GD = Favorable public opinion for

government oversight (regulation)• Success of large-scale public works projects

• Goods and Services– Tanks, planes, ships to

toilet paper and soap for gov’t employees

• Transfer Payments– Social Security, welfare, unemployment

compensation, disability benefits• Grant-in-aid: $$ provided from one level of

government (fed) to another level (state)• Subsidy: $$ to individuals or industries to

encourage/protect a certain economic activity

Two Kinds of Spending

Impact of Government Spending• Remember, everything has a

cost!– Can either stimulate economic

activity or affect the FOP• Affecting Resource Allocation• Redistributing Income– May affect family incomes;

provide/lose jobs• Competes with the Private

Sector

Establishing the Federal BudgetMandatory Spending (2/3 of

federal budget)• Spending authorized by law that

continues w/out annual approval by Congress

• Interest on borrowed $$• Social Security• Medicare• Veteran’s benefits

Discretionary Spending (1/3 of remaining budget)

• Programs that must receive annual authorization

• Defense spending• Welfare• Education• Social services• Transportation• Natural resources• Environment

**The government’s fiscal year is from October 1 to September 30

How it’s Done• Step One: Executive Formulation– Prez confers with advisors to draft a budget

• Step Two: Action by the House– Has the power to approve, modify, or disapprove of proposed

budget sent to various subcommittees House Appropriations Committee

• Step Three: Action by the Senate– May approve House bill or draft its own version– If differences exist, a joint House-Senate conference committee

works out a compromise bill• Step Four: Final Approval – Sent to Prez for approval or veto. Once signed, it becomes the

official budget for the new fiscal year.

http://www.atpe.org/Advocacy/PoliticalInvolvement/basicSteps.pdf

See what our government is up to these days…

State and Local Government ExpendituresState Gov Expenditures- passed by state leege which requires annual spending not to exceed revenues

• Intergovernmental expenditures (80%)- state $$ aid to local communities– Public welfare (TxDOT)– Retirement/Insurance trust for

state employees– Higher Education– Highways– Hospitals– Interest on public debt

Local Gov Expenditures-approved by mayor, city council, or county judge• Elementary/Secondary

education• Utilities• Hospitals• Police protection• Public welfare• Highways• Housing and community

development• Fire protection• Parks and recreation

**(2/3 of totalSpending)

Deficits, Surpluses, and The National Debt

• Deficit Spending: spending in excess of revenues collected

• Finance shortage of revenue by borrowing from others (sell treasury bonds to public) = federal debt

Section 4

Impact of the National DebtFirst Consequence

Distribution of Income• If gov’t borrows $$ from wealthy, AND the

burden of taxes falls on the middle class and the poor, taxes would be transferred to the rich in the form of interest payments on the debt

• hmmm… sound familiar?

Impact of the National DebtSecond Consequence

Purchasing Power• The larger the public debt, the larger the

interest payments • More taxes needed to pay off loans • Less $$ to spend on our own needs

Impact of the National DebtThird Consequence

Reduced Incentives• Higher taxes = less incentive to work, save, or

invest

Deficit Legislation

• Gramm-Rudman-Hollings (1991)– Set federal deficit targets for Congress and the

president over a 6-year period• Budget Enforcement Act of 1990– “pay-as-you-go” provision

• Omnibus Budget Reconciliation Act of 1993– Trim $500 billion from deficit over 5-year period

• Balanced Budget Agreement of 1997– Spending caps to limit annual discretionary

spending