Understanding the Federal Budget

Transcription

1 netw rks There s More Online! GRAPHIC ORGANIZER Government Budget CHART The Federal Budget Process INFOGRAPHICS The Federal Budget, FY 2011 State and Local Government Revenue and Expenditures GRAPHS Comparing Federal Spending State Income Tax Revenue Property Tax Revenue GAME STEP 2 House and Senate pass budget resolutions that outline spending and taxes 1.7% 2.2% 5.9% Lesson 1 The Federal Budget: Revenues and Expenditures ESSENTIAL QUESTION How does government influence the economy and economic institutions? 30.0% 25.9% 34.3% NGSSS covered in Understanding the Federal Budget SS.7.E.1.2 Discuss the importance of borrowing and lending in the United States, the government s role in controlling financial institutions, and list the advantages and disadvantages of using credit. SS.7.E.1.6 Compare the national budget process to the personal budget process. SS.7.E.2.1 Explain how federal, state, and local taxes support the economy as a function of the United States government. LA The student will use new vocabulary that is introduced and taught directly. LA The student will determine the main idea or essential message in grade-level or higher texts through inferring, paraphrasing, summarizing, and identifying relevant details. Reading HELPDESK It Matters Because Government tax and spending policies affect you. Understanding the Federal Budget GUIDING QUESTION How does the federal budget reflect choices? Do you know how to make a personal budget? First, you figure out what your income is for a period of time, such as a month. Then, you estimate your savings and expenses for that month. You must think about regular expenses, such as weekly food costs. You also have to account for occasional costs such as a birthday present for a parent. If expenses exceed, or are greater than, income, then you need to cut costs or find a way to earn more income. The Budget Process The federal government also has a budget. The federal budget covers a period called a fiscal (FIHS kuhl) year. A fiscal year is any 12-month period chosen for keeping accounts. The fiscal year of the federal government begins October 1 and ends September 30 of the next year. Fiscal year 2015 begins October 1, 2014, and ends September 30, The diagram of the federal budget process shows the steps in making a federal budget. This process is complex because of the size of the budget and the number of parties involved. PHOTO: (tc) William Perlman/Star Ledger/Corbis Taking Notes: Categorizing As you read, create a concept web linking related concepts, such as taxes and revenues. LA Financing the Government Government Budget Revenues Content Vocabulary fiscal year appropriations bill mandatory spending intergovernmental revenue discretionary spending sales tax

2 The process starts when the president transmits, or sends, a budget message to Congress. This message states how much the president wants to spend on each federal program. The message must be sent no later than the first Monday in February. Next, key members of Congress agree on a budget resolution. This is Congress s plan for revenue and for spending on broad categories such as health. The budget has two different kinds of spending: mandatory and discretionary. Mandatory spending is set by laws outside the budget process. One example is Social Security, which makes payments to retirees. Mandatory spending is generally fixed from year to year. Discretionary (dis KREH shuh nehr ee) spending involves spending choices made and approved each year. It includes items such as national defense and highways and can differ from year to year. Next, Congress must set spending on each program for the coming year. That process starts when committees in the House write appropriations bills. An appropriations (uh proh pree AY shuhnz) bill gives official approval for the government to spend money. All appropriations bills start in the House but must be approved by both houses. After the Senate and House pass each bill, it is sent to the president. The president can either sign it into law or veto it. If the bill is vetoed, Congress can rewrite the bill or override the veto. Sometimes Congress does not pass the budget in time. It then approves a continuing resolution. This law sets spending for the coming year at the same level as the year before. THE FEDERAL BUDGET PROCESS CHART SKILLS Congress faces deadlines for acting on the budget. It is supposed to approve the budget resolution by April 15. It does not always meet this date, however. STEP 1 President sends Congress a budget message that: expenses; priorities; STEP 2 House and Senate pass budget resolutions that outline spending and taxes Caps on spending are set STEP 3 House and Senate pass bills authorizing spending, 1 Make Connections Why are tax revenue estimates included in the budget? 2 Make Inferences What relationship does the budget resolution have to the president s budget? LA entitlement program subsidize property tax fiscal year any 12-month period chosen for keeping accounts mandatory spending the federal spending required by law that continues without the need for congressional approval each year Lesson 1 607

3 THE FEDERAL BUDGET, FY 2011* Receipts 3.4% 43.7% 1.0% 1.0% 11.6% 36.4% 2.9% FY 2011 Receipts $2,567 Expenditure $3,834 (Deficit) $1,267 (in billions of dollars) Expenditures 15.7% 19.6% 6.5% 10.5% 19.2% 13.0% 15.5% Personal income tax Payroll tax Corporate income tax Excise tax Estate tax Customs duties National defense Social security Income security Medicare Health Interest on debt Source: Economic Report of the President 2010; figures given are estimates for FY 2011 INFOGRAPHIC Federal spending for Fiscal Year 2011 was nearly $354 trillion higher than revenues for that year. You will learn more about this in Lesson 2. 1 Make Predictions What happens to federal revenue when many people lose their jobs? Why? 2 Categorize What are the two largest spending categories? Which is mandatory and which is discretionary? LA Reading HELPDESK Revenues The federal budget is made up of two main parts revenues and expenditures. Revenue is the money a government collects to fund its spending. The biggest source of federal revenue is the personal income tax. This tax is paid by all people who earn income above a certain amount. The second-largest share of revenue is from payroll taxes. These are taken from workers paychecks to fund social insurance programs such as Social Security and Medicare. Medicare provides some health care coverage for people age 65 and older. The third-largest source of revenue comes from the tax that corporations pay on their profits. Taxes fall into three categories: progressive, proportional, and regressive. With a progressive tax, the tax rate goes up as income goes up. The federal income tax is a progressive tax. A proportional tax has a constant tax rate, regardless of income. The tax for Medicare is proportional because it is the same rate for all wage earners. A regressive tax takes a smaller percentage of your income as the amount you earn goes up. The sales tax is an example of a regressive tax. discretionary spending the spending for federal programs that must receive approval each year appropriations bill the legislation that sets spending on particular programs for the coming year Academic Vocabulary exceed to be greater than transmit to send a document or a message 608 Financing the Government

4 PHOTO: William Perlman/Star Ledger/Corbis Expenditures The circle graph of federal expenditures shows federal spending for Fiscal Year National defense spending is the largest category. Close behind is Social Security. Spending in this area will likely increase in the future as the population ages and more people retire. Income security ranks third. It includes unemployment benefits, welfare, and retirement benefits for some government workers and other groups. The fourth category is Medicare. This area is also likely to rise as the population ages. The fifth-largest category is health. This includes health care and long-term care for low-income people of all ages as well as those with disabilities. The sixth category is interest on borrowed money. When the federal government borrows, it must pay interest on the debt, just like any consumer who takes out a loan. As government borrowing goes up, so does the interest it owes. includes programs in education, veteran benefits, and highway costs. Spending in the other category is discretionary spending. How the Budget Process Changed Over Time When the federal government began, it had fewer sources of revenue and spent less than government today. The budget process was very informal, with little overall planning. Over time, federal spending increased. As a result, the budget process had to be improved. Congress passed a law in 1921 that made the process more formal. For the first time, the president was required to send a budget to Congress each year. In 1974 Congress passed another law to improve the budget process. It required Congress to set up committees to focus on the budget. It also set up the Congressional Budget Office (CBO). That office has the job of tracking spending and revenue measures and making reports to Congress. The budget process still faces difficulties today, however. Members of Congress often add spending for pet projects to major bills. These addons can increase overall spending. PROGRESS CHECK Comparing and Contrasting How is making the federal budget similar to and different from making a personal budget? Elderly people have much of their health care costs covered by the Medicare program. Making Connections What source of revenue pays for this program? SS.7.E.2.1 Lesson 1 609

5 Florida CONNECTION State Taxes Only a handful of states, including Florida, do not require residents to pay state income tax. This makes Florida an appealing place to live and work. Florida does have a 6 percent state sales tax though. In addition, local sales taxes vary from region to region. For example, the tax for hotel rooms may be as high as 13 percent in some areas and less than 10 percent in others. SS.7.E.2.1 NGSSS covered in Budgeting for State and Local Governments SS.7.E.2.1 Explain how federal, state, and local taxes support the economy as a function of the United States government. Reading HELPDESK Budgeting for State and Local Governments GUIDING QUESTION How do state and local revenues and expenditures differ from those of the federal government? State and local governments also prepare budgets. The governments of all states except Vermont cannot, by law, spend more than they receive in revenue. Local governments also have to limit spending so it does not exceed revenues. State Governments The circle graphs of state government revenue and spending are for all states combined. Intergovernmental revenue is the largest source of state income. This refers to funds that one level of government receives from another level of government. States receive this money from the federal government. Sales taxes are the states second-most-important source of revenue. A sales tax is paid when someone buys a good or service. All but five states have sales taxes. Tax rates range from 2.9 percent to 7 percent. A 3 percent sales tax on clothing means that a person spending $100 on clothes pays another $3 in taxes. Sales taxes can be regressive and hurt the poor, however. As a result, many states do not tax essential goods, such as food and medicine. Some states also declare sales tax holidays. During these periods, purchases of school supplies are not taxed. All but five states have a personal income tax. In some states this tax is proportional, with all taxpayers paying a flat rate. In others it is progressive, with high incomes taxed at higher rates. The single biggest area of state spending is public welfare. This refers to programs meant to help those people with little money to maintain basic health and living conditions. Most of this spending goes to states share of funding of entitlement programs. These are called entitlements because the requirements for benefits are set by law. An example is the Medicaid program. This program helps poor people get health care services. Education is another large category of state spending. Some of this spending goes to local governments to help fund public schools. Some of it is used to subsidize (SUHB suh deyez), or pay part of the cost of, students state college education. This subsidy helps make state colleges more affordable. intergovernmental revenue the funds that one level of government receives from another level of government sales tax a tax paid by consumers at the time they buy goods or services entitlement program a government program that makes payments to people who must meet certain requirements in order to help them meet minimum health, nutrition, and income needs subsidize to aid or support a person, business, institution, or undertaking with money or tax breaks 610 Financing the Government

6 STATE AND LOCAL GOVERNMENT REVENUE AND EXPENDITURES STATE GOVERNMENT REVENUE STATE GOVERNMENT EXPENSES 13.4% 26.6% 27.6% 42.6% 20.4% 3.4% 3.1% Intergovernmental revenue Sales and gross receipts Personal income tax 17.2% 22.1% Corporate income tax Retirement and unemployment insurance receipts Miscellaneous revenue 10.5% Education Public welfare Health and hospitals Highways 5.3% 5.2% 2.6% Interest on general debt Retirement and unemployment insurance LOCAL GOVERNMENT REVENUE LOCAL GOVERNMENT EXPENSES 30.0% 34.3% 43.4% 37.3% 1.7% 2.2% 5.9% 25.9% Intergovernmental revenue Property tax Sales tax Personal and corporate income tax taxes Miscellaneous revenue 7.3% 4.9% 3.9% Education Highways Public welfare Police protection Health and hospitals 3.2% Source: U.S. Bureau of the Census, Statistical Abstract of the United States INFOGRAPHIC SKILLS The federal government provides money to state governments. State governments, in turn, provide funds for local governments. 1 Comparing What is one specific tax that local government collects and state government does not? 2 Making Inferences Which level of government, state or local, would be hurt more by an end to intergovernmental revenue? Why? LA Lesson 1 611

7 21 st Century SKILLS Internet Research Use the Internet to find out how your state ranks among other states in terms of state sales taxes and personal income taxes. In a few sentences, explain how this information might influence people to live in your state. LA refers to additional state spending in all other areas. This includes insurance payments to retired state employees and spending in such areas as state police, prisons, and parks. Local Governments Like states, local governments must raise money. The biggest difference is that, unlike state governments, local governments rely heavily on property taxes. A property tax is a tax based on the value of land and property that people own. Generally, the higher the value of the property, the higher the property tax that is paid. Many states allow their local governments to charge sales taxes and collect income taxes as well. Fines for traffic and other violations, along with fees for permits and special services, also provide income for local governments. Local governments provide many of the basic services on which citizens depend. Education is the largest portion of local spending. Police and fire protection are another important part of local budgets. Police services are always provided by professionals. Fire protection can be provided by volunteers in small communities. Larger cities, though, have professionals as firefighters. Local governments build and maintain city and county streets, too. In areas with harsh winter weather, city workers must clear the streets of snow and apply salt to melt snow and ice to make driving safe. Finally, local governments supply people with water, remove and treat sewage, and take care of trash removal. Larger communities have staffs of workers to do these jobs. PROGRESS CHECK property tax a tax on the value of land and property that people own Summarizing What is the biggest spending area for state governments? What is the largest local government expenditure? LESSON 1 REVIEW Review the Vocabulary 1. What is a fiscal year? How is it related to a budget? LA What is the difference between mandatory and discretionary spending? LA What is intergovernmental revenue? How does it subsidize lower levels of government? LA Answer the Guiding Questions 4. Analyzing What kinds of choices are involved in making the federal budget? SS.7.E Financing the Government 5. Comparing and Contrasting How are tax revenues spent differently by state, local, and federal governments? SS.7.E NARRATIVE WRITING Write a paragraph explaining the process by which the federal government prepares a budget and makes spending decisions. Include all steps through appropriations. SS.7.E.1.6