The Congress, The President and The Budget: The Politics of Taxing and Spending

Ashley Ortiz
Chapter 14 Notes
The Congress, the President and the Budget: The Politics

of Taxing and Spending
Introduction
Budget:
o A policy document allocating burdens (taxes) and benefits
(expenditures)
Deficit:
o An excess of federal expenditures over federal revenues
Expenditures:
o What the government spends money on
Revenues:
o Sources of money for the government
Sources of Federal Revenue
Income Tax
o Shares of individual wages and corporate revenues
o The 16th Amendment permitted Congress to levy an income tax.
o Individual taxes are the largest single revenue source for the
government.
o Income tax is progressive: Those with more income pay higher rates of
tax on their income.
Social Insurance Taxes
o Taxes for specific funds: Social Security and Medicare
Borrowing
o The Treasury Department sells bondsthis is how the government
borrows money.
o The federal debt is the sum of all the borrowed money that is still
outstanding.
o The government competes with other lenders.
o The government does not have a capital budget.
Federal Debt: all money borrowed over the years and still
outstanding
Taxes and Public Policy
o Tax Loopholes: tax breaks or benefits for a few people
o Tax Expenditures: revenue losses that result from special exemptions,
exclusions, or deductions on federal tax law
o Tax Reduction: the general call to lower taxes
o Tax Reform: rewriting the taxes to change the rates and who pays them
Tax Reform Act of 1986extensive tax reform
Federal Expenditures
Big Governments, Big Budgets

o A big government requires lots of money.
o As the size of government increases, so does its budget.
The Rise and Decline of the National Security State
o In the 1950s and 1960s the Department of Defense received more
than half the federal budget.
o Defense now constitutes about one-sixth of all federal expenditures.
o One reason for growth of government
The Rise of the Social Service State
o The biggest part of federal spending is now for income security
programs.
o Social Security is largest program
Social Security has been expanded since 1935 to include
disability benefits and Medicare.
These benefit programs face financial problems with more
recipients living longer.
o Another reason for government growth
Incrementalism
o The idea that last years budget is the best predictor of this years
budget, plus some.
o Agencies can safely assume they will get at least what they got last
year.
o Focus and debate on the increase over last year
o Budgets tend to go up a little each year.
Uncontrollable Expenditures
o Spending determined by the number of recipients, not a fixed dollar
figure
o Mainly entitlement programs where the government pays known
benefits to an unknown number of recipients, e.g., Social Security
o The only way to control the expenditures is to change the rules.
The Budgetary Process
Budgetary Politics
o Stakes and Strategies
All political actors have a stake in the budget.
Try and tie their budget needs to national or political needs
The Players
o Lots of players, with the president and Congress playing important
roles
o Almost all committees are involved in the budget.
The Presidents Budget
o Presidents originally played a limited role in the budget.
Now budget requests are directed through the OMB and president
before going to Congress.
o The budget process is time consumingstarting nearly a year in
advance.
o The OMB, the president, and the agencies negotiate budget requests.
o Presidents originally played a limited role in the budget.
o Now budget requests are directed through the OMB and president
before going to Congress.
o The budget process is time consumingstarting nearly a year in
advance.
o The OMB, the president, and the agencies negotiate budget requests.
Congress and the Budget
o Reforming the Process
The Congressional Budget and Impoundment Control Act of
1974: an act designed to reform the congressional budgetary
process
It established the following:
Fixed budget calendar
A budget committee in each House
The CBO, which advises Congress on the probable
consequences of its decisions, forecasts revenues, and is
counterweight to OMB
Budget to be considered as a whole
A budget resolution binds Congress to a bottom line for the
budget before Congress considers appropriations.
The current budget is then reconciledprogram authorizations
are revised to achieve required savings
The new budget is authorized and appropriated.
Authorization bill: establishes a discretionary government
program; set goals and maximum expenditures
Appropriations bill: funds programs within limits
established by authorization bills
o The Success of the 1974 Reforms
Between 1974 and 1998, every budget was a deficit budget.
Congress misses most of its own deadlines.
Congress passes continuing resolutions to keep the government
going until it passes a budget.
Omnibus budget bills often contain policies that cannot pass on
their own.
o More Reforms
Congress passed bills to try and control the deficits.
By 1990, Congress focused on increases in spending.
Both parties claimed victory for the budget surpluses that began
in 1997.
Economic downturn, income tax cuts, and increased military
expenditures brought a return to deficits by 2001.
o
Understanding Budgeting
Democracy and Budgeting

o Many politicians spend money to buy votes.
o With many groups and people asking for government assistance, the
budgets get bigger.
o Some politicians compete by trying not to spend money.
o People like government programs, but they really do not want to pay
for them, thus there are deficits and federal debt.
The Budget and the Scope of Government
o In sum, the budget represents the scope of government.
o The bigger the government, the bigger the budget
o Limits on funding (taxes) can limit what the government can do.
Chapter 14 Vocabulary
Budget
Deficit
Expenditures
Revenues
Income Tax
Sixteenth
Amendment
Federal Debt
Tax expenditures
Social Security Act
Medicare
Incrementalism
A policy document allocating burdens (taxes) and

benefits (expenditures).
An excess of federal expenditures over federal
revenues.
Government spending of revenues. Major areas of
federal spending are social services and national
defense.
The financial resources of the government. The
individual income tax and Special Security tax are two
major sources of the federal governments revenue.
Shares of individual wages and corporate revenues
collected by the government. The Sixteenth
Amendment explicitly authorized Congress to levy a
tax on income.
The constitutional amendment adopted in1913 that
explicitly permitted Congress to levy an income tax.
All the money borrowed by the federal government
over the years and still outstanding. Today the deferral
debt is more than $9 trillion.
Revenue losses that result from special exemptions,
exclusions, or deductions on federal tax law.
A 1935 law passed during the Great Depression that
was intended to provide a minimal level of sustenance
to older Americans and thus save them from poverty.
A program added to the Social Security system in
1965 that provides hospitalization insurance for the
elderly and permits older Americans to purchase
inexpensive coverage for doctor fees and other health
expenses.
A description of the budget process where the best
predictor of this years budget is last years budget,
plus a little bit more (an increment). According to
Uncontrollable
Expenditures
Entitlements
House Ways and

means Committee
Senate Finance
Committee
Congressional
Budget and
Impoundment
Control Act of
1974
Congressional
Budget Office
Budget Resolution
Reconciliation
Authorization bill
Appropriations bill
Continuing
Resolutions
Aaron Wildavsky, Most of the budget is a product of

previous decisions.
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.
Policies for which Congress has obligated itself to pay
X level of benefits to Y number of recipients Social
Security benefits are an example.
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.
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.
An act designed to reform the congressional
budgetary process. Its supporters hoped that it would
also make Congress less dependent on the presidents
budget and better able to set and meet its own
budgetary goals.
Advises Congress on the probable consequences of its
decisions, forecasts revenues, and is a counterweight
to the presidents Office of Management and Budget.
A resolution binding Congress to a total expenditure
level, supposedly the bottom line of all federal
spending for all programs.
A congressional process through which programs
authorizations are revised to achieve required savings.
It usually also includes tax or other revenue
adjustments.
An act of Congress that establishes, continues, o
changes a discretionary government program or an
entitlement It specifies program goals and maximum
expenditures for discretionary programs.
An act of Congress that actually funds programs within
limits established by authorization bills. Appropriations
usually cover one year.
When Congress cannot reach agreement and pass
appropriations bills, these resolutions allow agencies
to spend at the level of the previous year.

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Ashley Ortiz

The Congress, the President and the Budget: The Politics

Sources of Federal Revenue

Big Governments, Big Budgets

The Budgetary Process

Democracy and Budgeting

A policy document allocating burdens (taxes) and

House Ways and

Aaron Wildavsky, Most of the budget is a product of

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