15 Federal Budgets - THe tools of fiscal policy

pg480-506

Misconception - Government never balance their budgets.

How does government spend?

Government Outlays

  • Transfer payment are payment made to groups of individuals when no good or service is received in return.
  • Mandatory outlays - entitlement programs, comprise government spending that is determined by ongoing government programs like Social Security and Medicare.
  • Discretionary outlays - comprise spending that can be altered when the government is setting its annual budget.
    • purchase of military equipment

Social Security and Medicare

  • Social Security - a US government-administered retirement funding program.
  • Medicare - is a mandated federal program that fund health car for people age 65 and older.
  • Demographics
    • People liver longer.
    • Those who paid into the programs for many years are now retired and drawing benefits.
    • Baby boomers are now retiring.

Spending and Current Fiscal Issues

  1. Increased spending on Social Security and Medicare.
  2. Defense spending after the terrorist attacks of 911.
  3. Government responses to the Great Recession, beginning with fiscal policy in 2008.

How does government tax?

  • Sources of Tax Revene
  • Payroll Taxes
    • Social Insurance Tax
    • Income Tax
  • Historical Income Tax Rates
    • no income tax prior to 1913
    • 6% in 1913
    • By 1918, the top mariginal rate rose to 77%.
    • During 1930s, top marginal rate increased to 80%, because of the Greate Depression.
    • In 1963, President Kennedy pushed for rate reduction,that decreased the top rate to 70%.

What are budget deficit?

  • Deficits and Debt
    A budget deficit occurs when government outlays exceed revenue.
    A debt is the total of all accumulated and unpaid buget deficits.
  • Foreign Ownership of US Federal Debt - 67% domatically, 33% internationally with China, Japan, UK being the major holders