1

I.Introduction(436438) ThebattleofthebudgetisatthecenterofAmericanpolitics.Twoquestionsarecentraltopublicpolicy: Whobearstheburdensofpayingforgovernment?Whoreceivesthebenefits?Thepublicbudgetisapolicy documentallocatingburdens(taxes)andbenefits(expenditures).Abudgetdeficitoccurswhenexpenditures exceedrevenuesinafiscalyear.Americanswantthegovernmenttobalancethebudget,maintainor increasethelevelofgovernmentspendingonmostpolicies,andkeeptaxeslow. II.SourcesofFederalRevenue(438445) A.IncomeTax Individualsarerequiredtopaythegovernmentaportionofthemoneytheyearnthisportionisanincome tax.TheSixteenthAmendment(1913)permittedCongresstolevyanincometax.TheInternalRevenue Servicewasestablishedtocollectit.Corporationsandindividualspayincometaxes.Theincometaxis generallyprogressive,meaningthatthosewithmoreincomepayhigherratesoftaxontheirincome. B.SocialInsuranceTaxes SocialSecuritytaxescomefrombothemployersandemployees.Moneyisdeductedfromemployees paychecksandmatchedbytheiremployers.ThemoneyisearmarkedfortheSocialSecurityTrustFund. C.Borrowing Whenthefederalgovernmentwantstoborrowmoney,theTreasuryDepartmentsellsbonds,guaranteeingto payinteresttothebondholder.Thefederaldebtisallthemoneyborrowedovertheyearsthatisstill outstanding.Elevenpercentofallfederalexpendituresgotopayinginterestonthisdebt.Government borrowingcrowdsoutprivateborrowersfromtheloanmarketplace.Everydollarthatthegovernmentborrows todaywillcosttaxpayersmanymoredollarsininterestoverthenextthirtyyears.Governmentisborrowing notsomuchforitscapitalneedsasforitsdaytodayexpenses. Theperceivedperilsofgiganticdeficitshaveledtocallsforabalancedbudgetamendment.Opponents arguethatitisdifficulttoestimateexpendituresandrevenuesmorethanayearahead.Unlikestateand localgovernmentsandprivatebusinesses,thefederalgovernmentdoesnothaveacapitalbudget,abudget forexpendituresonitemsthatwillserveforthelongterm,suchasequipment,roads,andbuildings.When thefederalgovernmentpurchasesthesethings,theyarecountedascurrentexpendituresandrunupthe deficit. D.TaxesandPublicPolicy Ataxloopholeispresumablyataxbreakortaxbenefitthatgivesexemptions,deductions,andspecial cases.Taxloopholescostthetreasuryrelativelylittle.Taxexpendituresaredefinedasrevenuelosses attributabletoprovisionsofthefederaltaxlawsthatallowaspecialexemption,exclusion,ordeduction.A taxexpenditureconsistsofthedifferencebetweenwhatthegovernmentactuallycollectsintaxesandwhat itwouldhavecollectedwithoutspecialexemptions.TaxexpendituresreceivenoregularreviewbyCongress. Onthewhole,taxexpendituresdirectlybenefitmiddleandupperincometaxpayersandcorporations.Tax expendituresmaybeseenasloopholesorpublicpolicychoicessupportingasocialactivityworth subsidizing. Taxreductionsarerare.In1981CongresspassedReaganstaxcuttingproposal.Familieswithhigh incomessavedmanythousandsofdollarsontaxes,butthoseatthelowerendoftheincomeladdersaw littlechangeintheirtaxburden. TheTaxReformActof1986wasoneofthemostsweepingalterationsinfederaltaxpolicyhistory.It eliminatedorreducedthevalueofmanytaxdeductions,removedseveralmillionlowincomeindividualsfrom thetaxrolls,andreducedthenumberoftaxbrackets. III.FederalExpenditures(445453) A.BigGovernments,BigBudgets Bigbudgetsarenecessarytopayforbiggovernments.Americahasoneofthesmallestpublicsectors relativetothesizeofthegrossdomesticproduct.ThegrowthofgovernmentintheUnitedStateshasbeen dramatic.Manyscholarsbelievethatthepublicsectorexpandsprincipallyinresponsetochangesinthe

publicspreferencesandtoeconomicandsocialconditionsthataffectthepublicslevelofdemandfor governmentactivity.Citizenslikegovernmentservices. B.TheRiseandDeclineoftheNationalSecurityState Agenerationagothemostexpensivepartofthefederalbudgetwasitsmilitarybudget.Inthe1950sand early1960s,spendingforpast,present,andfuturewarsamountedtomorethanhalfthefederalbudget. Fromthemid1960stotheearly1980s,defenseexpenditurescreptdownwardinrealdollarswhilesocial welfareexpendituresmorethandoubled.Inthe1990sdefenseexpenditureshavedecreasedinresponseto thelesseningtensionsinEurope.Thedefensebudgetnowonlyconstitutesaboutonesixthofallfederal expenditures.Payrolls,pensions,research,development,andprocurementarethemajorpartsofthe defensebudget. C.TheRiseoftheSocialServiceState Thebiggestsliceofthebudgetpiebelongstoincomesecurityexpenditures.TheSocialSecurityAct(1935) intendedtoprovideaminimallevelofsustenancetoolderAmericans,savingthemfrompoverty.Inthe 1950s,disabilityinsurancebecameapartofSocialSecurityandMedicarewasaddedin1965.Social Securityislessaninsuranceprogramthanakindofintergenerationalcontract.Essentially,moneyistaken fromtheworkingmembersofthepopulationandspentontheretiredmembers.TheSocialSecurityprogram facedaproblemasthe1980sbeganbecausethenumberofolderAmericanshasincreasedandpeople tendtostayontherollslongeraslifeexpectanciesincrease.Othersocialserviceexpenditureshave paralleledtheupwardgrowthofincomesecurity.Theriseofthesocialservicestateandthenational securitystatetogetherlinkedwithmuchofAmericangovernmentalgrowthsincetheendofWorldWarII. D.Incrementalism Incrementalismmeanssimplythatthebestpredictorofthisyearsbudgetislastyearsbudgetplusalittle bitmore(anincrement).Incrementalbudgetinghasthefollowingfeatures:1)verylittleattentionisfocused onthebudgetarybase,2)agenciescanusuallyassumetheywillgetatleastwhattheygottheprevious year,3)mostofthedebateonthebudgetisfocusedontheproposedincrement,and4)thebudgetforany givenagencygrowsbyalittlebiteveryyear.Incrementalismisageneraltendencyofthebudget,butitdoes notfullydescribeallbudgetarypolitics.Therehaveoftenbeencallsforbudgetaryreform.Thebudgetary processisaffectedbygroupswithinterestsintaxesandexpendituresthatmakeitdifficulttoparethe budget. E.UncontrollableExpenditures VastexpendituresaredeterminednotbyhowmuchCongressappropriatestoanagency,butbyhowmany eligiblebeneficiariesthereareforsomeparticularprogram.Uncontrollableexpendituresresultfrompolicies thatmakesomegroupautomaticallyeligibleforsomebenefit.Manyexpendituresareuncontrollable becauseCongresshasineffectobligateditselftopayXlevelofbenefitstoYnumberofrecipients.These policiesarecalledentitlements.ThebiggestuncontrollableexpenditureistheSocialSecuritysystem.Itis estimatedthattwothirdsofthefederalbudgetisuncontrollable,meaningthatCongresscancontrolsuch expendituresbutonlybychangingalaworalteringexistingbenefitlevels. IV.TheBudgetaryProcess(453459) A.BudgetaryPolitics Everypoliticalactorhasastakeinthebudget.Budgetarypoliticsresemblesagameinwhichplayers chooseamongstrategies.Themainactorsinthebudgetaryprocessincludeinterestgroups,agencies,the OfficeofManagementandBudget,thepresident,thetaxcommitteesinCongress,thebudgetcommittees andtheCongressionalBudgetOffice,thesubjectmattercommittees,theAppropriationsCommittees,the Congressasawhole,andtheGeneralAccountingOffice. B.ThePresidentsBudget Until1921,thevariousagenciesoftheexecutivebranchsenttheirbudgetrequeststothesecretaryofthe treasury,whointurnforwardedthemtotheCongress.TheBudgetandAccountingActof1921required presidentstoproposeanexecutivebudgettoCongressandcreatedtheBureauoftheBudget(latercalled

theOfficeofManagementandBudget)tohelpthem.Ittakesalmostayeartoprepareapresidentialbudget. C.CongressandtheBudget AccordingtotheConstitution,Congressmustauthorizeallfederalappropriations.ForyearsCongress budgetedinapiecemealfashion.TheCongressionalBudgetandImpoundmentControlActof1974reformed thecongressionalbudgetaryprocess.Itcreatedafixedbudgetcalendar,abudgetcommitteeineach house,andaCongressionalBudgetOffice.Animportantpartoftheprocessofestablishingabudgetisto setlimitsonexpendituresonthebasisofrevenueprojections.Thisisdonethroughabudgetresolution.The congressionalbudgetresolutionoftenrequeststhatcertainchangesbemadeinlaw.Thesechangesare legislatedintwoways.Abudgetreconciliationisaprocessbywhichprogramauthorizationsarerevisedto achieverequiredsavingsitfrequentlyalsoincludestaxorotherrevenueadjustments.Anauthorizationbillis anactofCongressthatestablishesadiscretionarygovernmentprogramoranentitlement,orthatcontinues orchangessuchprograms.Anappropriationsbillmustbepassedtofundprogramsestablishedby authorizationbills. The1974reformsfailedtokeepspendinginlinewithrevenues.Congresshasoftenfailedtomeetitsown budgetarytimetable.Ithasoftenresortedincontinuingresolutionslawsthatallowagenciestospendat thepreviousyearslevel.The1974reformshavehelpedCongressviewtheentirebudgetearlyinthe process. In1985CongressenactedtheBalancedBudgetandEmergencyDeficitControlActinanattempttobalance thebudget.Thiseffortfailedmainlyduetothearbitrarynatureofautomaticbudgetcuts.In1990Congress shiftedthefocusonfuturesavingsfromcontrollingthesizeofthedeficittocontrollingincreasesinspending. PresidentClintonsfirstbudgetplacedasinglecaponalldiscretionaryspendingandimposedahardfreeze onappropriations.In1995,theRepublicanCongresswasdeterminedtobalancethebudgetwithinseven years,arguingforsubstantialcutsintherateofgrowthofpopularentitlementprogramssuchasMedicaid andtheoutrighteliminationofmanyotherprograms.In1997,PresidentClintonandCongresscametoa balancedbudgetagreement.Theeconomywassostrongthatthepresidentwasabletoproposeabalanced budgetforfiscalyear1999. V.UnderstandingBudgeting(459464) A.DemocracyandBudgeting Almostalldemocracieshaveseenasubstantialgrowthingovernmentinthetwentiethcentury.One explanationforthisgrowthisthatpoliticiansspendmoneytobuyvotes.Somescholarshavearguedthat governmentgrowsinademocracybecauseoftheequalityofsuffrage.Inthepoliticalarenapowerismore equallydistributed.Partiesmustappealtoamajorityofthevoters.Manypoliticianswillinglycooperatewith thedesireoftheworkingclassvoterstoexpandtheirbenefits.Furthermore,corporationssupportabig governmentthatoffersthemcontracts,subsidies,andotherbenefits.Therefore,lowincomeandwealthy votersalikehavevotedforpartiesandpoliticianswhopromisedthembenefits.Governmentalsogrowsby respondingtogroupsandtheirdemands.However,somepoliticianscompeteforvotesbypromisingnotto spendmoney.Oneofthemostcommoncriticismsofgovernmentisthefailuretobalancethebudget.Public officialsareoftencriticizedforlackingthewilltodealwiththeproblem,yetitwasnotlackofresolvethat preventedasolutiontoenormousbudgetdeficits,itwasalackofconsensusonpolicy. B.TheBudgetandtheScopeofGovernment Thebudgetisthescopeofgovernment.Thebudgetaryprocesscanlimitgovernment.Thebudgetcanbea forceforreininginthegovernmentaswellasforexpendingitsrole.Americaslargebudgetdeficitshave beenasmuchaconstraintongovernmentastheyhavebeenevidenceofaburgeoningpublicsector.