Budget, Deficit, DebtBy PresenterMedia.com

Some vocab…The Budget Process

• The Budget:• A plan for how the government spends your money• A plan for how the government pays for its activities• Something that impacts the national economy• Something that is impacted by the national economy

• Budget Resolution• The annual framework within which Congress makes its

decisions about spending and taxes.• Includes: targets for…

• Total spending,

• Total revenues,

• Allocations for discretionary and mandatory spending

• Discretionary Spending:• What the President and Congress must decide to spend

for the next fiscal year.• 12 appropriations bills (Acts of Congress that enable

Federal Agencies to spend money for specific purposes).• FBI, education, space exploration, highway construction

• Mandatory Spending• Authorized by permanent law• Social Security• Can be changed, but if no changes are made it

automatically continues at current levels

More Vocab…The Budget Process

• Balanced Budget• Total revenues = total outlays• Outlay – actual spending in a given year• Budget authority – what the law allows the Federal

government to spend for programs or activities. May be spread over several years.

• Budget deficit• Total revenues < total outlays• NOT the same thing as Debt

• National Debt• The sum of all cumulative budget deficits, minus all

cumulative budget surpluses.• Budget Surplus

• Total revenues > total outlays

More vocab…The Budget Process

• It issues “securities”• Savings bonds• Treasury bills, bonds, notes• Treasury inflation-protected securities (TIPS)

• Securities pay the investor interest• Interest = the cost of borrowing money

• Subject to a debt limit (more later)

How does the Treasury borrow money?The National Debt

• First Monday in February – President submits proposed Federal budget to Congress (for next fiscal year, which begins October 1)

• Congress reviews the President’s budget, then develops and passes the budget resolution.

• Congress then passes 12 appropriations bills, plus any “authorizing” bills to change mandatory spending/revenue.

• Fiscal year starts October 1.

The Budget Process

• Congress fails to pass a budget resolution!• Senate and House each pass different budget resolutions

• As of August – House has passed only 4 appropriations bills, Senate has passed none.

• Homework Pass:• Congress can pass a “Continuing Resolution” – allowing

Federal spending to continue, temporarily, until a budget is passed.

• August/September 2013 – Congress fails to pass a Continuing Resolution.

• October 1…….Government Shutdown

The Budget Process 2013

• Treasury – issues securities to borrow money to cover annual budget deficits

• WWI/WWII – Congress creates a “debt limit” to allow Treasury freedom to issue debt to cover any expenses.

• Replaced old system requiring Congress to authorize all debt for specific purposes

• Made borrowing money easier. Limit made sure Treasury didn’t go nuts with the national credit card.

• Does NOT authorize spending, only borrowing to pay the bills for spending authorized by Congress.

• Routinely raised to cover authorized spending

As if government shutdown isn’t enoughDebt Ceiling

• Section 4: “…The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. ”

14th Amendment

• August 2, 2013: Debt Ceiling for 2013 nearly reached. Congress reaches temporary deal to increase debt ceiling…will run out on October 17, 2013.

Second Debt Ceiling Crisis This Year!

• Treasury doesn’t have enough cash on hand to pay the bills…

• Interest rates rise...

• Confidence is lost

What happens if US doesn’t raise debt ceiling?

• Government is funded through January 15

• President given unilateral authority to raise debt to cover spending – through February 7

• Furloughed workers will get back pay

• Individuals requesting healthcare subsidies under Obamacare must have their income confirmed.

THE DEAL!!!