The Federal Budget and Social Security

Question 1

budget

Answer 1

a financial plan for the use of money, personnel, and property (2010: $3.6 trillion)

Question 2

balanced budget

Answer 2

when expenditures equal revenues in a fiscal year

Question 3

budget deficit

Answer 3

when expenditures exceed revenues in a fiscal year (debt exceeds $12 trillion)

Question 4

monetary policy

Answer 4

• controlled by Federal Reserve Board

- regulating money supply, controlling inflation, and adjusting interest rates

Question 5

fiscal policy

Answer 5

• controlled by the executive and legislative branches (president proposes federal budget and Congress approves it)
• raising and lowering taxes and govt spending programs

Question 6

Sixteenth Amendment (1913)

Answer 6

permitted Congress to levy tax

Question 7

progressive income tax

Answer 7

proportionate to income (tax rate increases with income)

Question 8

regressive income tax

Answer 8

levied at a flat rate without regard to the level of a taxpayer’s income or ability to pay (poor citizens pay higher percentage bc of low income)

Question 9

corporate taxes

Answer 9

• 15-35% of taxable income

- 12% of federal tax revenue

Question 10

social insurance taxes

Answer 10

• Social Security tax equal to 6.2% of first $106,800 earnings
• Medicare: 1.45% tax on total annual income
• regressive bc levied at a fixed rate
• 36% federal tax revenue

Question 11

social insurance taxes

Answer 11

• Social Security tax equal to 6.2% of first $106,800 earnings
• Medicare: 1.45% tax on total annual income
• regressive bc levied at a fixed rate
• 36% federal tax revenue

Question 12

excise taxes

Answer 12

• tax on the manufacture, sale, or consumption of a good or service
• 2.7% of federal tax revenue
• imposed on gas, tobacco, alcohol, airline tickets, etc.

Question 13

estate and gift taxes

Answer 13

• levy imposed on the assets of someone who dies
• levy on a gift from a living person to another
• 1.2% federal tax revenue

Question 14

custom duties

Answer 14

levied on good brought into the US from abroad (used to be most important but now only 1.1%)

Question 15

uncontrollable spending

Answer 15

• no way to directly control spending

- 60% of govt spending

Question 16

federal entitlement

Answer 16

• a program that guarantees a specific level of benefits to persons who meet requirements set by law (Social Security, Medicare, Medicaid, food stamps)
• largest portion of uncontrollable spending

Question 17

borrowing

Answer 17

paying interest on debt (expenditure), amount of money spent servicing debt depends of interest rates (indirectly proportional)

Question 18

discretionary spending

Answer 18

• not required by law
• defense, education, agriculture, highways, etc.
• defense = 20% budget

Question 19

Who approves the budget specifically, and what does the budget reflect?

Answer 19

OMB and priorities and goals of president’s policy agenda

Question 20

Congressional Budget and Impoundment Control Act of 1974

Answer 20

• designed to reform the congressional budgetary process and regain power previously lost to the executive branch
• created fixed budget calendar
• established budget committee in each house of Congress
• created Congressional Budget Office to advise Congress by forecasting revenues and evaluating the probable consequences of budget decisions

Question 21

how the president’s budget is approved

Answer 21

1. sent to both House and Senate Appropriations Committees, which hold hearings on key items
2. all tax proposals are referred to the House Ways and Means Committee and to the Senate Finance Committee
3. congress required to pass thirteen major appropriations bills by the beginning of the federal govt.’s fiscal year on 10/1

Question 22

budget barriers to achieving a balanced budget

Answer 22

1. entitlement programs
2. incrementalism - federal agencies’ budgets increase by small amount every year (built into budgetary process, so hard to make cuts)
3. fragmented federal system enables interest groups to successfully resist tax increases and defend favored programs

Question 23

consequences of budget deficits

Answer 23

1. huge interest payments (paid $249 billion just to service the debt)
2. place heavy burden on future generations
3. difficult to fully fund key policy goals

Question 24

background on Social Security

Answer 24

• FDR signed Social Security Act
• 1965: Congress added Medicare to program to assist elderly
• most expensive programs in federal budget

Question 25

threats to Social Security

Answer 25

1. 3.3 workers for every 1 beneficiary whereas there used to be 25:1
2. Baby Boom generation beginning to retire (workers and eligible people directly proportional)
3. improved health care, life expectancy increasing