Budget Process, Fiscal Policy, and Taxation

Flashcards covering key vocabulary and concepts from a lecture on the budget process, fiscal policy, and taxation.

Appropriations Committees

Committees within Congress (House and Senate) responsible for determining how funding is allocated. Membership is influential due to control over budgetary decisions.

Federal Budget Process

Begins with the President's proposal to Congress, followed by review and modification by the House and Senate. Differences are resolved before final approval by both chambers and the President.

Deficit

A shortfall that occurs when spending exceeds tax revenue. The US has had deficits for most of the last 40-60 years.

Surplus

An excess that occurs when tax revenue exceeds spending, allowing for debt reduction.

Fiscal Policy

The use of taxation and government spending to influence the economy. Aims to promote economic growth, manage inflation, and maintain desired unemployment levels.

Macroeconomic Goals

Economic growth, inflation around 2%, and unemployment around 4-5%.

Demand-Side Policies

Fiscal policies focused on increasing aggregate demand through increased government spending or tax cuts for consumers.

Supply-Side Policies

Fiscal policies focused on increasing aggregate supply, often through tax cuts for businesses (producers).

Reaganomics

Supply-side economic policies popular during the Reagan administration in the 1980s, involving tax breaks for businesses to stimulate production and economic growth.

Mandatory Spending

Federal spending set by existing laws, primarily Social Security, Medicare, and Medicaid.

Discretionary Spending

Federal spending that is determined through the annual appropriations process, mainly military spending and other areas like education.

Deficit Spending

Occurs when a government's expenditures exceed its revenues, typically requiring borrowing to cover the shortfall.

National Debt

The accumulation of all past deficits. Represents the total amount of money owed by the government.

Debt to GDP Ratio

The ratio of a country's national debt to its gross domestic product (GDP), used to assess its ability to repay its debt.

Proportional Tax

A tax where the percentage paid remains the same regardless of income level (e.g., Michigan's state income tax).

Progressive Tax

A tax where the percentage paid increases as income increases (e.g., federal income tax).

Regressive Tax

A tax with a greater impact on lower-income individuals because it represents a larger portion of their budget (e.g., sales taxes).

Keynesian economics

The idea of government spending in hopes of digging our way out, using fiscal policies like spending, maybe even taxes to boost the economy and get it back on track.