Public Budgeting

Which of the following statements about federal government finances is NOT correct?

 The corporate income tax is the second largest source of total revenue for the federal government.

Which of the following is a logical reason for a state to implement a lottery as a way to increase state revenue?

Lotteries are a way for the state to receive money from its citizens without levying a tax.

Local government expenditure is dominated by:

Elementary and secondary education

Which of the following represents the largest expense for state governments?

Public welfare programs

Which of the following is a unit of excise tax?

The 12 cents per gallon Indiana beer tax

Which of the following distinctions separates government user charges from taxes?

Taxes are collected by coercion; user charges are proceeds from voluntary exchange.

Which of the following is a special problem associated with line-item budget systems?

None of the above.

The budget process which emphasizes the achievement of goals and competition between alternatives is:

Program budgeting

What are the non-appropriability characteristics of public goods?

Non-rivalry or non-exhaustibility (joint use) - The cost of providing service to additional users equals zero.

Non-excludability - Free-rider problem

What are the characteristics of Private goods?

Exhaustible and Excludable

What are the characteristics of Public goods?

Inexhaustible and Unexcludable

What are the characteristics of Toll goods/services?

Inexhaustible and Excludable

What are the characteristics of Common-Pool goods?

Exhaustible and Unexcludable

What is a budget?

A financial plan that focuses on the financial implications of carrying out a particular response to anticipated operating conditions in a future period

A good budget is a fiscal and managerial plan to…

…address expected operating conditions within the jurisdiction

What are the three general functions of the budget process?

Fiscal discipline and control (Control)

Response to strategic priorities (Planning)

Efficient implementation of the budget (Management)

The budget narrative translates the agency’s mission into…

…management objectives

The detail schedules of the budget translate management objectives into…

…budget requests.

Management objectives are linked to…

agency performance

The budget justification narrative must address:

• the current situation

• additional needs

• expected results

The budget justification narrative checklist includes:

• completeness and explicitness

• consistency and good organization

• use of quantitative data

Costs that follow function/task are descriptive of what kind of budget?

Performance budget

Costs that follow programs are descriptive of what kind of budget?

Program budget

Costs that follow object class are descriptive of what kind of budget?

Line-item budgets

Budget examiners are looking to see if the policy rationale of the agency’s proposal links to…

…the executive policy.

Supplemental appropriations control budget requests due to…

…emergencies.

Federal budget resolutions do two things:

1. Establish aggregate levels for total spending

2. Set caps on discretionary spending

No one can spend any funds before…

…Congress passes and the President signs an appropriation.

The Budget and Accounting Act of 1921

Established a control orientation and a strong executive; passed under Warren G Harding; prevented direct agency submissions of appropriations requests to congress

The Budget and Accounting Act of 1921 established which two agencies?

OMB - the executive budget office, GAO - Congress’ accounting office

The Balanced Budget and Emergency Deficit Control Act of 1985

Established direct control; signed under Reagan

Budget and Enforcement Act of 1990

Gave executive even more control; signed under 41; mandatory spending payments determined by eligibility rules and entitlement authority

Statutory Pay-As-You-Go Act of 2010; Budget Control Act of 2011

Signed under Obama; created current debt ceiling rules

OMB instructs agencies to submit bugdet requests when?

18 months before the start of the FY, around April of previous FY

What are the four different committee paths in the congressional fiscal process?

• Authorizations

• Appropriations (12 sub-committees)

• Budget

• Financing

What act was passed to ensure congressionally approved spending was actually carried out by the executive?

Congressional Budget and Impoundment Control Act of 1974

At what phase of the budget cycle do impoundments happen?

The execution phase

What are the 5 types of budget authority?

• Appropriations

• Contract

• Borrowing

• Loan and loan guarantee

• Entitlement

What kind of appropriation was the American Recovery and Reinvestment Act of 2009?

Supplemental appropriation

Special districts have increased, decreased, or stayed steady since 1962?

They’ve increased/doubled since 1962.

Since the late 1970s, states are borrowing less money, more money, or about the same amount of money?

More money

Does the federal government collect a general sales tax?

No

What is the primary revenue source for the federal government?

Income taxes

A tax is neither a price for service provided nor a…

…voluntary contribution. Taxes are compulsory.

A quasi-market arrangement for taxes is best when…

…public services are funded by user charges.

The horizontal equity dimension is between…

…people who are equals. People who have equal capacity to pay taxes are treated equally.

If two taxpayers equal in all relevant aspects pay significantly different tax amounts,…

….the tax system lacks horizontal equity.

The vertical equity dimension is between…

…people who are unequal.

Vertical equity relates income to…

…effective tax rates.

Effective tax rates =

tax paid/income

Income is defined by…

…transactions that produce income/revenue

Income is NOT defined by…

…tax satutes.

Pre-Trump Taxable Income was AGI minus…

…personal deductions and personal exemptions.

Post-Trump Taxable Income is defined as AGI minus…

…personal deductions.  Personal exemptions went away.

The TCJA did what to the Standard Deduction?

Dramatically increased them.

Marginal Tax Rates under Bush…

…went down. The top bracket was 35%.

Marginal Tax Rates under Obama…

…stayed the same except they added a new top tax bracket at 39.6%.

Marginal Tax Rates under Trump…

…went down. The top tax bracket dropped to 37% and the income thresholds went up.

Tax deductions…

…reduces your taxable income.

Tax credits…

…reduces the amount of tax you owe the IRS.

A tax credit applies directly to your…

…tax bill after your federal income tax has been calculated.

A tax credit reduces the tax liability by…

…the full amount of the credit.

A tax deduction reduces the tax liability by…

…a percentage of the deduction.

Because tax credits reduce taxes directly, they produce…

…greater revenue loss than do exemptions or deductions.

A person within the 28% tax bracket saves $XX for every $100 deduction.

$28

Payroll taxes have a ____ base and exclude…

…income more likely to be received by high-income individuals (dividends).

In payroll taxes, people with similar incomes would pay…

…different amounts based on the kind of income (dividend income is excluded).

For social security and medicare payroll taxes, the employer and the employee…

…each pay the same amount as a percentage of the income.

In payroll taxes, self-employed individuals pay…

…double because they pay both the employee’s and employer’s share.

Social security payroll taxes have a…

…income cap. Medicare taxes do not.

What sales tax is levied by the federal government?

Excise taxes.

Sales tax is levied in all but…

…5 states: Alaska, Delaware, Montana, New Hampshire, and Oregon.

Sales taxes are taxes on…

…goods and services.

Professional services (medical, legal, financial, etc.) are subject to sales tax…

…in a wide variation across states.  Texas does not on most.

Sumptuary excises are also called…

sin taxes.  They are taxes on alcohol, cigarettes, gambling, etc.

Pigouvian taxes are taxes on entities creating…

…negative externalities.

Sumptuary excises are regressive because…

…they place a heavy burden on low-income taxpayers and because it applies to units consumed.

Retail sales and excise taxes are progressive or regressive taxes?

Regressive taxes

Exempting groceries from sales taxes reduces regressivity because…

…the percentage spent on food increases as household income decreases.

Effective tax rate for sales taxes =

Consumption Expenditure X Tax Rate / Household Income

VAT is an acronym for…

Value-Added Tax.

VAT is a tax on the difference between what it costs a producer to pay for raw materials and labor…

…and what the producer charges for finished goods.

VAT is closer to a…

…consumption tax than the Retail Sales Tax.

The control purpose of a budget is best represented by…

…line-item budgeting.

The managment purpose of a budget is best represented by…

…performance budgeting.

The planning purpose of a budget is best represented by…

…program budgeting.

The change from line-item budgeting to performance budgeting in the federal government was brought on by…

…the expansion of government during the New Deal and WWII.

Program budgeting was instituted in the federal government by…

…Robert McNamara in the Department of Defense.

Program Budgeting is also known as…

…Planning-Programming Budgeting System or PPBS.

In terms of budgeting, an input is described as…

…resources used to carry out a program over a given period.

In terms of budgeting, an output (workload) is described as…

…amount of work accomplished, or service provided over a given period.

In terms of budgeting, an outcome (effectiveness) is described as…

…the results of program activity compared to its intended purpose. Also called: effects, impacts, quality of service.

In terms of budgeting, outcomes are unit specific and…

…more difficult to develop than outputs.

In terms of budgeting, efficiency (managerial) is described as…

…cost per unit of output; ratio of inputs to outputs (I/O).

In terms of budgeting, productivity is described as…

…relates a single input factor (labor) to output (O/I); also, the ratio of outcomes to inputs.

Line-Item budgeting is concerned with…

…accounting and the proper expenditure of funds.

In Line-Item Budgeting, spending authority follows…

…organizational charts.

Line-Item budgeting is not concerned with…

…what departments intend to achieve.

Line-Item budgeting has no recognition of…

…opportunity costs.

Line-item budgeting has no distinction between…

…sunk costs and incremental costs.