Ch. 13 The Budget - Fiscal Policy

Budget deficit

results when federal expenditures exceed federal revenues for a one year period.

Congressional Budget Office (CBO)

A non-partisan agency of Congress that analyzes presidential budget recommendations and estimates the cost of proposed legislation.

Deficit spending

the federal government’s practice of spending more money than it takes in as revenues.

Deregulation

elimination of federal regulations on private companies.

Discretionary Spending

Spending must receive annual Congressional authorization and makes up 1/3 of federal budget. Largest area is defense. Other examples: education, the environment, public parks, scientific research, housing, transportation, etc.

Entitlements

federal benefit payments to which recipients have a legal right if they meet certain criteria, e.g., Social Security.  Also known as uncontrollables.

Excise tax

Consumer tax on a specific kind of merchandise, such as tobacco. Also known as “sin taxes.”

Federal Reserve System

The system created by Congress in 1913 to establish banking practices and regulate currency in circulation and the amount of credit available. It consists of 12 regional banks supervised by the Board of Governors. Often called simply the Fed. Chairman is appointed by the President and must be confirmed by the Senate. Serves a fixed term and can only be removed for cause.Responsible for enacting monetary policy.

Fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending. (Congress is primarily responsible for this).

Mandatory Spending

Spending authorized by law and does not require annual Congressional approval. Makes up 2/3 of federal budget. Examples: Social Security, Medicare, Medicaid, food stamps, interest on the national debt, unemployment insurance.

Means testing

requiring that those who receive federal benefits show a need for them usually based on income levels. For example, Medicaid and food stamps.

Monetary policy

Federal Reserve Board’s regulation of the supply of money in circulation and interest rates.

National debt

total debt owed by the federal government due to past borrowing.  Also known as the public debt.

Office of Management and Budget (OMB)

Presidential staff agency that coordinates budget requests and management improvements for government agencies. Prepares the President’s budget.

Regulation

Efforts by government to alter the free operation of the market to achieve social goals such as protecting workers and the environment.

Progressive tax

A tax graduated so that people with higher incomes pay a larger fraction of their income than people with lower incomes.

Sequestration

automatic spending cuts (originally created by the Gramm-Rudman-Hollings Act of 1985) applied “across the board” if Congressional spending exceeded budget appropriations. Most mandatory spending programs are exempted.