Unit 3: Fiscal Policy

Government’s fiscal year

october 1st- september 30th

mandatory spending

doesn’t need annual approval

discretionary spending

needs annual approval

Appropriations bill

a law that approves spending for a specific activity

what are steps of an appropriations bill?

begins at h.o.r, the senate works with them to pass all bills by the beginning of the fy. they must be approved by both houses and then move on to be signed or vetoed by the president

two main parts of the federal budget

revenues and expenditures

top two sources of federal revenue

social security and medicare

Social security

provides money for people who are retired or disabled

Medicare

pays a portion of healthcare costs for elderly people

additional 4 sources of federal revenue

excise tax, estate taxes, taxes on certain gifts, and misc. sources like entry fees

proportional taxes

take some % of income from everyone regardless of how much they earn

progressive taxes

income increases, taxes increase (ex. federal income tax)

regressive taxes

income increases, tax rate decreases (ex. gas tank)

single largest expenditure category in federal budget

social security

second highest expenditure category in federal budget

national defense

intergovernmental revenues

money that one level of government receives from another level; most important sources of state government revenues

next 3 largest sources of state revenue

sales tax, contributions, and income taxes

second largest source of revenue for local governments

property taxes

special assessment

a fee property owners must pay for local services

largest expenditure for the state

intergovernmental expenditure

3 types of entitlement programs state governments provide

health, nutritional, or income payments

why do states subsidize colleges and universities

don’t have higher tuitions or fees

4 services local governments must pay for

education, police and fire protection, water supply, and sewage and sanitation

federal government budget status

deficit

how does the federal government borrow money

selling bonds

Bond

contract to repay the money borrowed with interest at a specific time in the future

balanced budget

spending = revenue; federal government doesn’t have to borrow to pay expenses

why do state and local governments try to maintain an emergency fund balance?

to prevent the need to borrow money

why does the government sometimes spend large sums even when the economy is strong?

to maintain government services people want

How do politics affect fiscal policy

lawmakers opposing increased spending or tax cuts based on personal beliefs

two automatic stabilizers in the US economy

unemployment benefits (payments for job loss from insurance) and income tax (when unemployed→lower tax brackets, putting ease on the impact of loss of income)

Demand

leans democratic

Supply

leans republican

Deficit spending

spending more than we take in in a year

Federal debt

total amount borrowed from investors to finance deficit spending by the government (over time)

public debt

money government owes itself

private debt

government borrows from the people (through bonds)

NC revenue comes from

sales and use tax and individual income tax

state tax revenue goes toward

k-12 ed., health and human sevices, higher ed., and justice and public safety