Federal Economic Policy

Who “governs” our economy?

Why does the federal government ever have a

budget deficit?

Can we do anything about the federal budget?

Well….How does the Federal Budget work?

 Timeline of Federal Budget Process
Early fall
Agencies send budget requests to the Office of
Management and Budget (OMB).
November
OMB reviews, modifies, and sends back to agencies.
December
Agencies make final appeals.
January
OMB resolves appeals & assembles the final
budget request.
 February to March
President submits budget request to Congress.
(testimony)
http://www.youtube.com/watch?v=wWjPQXxu2P0&safety_mode=true&persist_safety_mode=1&safe=active
Appropriations subcommittees (House and Senate) hold hearings
with agency heads (more testimony).
May
House and Senate adopt budget resolutions prepared by
Budget Committees/Appropriations Committees (House and Senate)
make 302(b) allocations*.
June
House Appropriations Subcommittees prepare appropriations bills.
Senate Appropriations Subcommittees revise the House-passed bills.
 July-August
House passes spending bills; Senate passes revised bills.

September
House-Senate conference committees resolve differences
and agree on final versions of spending bills. President
signs or vetoes final bills.
 October 1
Beginning of fiscal year.

*After the Budget Resolution sets

the overall level of discretionary spending, each
Appropriations committee divides the total among its
thirteen subcommittees; "302(b)" refers to the section
of the law governing this procedure.

Whew…What does it mean?

http://www.youtube.com/watch?v=mi7b1TXQIuo
The National Debt Clock
http://www.usdebtclock.org/
Recent history of the GDP
 GDP Worldwide Comparison
• Country GDP (PURCHASING POWER PARITY) Date
1European Union$ 15,390,000,000,000 2011
• 2United States$ 15,040,000,000,000 2011 est.
• 3China$ 11,290,000,000,000 2011 est.
• 4India$ 4,463,000,000,000 2011 est.
• 5Japan$ 4,389,000,000,000 2011 est.
• 6Germany$ 3,085,000,000,000 2011 est.
• 7Russia$ 2,380,000,000,000 2011 est.
• 8Brazil$ 2,284,000,000,000 2011 est.
• 9United Kingdom$ 2,250,000,000,000 2011 est.
• 10France$ 2,214,000,000,000 2011 est.
 What do President’s know?
• Look at the table on p. 488 in the text.
• What does this tell you about Presidential
predictions related to the budget deficit/surplus?
• Is there any correlation between these
projections and Presidential election years?
• So now…….what impact do you think the
President has on the nation’s economy?
• What role does Congress play in the equation?
What can we do?
 About those Taxes
• Federal Income Tax Brackets for 2012
• Tax BracketMarried Filing Jointly Single

• 10% $0 – $17,400 $0 – $8,700

• 15% $17,400 – $70,700 $8,700 – $35,350
• 25% $70,700 – $142,700 $35,350 – $85,650
• 28% $142,700 – $217,450 $85,650 – $178,650
• 33% $217,450 – $388,350 $178,650 – $388,350
• 35% Over $388,350 Over $388,350
 How do we compare?
Country Corporate Individual VAT
Canada 16.5% 15-29% 5%
China 25 3-45 17
Germany 30-33 14-45 19
India 30-40 10-30 12.5
Israel 25 10-48 16
Sweden 26.3 0-57 25
UK 26 0-50 20
USA 15-35 15-35 --
 Are U.S. Corporations paying
their fair share?
• http://www.youtube.com/watch?v=MxgezC4KhXQ (tax havens)
Economic Theories
 Monetarism
• Milton Friedman (1912-2006) , Univ of Chicago
Nobel Prize in Economics 1976

How to keep inflation in check?

1. Let free market operate
2. Increase money supply (M1) as GDP increases
3. Balance budget
 Keynesianism
• John Maynard Keynes (1883-1946)

• Economic health depends on saving/spending

• Create equilibrium point for demand
a. low demand…pump priming (New Deal)
b. high demand…increase taxes or cut spending

No need for balanced budget, Ec. Performance is all that

matters.
 Planning
• John Kenneth Galbraith (1908-2006)
Deg. UC Berkley/ Prof. Harvard/
Princeton

• Gov’t planning of the economy

• When inflation is high…gov’t should regulate
prices/wages (in large industries)
 Supply-Side Tax Cuts
• Arthur Laffer (1940-Present)
• Stanford/Yale

• Less Gov’t
a. Cut taxes
b. Save and invest
c. Fewer gov’t regulations

Will result in “trickle down” effect of prosperity

 Reaganomics
• Ronald Reagan (1911-2004)
CA Gov. 1967-75/U.S. Pres. 1981-1989
Eureka College
• Had to balance: supply side tax cuts (later raised)
and budget reductions with stimulating
economic growth and increasing defense
expenditures http://www.youtube.com/watch?v=qwOEXA9tnbY
• Large budget deficits, but reduced
unemployment and stimulated economy (FDR?)
 Economic Policy Makers
• OMB-Pres. Acct. firm. Each of last three
presidents have had 4 directors.
• CBO-Cong. Acct. firm. Staff of >200 and is
independent and non-partisan (really?)
• CEA-Chairman and two members. Pres. Nom
and Sen. Confirm./Exec. Ofc. Of Pres.
• Fed Chairman- Ben Bernanke (7 members, 14
yr. terms, pres nom and Senate confirm) See.
p. 494.
 The Role of Congress
• Approves all taxes
• Approves most expenditures
• Can alter policies of the Fed through legislation
• Approves or rejects Presidential budget
• Budget can be influenced by IG’s
• Raise national debt ceiling
• Approves Treasury Secretary & Fed. B of D
In the end? Congress sets fiscal policy
 Trendy Issues, The Flat Tax
• Herman Cain- 999
• http://www.youtube.com/watch?v=UNmU64dLQ9g
• Steve Forbes- 1996 and 2000 Pres. Candidate
http://www.youtube.com/watch?v=AVtVA48kYYg
What do you think?
Who Governs our Economy?
 Practical Applications
http://crfb.org/stabilizethedebt/

Copy down this link and play the budget game!