Chapter 16- The Federal Budget (1). Examine the Federal Budget, deficit spending, and the national debt. (1). Examine the Federal Budget, deficit spending,

Chapter 16- The Federal BudgetChapter 16- The Federal Budget

• (1). Examine the (1). Examine the Federal BudgetFederal Budget, , deficitdeficit spending, and the spending, and the national debtnational debt..• (2). Discuss the historic impact of (2). Discuss the historic impact of deficits & budget surplusdeficits & budget surplus on the on the national debtnational debt..• (3). Outline how the government obtains revenue from an historical perspective.(3). Outline how the government obtains revenue from an historical perspective.• (4). Contrast various Federal taxes levied, including: (4). Contrast various Federal taxes levied, including: progressive progressive & & regressive taxes.regressive taxes.• (5). Examine how government spends its revenue and the changing nature of spending.(5). Examine how government spends its revenue and the changing nature of spending.• (6). Discuss the growth of (6). Discuss the growth of entitlement programsentitlement programs and various attempts to limit them. and various attempts to limit them.• (7). Explain why (7). Explain why ""pork barrelpork barrel"" spending persists regardless of the vocal criticism. spending persists regardless of the vocal criticism.• (8). Explain why (8). Explain why Budget DeficitsBudget Deficits persist, and discuss the role of persist, and discuss the role of Congress, the PresidentCongress, the President, ,

and the and the PublicPublic in contributing to this problem. in contributing to this problem.• (9). Examine how our (9). Examine how our Budgetary ProcessBudgetary Process has evolved and discuss has evolved and discuss key reformkey reform efforts. efforts.• (10). Explain how the Federal (10). Explain how the Federal Budget CycleBudget Cycle works and the significance of works and the significance of appropriationsappropriations. . • (11). Discuss the brief period of (11). Discuss the brief period of budget surplusesbudget surpluses and reason for the return of and reason for the return of deficitsdeficits..• (12). Evaluate the Budget Process and explain the dominant role of politics affecting it.(12). Evaluate the Budget Process and explain the dominant role of politics affecting it.

Policymaking system => the Big PicturePolicymaking system => the Big Picture • Politicians, campaign promises, and political reality:Politicians, campaign promises, and political reality:

– Talk is cheap=> Money appropriated sets Gov. policy prioritiesTalk is cheap=> Money appropriated sets Gov. policy priorities

– i.e. i.e. Government prioritiesGovernment priorities determined by what is determined by what is actually actually fundedfunded

Policy: Expenditures, Taxes, Laws, Regs, non-decisions

And the method used to set fiscal policy priorities?

Budget Deficits

The amount by which government spendingexceeds governmentrevenues in a single

year.

National Debt

The total amount of money the federal

government owes to pay for accumulated

deficits.

The The Federal BudgetFederal Budget

Two Key Terms:

Contrast Deficit versus Debt (how related?)

Budgets, Deficit Spending, & National DebtBudgets, Deficit Spending, & National Debt

• The Growing The Growing Federal BudgetFederal Budget (Outlays)(Outlays)::– George Washington’s Budget=> $3-5M per yearGeorge Washington’s Budget=> $3-5M per year

– Post Civil War costs=> $1B+ then down againPost Civil War costs=> $1B+ then down again

– WWI=> back up to $1BWWI=> back up to $1B

– 1962=> $100B1962=> $100B

– 1997=> $1 Trillion1997=> $1 Trillion

– 2001=> $1.8 Trillion2001=> $1.8 Trillion

– 2003=> $2.212 Trillion2003=> $2.212 Trillion

– 2004=> $2.272 Trillion2004=> $2.272 Trillion (20.2% of GDP/GDP=11.266 Trillion) (20.2% of GDP/GDP=11.266 Trillion)

– 2005=>2005=> $2.338 Trillion$2.338 Trillion (19.8% GDP – OMB estimate 4/2005) (19.8% GDP – OMB estimate 4/2005)

– 2006-2008=> 19.8% of GDP2006-2008=> 19.8% of GDP (OMB estimate 4/2005) (OMB estimate 4/2005)

The Rise and Fall of The Rise and Fall of Deficit SpendingDeficit Spending

• 19th Century=> 19th Century=> Balanced BudgetBalanced Budget (w/few exceptions)(w/few exceptions)

• Budget DeficitsBudget Deficits => Key contributing events:=> Key contributing events:– 1930s => FDR’s New Deal programs1930s => FDR’s New Deal programs

– 1940s => WWII1940s => WWII

– 1960s => LBJ’s War on Poverty & Vietnam War1960s => LBJ’s War on Poverty & Vietnam War

– 1980s => Reagan Tax cuts & rise of Defense spending1980s => Reagan Tax cuts & rise of Defense spending

– 1990s => Clinton Tax increase & Economic growth1990s => Clinton Tax increase & Economic growth• (Brief period of budget surplus- late 1990s)(Brief period of budget surplus- late 1990s)

– 2003 => Bush Tax cut, Econ downturn, 9/11, Iraq War, 2003 => Bush Tax cut, Econ downturn, 9/11, Iraq War, Katrina & other natural disasters, oil shock, etc Katrina & other natural disasters, oil shock, etc

– (Return to budget deficits for indefinite future)(Return to budget deficits for indefinite future)

Balanced Budget

A federal budget in which spending and revenues are equal.

Budget Surplus

A federal budget inwhich revenues exceed spending.

The Ideal BudgetThe Ideal Budget

OR

Budget DeficitsBudget Deficits & & Surplus Surplus Over TimeOver Time

2004

projected

2005

$427B4

Growth in Growth in National DebtNational Debt

DEBT

OMB Budget Totals- Summary (04/05)OMB Budget Totals- Summary (04/05)

Consequences of a Large Consequences of a Large National DebtNational Debt

• Is debt always bad? (investment vs. consumption)Is debt always bad? (investment vs. consumption)– Tuition for CollegeTuition for College versus versus Spring Break VacationSpring Break Vacation

• When Government barrows $$$ => from whom?When Government barrows $$$ => from whom?– Interest payments => US & Foreign investors, Fed. PensionsInterest payments => US & Foreign investors, Fed. Pensions

• The trade offs:The trade offs:– Lost opportunities Lost opportunities (discretionary spending)(discretionary spending)

– Impact on interest rates? Impact on interest rates?

– Impact on private sector growth? ($$ too expensive)Impact on private sector growth? ($$ too expensive)

– Impact on jobs? => consumer spending?Impact on jobs? => consumer spending?

– Impact on economic growth=> Impact on economic growth=>

– Impact on the Impact on the National Economy (National Economy (GDPGDP)?)?

Government RevenueGovernment Revenue

• Where Does Government Revenue Come From?Where Does Government Revenue Come From?

• Government Revenue in Historical Perspective:Government Revenue in Historical Perspective:– Changes over time => Figure 16-3 & slideChanges over time => Figure 16-3 & slide

– Social Security Act of 1935Social Security Act of 1935 ( (FICAFICA) ) • FICA contributions increased over time=>FICA contributions increased over time=>

– (greater deduction from your paychecks)(greater deduction from your paychecks)

• ResultResult: FICA contributed more & more to Federal revenues: FICA contributed more & more to Federal revenues

• Examine change in Government revenue sourcesExamine change in Government revenue sources

Government Revenue Sources- 1900Government Revenue Sources- 1900

55%

45% Custom DutiesExcise Taxes


44%

13%

16%

4%

23%

Income TaxesExcise TaxesPayroll TaxesEstate, CustomsCorporate


50%

3%

32%

5%10%

Income TaxesExcise TaxesPayroll TaxesEstate, CustomsCorporate Taxes


What tax source has increased the most in a relatively short time?

Progressive Tax

A tax system in which those with high incomes pay a higher percentage of their income in taxes than those with low incomes.

IncomeIncome versus versus Payroll TaxesPayroll Taxes

Regressive Tax

A tax system in which those with high incomes pay a lower percentage of their income in taxes than those with low incomes.

Contrast the different types of taxes: Progressive tax (what is it & why is it progressive?) Regressive tax (what is it & make makes it regressive?)

How does US Tax burden compare with other Industrial Nations?

Comparing Tax BurdensComparing Tax Burdens

Where Does Government Spending Go?Where Does Government Spending Go?

• The Changing Nature of Government Spending:The Changing Nature of Government Spending:– Changes over timeChanges over time

– Shift from Shift from Cold War DefenseCold War Defense spending to spending to Human ResourcesHuman Resources

Federal Spending by Type

Changing Federal Spending 1940-2005Changing Federal Spending 1940-2005

What has triggered this increase in Federal spending on individuals?

The Growth of The Growth of Entitlement Entitlement Programs Programs • Entitlement programsEntitlement programs – – who qualifies?who qualifies?

– Social SecuritySocial Security => => • Pay as you go system => Federal Pyramid scheme? (Pay as you go system => Federal Pyramid scheme? (trend & impact?)trend & impact?)

• 1950: (15 to 1)=> 1990: (5 to 1)=> Post Baby Boom retirement: (3:1)1950: (15 to 1)=> 1990: (5 to 1)=> Post Baby Boom retirement: (3:1)

• COLACOLA & & the the CPI CPI (Box 16-1 & slide)=> impact?(Box 16-1 & slide)=> impact?

• Proposed adjustments? (increase Proposed adjustments? (increase taxes, cut benefits, up eligibility?taxes, cut benefits, up eligibility?) )

• Making hard choices=> Making hard choices=> The 3rd Rail & who votes?The 3rd Rail & who votes?

• Other Entitlement ProgramsOther Entitlement Programs– MedicareMedicare (40M elders)=> $221Billion & growing (40M elders)=> $221Billion & growing

– Medicaid Medicaid (35M poor) & Food Stamps (17M poor)(35M poor) & Food Stamps (17M poor)

– Federal retirement & VA disability benefitsFederal retirement & VA disability benefits

• Entitlement Entitlement programsprograms are “ are “non-discretionarynon-discretionary” (?)*” (?)*

Non-discretionary Spending

Federal spending on programs such as Social Security that cannot be controlled through the regular budget process. (For 2005: $1.481 Trillion)

Discretionary Spending

Federal spending on programs that can be controlled through the regular budget process. (For 2005: $857 Billion of a $2.338 Trillion Budget)

Congressional SpendingCongressional SpendingTwo major categories of Federal Spending:

Contrast the two spending categories within the Federal Budget

Entitlement ExpendituresEntitlement ExpendituresDiscretionaryDiscretionary vs. vs. Non-discretionaryNon-discretionary

7%

_______________________

*How has Discretionary spending decreased over time?

$857 Billion*

$1.481 Trillion

Decreasing Decreasing Discretionary SpendingDiscretionary Spending

How can we increase Discretionary spending?

Limiting Limiting Entitlement ProgramsEntitlement Programs • Areas requiring special attention:Areas requiring special attention:

– Long term budget problems (the Baby Boomers)Long term budget problems (the Baby Boomers)• Social SecuritySocial Security concerns & escalating concerns & escalating Health Care costsHealth Care costs

– Difficulty restraining growth of entitlement programsDifficulty restraining growth of entitlement programs– Need for more revenue (Taxes vs. Economic growth)Need for more revenue (Taxes vs. Economic growth)

• Cutting costsCutting costs: Political will vs. political costs: Political will vs. political costs• Controlling Controlling Pork barrelPork barrel politics politics

– Easier said than done=> conflicting objectives:Easier said than done=> conflicting objectives:– Incumbent objectiveIncumbent objective: improve reelection chances:: improve reelection chances:– One man’s pork is another’s vital program One man’s pork is another’s vital program

• Vehicle for “pork” => Vehicle for “pork” => bill ridersbill riders– (Senator Stevens & Alaska’s “Bridge to Nowhere”)(Senator Stevens & Alaska’s “Bridge to Nowhere”)**

Pork BarrelSpending

Legislation that appropriates Federal

money for local projects of questionable value that

may ingratiate a legislator with his or her constituents.

Corporate Welfare

Government subsidies or tax breaks of

questionable value to private corporations.

Problems in the Budget ProcessProblems in the Budget Process

Who is Responsible for Who is Responsible for Budget DeficitsBudget Deficits??

• Congress and the PresidentCongress and the President– Role in perpetuating budget deficits=> Role in perpetuating budget deficits=>

– Decisions on Decisions on programs, spending levels, & taxesprograms, spending levels, & taxes• Congressional appropriations & Presidential vetoCongressional appropriations & Presidential veto

• Pork BarrelPork Barrel politics & politics & Budget riders*Budget riders*

• **Usually attached to last minute Usually attached to last minute OmnibusOmnibus “must pass”“must pass” BillsBills

• The American PublicThe American Public– Congress responds to the wishes of the votersCongress responds to the wishes of the voters

– Balancing the budget vs. preserving key programsBalancing the budget vs. preserving key programs

• Top tax breaks favored by public (Top tax breaks favored by public (Figure 16-8)*Figure 16-8)*

Top Tax Breaks for 2005Top Tax Breaks for 2005

$400+ Billion in lost annual revenue

The The Budgetary ProcessBudgetary Process - - Historic overviewHistoric overview • Budgetary Process Budgetary Process from George from George Washington Washington toto Nixon: Nixon:

– Key Change: Key Change: Budget & Accounting Act of 1921Budget & Accounting Act of 1921 => => • Power of President’s control over Executive Branch enhancedPower of President’s control over Executive Branch enhanced• The President submits consolidated Budget to Congress from then on…The President submits consolidated Budget to Congress from then on…

– Office of Management & Budget (OMB)Office of Management & Budget (OMB) – Nixon reforms in 1970 – Nixon reforms in 1970

• Little change in Budget process until 1974:Little change in Budget process until 1974: – (The President proposes and Congress disposes):(The President proposes and Congress disposes):

The President submits a budget

to Congress

Congress must then approve

the budget

Lets examine in more detail

Budgetary Reform in the 1970sBudgetary Reform in the 1970s

• Nixon’s impoundments & growing deficitsNixon’s impoundments & growing deficits– Congressional Budget & Impoundment Act of 1974Congressional Budget & Impoundment Act of 1974

– Congressional Budget Office (CBO) Congressional Budget Office (CBO) vs.vs. OMBOMB

• Divided governmentDivided government – Conflicting budget priorities (President vs. Congress)Conflicting budget priorities (President vs. Congress)

– Result: Result: Continuing resolutionsContinuing resolutions

• Bottom LineBottom Line::– Changing the rules fails to overcome basic disagreementChanging the rules fails to overcome basic disagreement

• The The Budget CycleBudget Cycle (Figure 16-9 & slide)* (Figure 16-9 & slide)*

The Budget CycleThe Budget Cycle

Wrong!

The 2 Year Budget Process (Theory)The 2 Year Budget Process (Theory)

Role of Continuing Resolutions (Reality)

FY 2006 Budget FY 2007 BudgetFY 2005 Budget

Budgetary Reform in the 1980sBudgetary Reform in the 1980s

• Gramm-Rudman Reform Gramm-Rudman Reform attempts at fiscal disciplineattempts at fiscal discipline– Goal: Reduce deficits (result?)Goal: Reduce deficits (result?)

– Disagreement of budget priorities trump reformsDisagreement of budget priorities trump reforms

• Key influence: Key influence: Divided Government Divided Government – Lack of consensus & political willLack of consensus & political will

– President President Reagan (GOP)=> Tax cuts & strong DefenseReagan (GOP)=> Tax cuts & strong Defense

– Congress (Democrats)=> preserve domestic programsCongress (Democrats)=> preserve domestic programs

• ResultResult: increased defense spending & tax cuts=>: increased defense spending & tax cuts=>– Not offset by cuts in domestic programs=> Not offset by cuts in domestic programs=>

– Historic level Historic level deficits deficits ensuedensued

DeficitsDeficits to to SurplusesSurpluses & Back Again & Back Again

• Serious attempt to reduce deficit spending Serious attempt to reduce deficit spending (Table 16-1)(Table 16-1)

• Budget Enforcement Act (BEA) of 1990Budget Enforcement Act (BEA) of 1990– Set limits on spending growth & imposed sanctionsSet limits on spending growth & imposed sanctions

– Three separate categories Three separate categories “walled off”“walled off” from changes from changes• Defense, domestic policy, & international affairsDefense, domestic policy, & international affairs

• Increases must be offset by program cuts within own “walls”Increases must be offset by program cuts within own “walls”

• (No robbing Defense to pay for domestic program increases)(No robbing Defense to pay for domestic program increases)

• Clinton Budget for 1993 Clinton Budget for 1993 – (some program cuts & higher taxes)(some program cuts & higher taxes)

– Deficits begin to gradually fallDeficits begin to gradually fall

Budget Deal of 1997Budget Deal of 1997

• Let’s make a deal: Let’s make a deal: (Clinton & the GOP Congress)(Clinton & the GOP Congress)– AimAim: : balance budget by 2002balance budget by 2002 & Contract w/America & Contract w/America

– Reality: Presidents have a vote too (veto)Reality: Presidents have a vote too (veto)

– Forced compromise=> major cuts in Federal programsForced compromise=> major cuts in Federal programs

– Surplus first appears in 1998Surplus first appears in 1998 (1st since 1969) (1st since 1969)

• Combined effects of all of above?Combined effects of all of above? (Table 16-1) (Table 16-1)• Is the author right about the cause of surpluses?Is the author right about the cause of surpluses?

SurplusesSurpluses Until the Bubble Burst Until the Bubble Burst• Deficit spending has returned – why?Deficit spending has returned – why?• Combination of several factors:Combination of several factors:

– 2000=> 2000=> Tech BubbleTech Bubble burst => $$$ recession burst => $$$ recession– Stock Market freefalls (Stock Market freefalls (NASDQ NASDQ down 60%)down 60%)– Corporations cut spending & Job losses growCorporations cut spending & Job losses grow– 9/11/2001 => another major shock to economy 9/11/2001 => another major shock to economy – (people sell more stocks, stop flying=> airlines fail)(people sell more stocks, stop flying=> airlines fail)

• Cost of Katrina & other natural disastorsCost of Katrina & other natural disastors• Recent Oil shockRecent Oil shock• Impact of War on Terrorism & War in Iraq?*Impact of War on Terrorism & War in Iraq?*

Impact of War on TerrorismImpact of War on Terrorism• War on TerrorWar on Terror (Afghanistan & elsewhere) => (Afghanistan & elsewhere) =>

– Significant increase in defense $pendingSignificant increase in defense $pending

• Bush Budget (initially: where to spend surplus)Bush Budget (initially: where to spend surplus)– Tax cutTax cut (now substantially reduced by Congress) (now substantially reduced by Congress)– Increased spending on Defense & Homeland DefenseIncreased spending on Defense & Homeland Defense

• War with (now in) Iraq=> cost estimatesWar with (now in) Iraq=> cost estimates– (In the Hundred(s) of Billions range)(In the Hundred(s) of Billions range)– Cost of peace Cost of peace to be determinedto be determined!!– Uncertainty of final outcome => credible exit strategyUncertainty of final outcome => credible exit strategy– Key factor: patience & political will of American peopleKey factor: patience & political will of American people

• Impact on Impact on Wall StreetWall Street & link to economic growth?? & link to economic growth??

More Budget Reforms? More Budget Reforms? (Non-Starters)(Non-Starters) • Line-Item VetoLine-Item Veto (OBE) => unconstitutional (OBE) => unconstitutional

– Court ruling:Court ruling: act violated act violated separation of powersseparation of powers

• Balanced Budget AmendmentBalanced Budget Amendment (unlikely to pass) (unlikely to pass)– Impractical & too hard to implement in near term Impractical & too hard to implement in near term – OMBOMB projects deficits into 2008 & beyond projects deficits into 2008 & beyond

• Flat taxFlat tax (pros & cons?) => also OBE – why?(pros & cons?) => also OBE – why?– Loss of momentum & Bush’s Budget tax cuts =>Loss of momentum & Bush’s Budget tax cuts =>– Never had President’s support Never had President’s support

• Recent 2005 Tax Reform ProposalsRecent 2005 Tax Reform Proposals – (Lack of Congressional & Presidential support)(Lack of Congressional & Presidential support)

• Any tax reform must by Any tax reform must by revenue neutralrevenue neutral

Is the Budget Process Irrational?Is the Budget Process Irrational?

• Role of past Budgets=> tinkering at the marginsRole of past Budgets=> tinkering at the margins– Incremental BudgetingIncremental Budgeting=> autopilot budgeting=> autopilot budgeting

– Zero based budgetingZero based budgeting=> too hard & disruptive=> too hard & disruptive

• Mechanical systems of reform as a substitute?Mechanical systems of reform as a substitute?– Budget cycle (“The POM)Budget cycle (“The POM) => No fiscal discipline=> No fiscal discipline

• Political RealitiesPolitical Realities (The dirty little secret) (The dirty little secret)::– Political prioritiesPolitical priorities determine budget determine budget fiscal prioritiesfiscal priorities

– Politicians respond to conflicting Public demandsPoliticians respond to conflicting Public demands

– Whatever is most likely to get them reelectedWhatever is most likely to get them reelected

Next AssignmentNext Assignment

• Review of Test II resultsReview of Test II results

• Chapter 17a: Chapter 17a: Domestic Policy Domestic Policy – Learning Objectives 1-5Learning Objectives 1-5

Chapter 16 Chapter 16 KEY TERMSKEY TERMS • Balanced budgetBalanced budget:: A budget in which spending and revenues are equal. A budget in which spending and revenues are equal.• Budget and Accounting Act of 1921Budget and Accounting Act of 1921: : An act of Congress that created the Bureau of the An act of Congress that created the Bureau of the

Budget and allowed the president to review and coordinate the spending proposals of Budget and allowed the president to review and coordinate the spending proposals of federal agencies and departments.federal agencies and departments.

• Budget deficitBudget deficit:: The amount by which government spending exceeds government The amount by which government spending exceeds government revenues in a single year.revenues in a single year.

• Budget surplusBudget surplus:: The amount by which government revenues exceed government The amount by which government revenues exceed government spending in a single year.spending in a single year.

• Congressional Budget and Impoundment Control Act of 1974Congressional Budget and Impoundment Control Act of 1974:: An act of Congress An act of Congress that created the new budget process and the Congressional Budget Office and curtailed that created the new budget process and the Congressional Budget Office and curtailed the president’s power to impound funds.the president’s power to impound funds.

• Congressional Budget Office (CBO):Congressional Budget Office (CBO): A nonpartisan congressional agency in charge of A nonpartisan congressional agency in charge of assisting Congress in reviewing and coordinating budget requests to Congress.assisting Congress in reviewing and coordinating budget requests to Congress.

• Continuing resolutionsContinuing resolutions:: Temporary laws Congress passes to keep the government Temporary laws Congress passes to keep the government running when Congress misses the deadline for passing the budget.running when Congress misses the deadline for passing the budget.

• Corporate welfareCorporate welfare:: Government subsidies or tax breaks of questionable value to private Government subsidies or tax breaks of questionable value to private corporations.corporations.

• Cost-of-living adjustment (COLA):Cost-of-living adjustment (COLA): An increase in Social Security or other benefits An increase in Social Security or other benefits designed to keep pace with inflation.designed to keep pace with inflation.

• Discretionary spendingDiscretionary spending:: Federal spending on programs that can be controlled through Federal spending on programs that can be controlled through the regular budget process.the regular budget process.

• Entitlement programsEntitlement programs:: Programs, created by legislation, that require the government to Programs, created by legislation, that require the government to pay a benefit directly to any individual who meets the eligibility requirements the law pay a benefit directly to any individual who meets the eligibility requirements the law establishes.establishes.

Chapter 16 Chapter 16 KEY TERMS KEY TERMS (2)(2)• Flat taxFlat tax:: Any income tax system in which taxable income is taxed at the same percentage Any income tax system in which taxable income is taxed at the same percentage

rate, regardless of the taxpayer’s income.rate, regardless of the taxpayer’s income.• Line-item vetoLine-item veto:: The ability of the executive to delete or veto some provisions of a bill to The ability of the executive to delete or veto some provisions of a bill to

become law.become law.• National debtNational debt:: The total amount of money the federal government owes to pay for The total amount of money the federal government owes to pay for

accumulated deficits.accumulated deficits.• Non-discretionary spendingNon-discretionary spending:: Federal spending on programs such as Social Security that Federal spending on programs such as Social Security that

cannot be controlled through the regular budget process.cannot be controlled through the regular budget process.• Office of Management and Budget (OMB):Office of Management and Budget (OMB): The agency in charge of assisting the The agency in charge of assisting the

president in reviewing and coordinating budget requests to Congress from federal agencies president in reviewing and coordinating budget requests to Congress from federal agencies and departments. Formerly the Bureau of the Budget.and departments. Formerly the Bureau of the Budget.

• Pork barrelPork barrel:: Legislation that appropriates government money for local projects of Legislation that appropriates government money for local projects of questionable value that may ingratiate a legislator with his or her constituents.questionable value that may ingratiate a legislator with his or her constituents.

• Progressive taxProgressive tax:: A tax system in which those with high incomes pay a higher percentage A tax system in which those with high incomes pay a higher percentage of their income in taxes than those with low incomes.of their income in taxes than those with low incomes.

• Regressive taxRegressive tax:: A tax system in which those with high incomes pay a lower percentage of A tax system in which those with high incomes pay a lower percentage of their income in taxes than those with low incomes.their income in taxes than those with low incomes.

• Revenue neutralRevenue neutral:: The quality of any tax reform plan that will neither increase nor The quality of any tax reform plan that will neither increase nor decrease government revenues.decrease government revenues.

• Social Security Act of 1935Social Security Act of 1935:: The act of Congress that created the Social Security tax The act of Congress that created the Social Security tax (Federal Insurance Contribution Act—FICA) and Social Security programs.(Federal Insurance Contribution Act—FICA) and Social Security programs.

Documents

Chapter 16- The Federal Budget (1). Examine the Federal Budget, deficit spending, and the national debt. (1). Examine the Federal Budget, deficit spending,