In economics, a federal budget is the major plan for a federal government's estimated future revenues and spending for the coming fiscal year. [1] The federal budget is representation of the financial plan for the goals and activities of the government which in turn reflects the debates surrounding the various economical principles and ideas. It is the main means of the redistribution of the national income and gross domestic product to meet the needs necessary in order for economic growth. Primarily, the government spends a significant amount of their financial resources in the areas of healthcare, the old and young and social security programs.
The revenue for the federal budget each fiscal year is arranged and administered by the government and is then supplied in the form of taxation. These taxes can come in a wide variety of sources such as a tax on one's income, profits from a business and the country's imports (duties and tariffs). [2] Revenue can also be streamed from activities that the government strongly discourages often called a Sin tax and the government can then tax on commodities such as smoking and alcohol consumption. Federal governments don't necessarily exist in every country due to it largely depending on the size and population of the country. The United Kingdom currently doesn't require federal governments but in the United States for example this model is needed as there exists mass population throughout the country in addition to the diverse group of people with diverse needs but federal government suits due to the common culture and values set in place.
Federal governments splits up the federal budget into three main categories; mandatory spending, discretionary spending and interest on debt. Both mandatory and discretionary spending makes up 90% of the entire federal budget spend. [3]
Mandatory spending is government spending on different mandatory programs that are outside the annual supply bill process and usually occurs less than once in a year. Departments such as social security and medicare normally dominate the mandatory spend. Budget estimates the required costs to administer the following benefits. It cannot be changed without another Act Of Congress. The largest federal spend is in the area of social security which benefits the retired, disabled and their families. In the United States it makes up around 21% of the overall total spend and it is required by the legislation in the law so therefore it is mandatory.
Discretionary spending is government spending that is implemented through a supply bill or more commonly known as an appropriation bill. These spending levels are then set by the congress on a yearly basis and it funds the management of all the government agencies and activities. This type of spending forms a part of fiscal policy and is a contrast to the programs that are mandatory where people can be entitled to benefits if they are eligible.
Interest on debt is the cost incurred by an entity for borrowed funds. This is a non-operating expense shown on the income statement and it represents the interest payable on any borrowings – bonds, loans, convertible debt or lines of credit.
The largest federal budgets are in the United States and the development of their federal budgets is made up of a very significant and detailed nine-step plan that the United States Congress use to create the plan. The process starts a full year ahead before the fiscal year begins. The fiscal year in the United States starts on the 1st of October and runs through until September 30th year this means that the budget for 2018 began in the fall of 2016.
The federal budgets in the United States are like Germany and Australian federal governments as they normally run a deficit and this is down to the economies engaging in expansionary policy. in the United States, it is the president's role to submit the budget the proposal to the United States Congress. The president would then ask the federal agencies to submit their budgets requests directly to him. The president then submits the budget and requests to congress where it is used as a base guideline for its own budget resolution. This is then used to create appropriation or supply bills and these bills then allocate the available funds to the different fields of federal agencies.
In the fiscal year 2019, the United States federal budget will be 4.407 trillion in total spend. The government estimates that it will receive approximately 3.422 trillion in revenue in turn leaving a deficit of 985 billion for October 2018 to September 2019. Spending is in the three main categories: Mandatory (2.739 trillion), discretionary (1.305 trillion) and interest on the debt being (363 billion). [4]
In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s, when the previous laissez-faire approach to economic management became unworkable. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorised that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives. The combination of these policies enables these authorities to target inflation and to increase employment. In modern economies, inflation is conventionally considered "healthy" in the range of 2%–3%. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilise the economy over the course of the business cycle.
An appropriation bill, also known as supply bill or spending bill, is a proposed law that authorizes the expenditure of government funds. It is a bill that sets money aside for specific spending. In some democracies, approval of the legislature is necessary for the government to spend money.
The government budget balance, also referred to as the general government balance, public budget balance, or public fiscal balance, is the difference between government revenues and spending. For a government that uses accrual accounting the budget balance is calculated using only spending on current operations, with expenditure on new capital assets excluded. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A government budget presents the government's proposed revenues and spending for a financial year.
The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury securities that have been issued by the Treasury and other federal agencies. The terms "national deficit" and "national surplus" usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. In a deficit year the national debt increases as the government needs to borrow funds to finance the deficit, while in a surplus year the debt decreases as more money is received than spent, enabling the government to reduce the debt by buying back some Treasury securities. In general, government debt increases as a result of government spending and decreases from tax or other receipts, both of which fluctuate during the course of a fiscal year. There are two components of gross national debt:
The United States budget process is the framework used by Congress and the President of the United States to formulate and create the United States federal budget. The process was established by the Budget and Accounting Act of 1921, the Congressional Budget and Impoundment Control Act of 1974, and additional budget legislation.
A balanced budget amendment or debt brake is a constitutional rule requiring that a state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.
Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.
In American public finance, discretionary spending is government spending implemented through an appropriations bill. This spending is an optional part of fiscal policy, in contrast to social programs for which funding is mandatory and determined by the number of eligible recipients. Some examples of areas funded by discretionary spending are national defense, foreign aid, education and transportation.
PAYGO is the practice of financing expenditures with funds that are currently available rather than borrowed.
The United States budget comprises the spending and revenues of the U.S. federal government. The budget is the financial representation of the priorities of the government, reflecting historical debates and competing economic philosophies. The government primarily spends on healthcare, retirement, and defense programs. The non-partisan Congressional Budget Office provides extensive analysis of the budget and its economic effects. CBO estimated in February 2024 that Federal debt held by the public is projected to rise from 99 percent of GDP in 2024 to 116 percent in 2034 and would continue to grow if current laws generally remained unchanged. Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt. Those factors persist beyond 2034, pushing federal debt higher still, to 172 percent of GDP in 2054.
The United States federal budget is divided into three categories: mandatory spending, discretionary spending, and interest on debt. Also known as entitlement spending, in US fiscal policy, mandatory spending is government spending on certain programs that are required by law. Congress established mandatory programs under authorization laws. Congress legislates spending for mandatory programs outside of the annual appropriations bill process. Congress can only reduce the funding for programs by changing the authorization law itself. This normally requires a 60-vote majority in the Senate to pass. Discretionary spending on the other hand will not occur unless Congress acts each year to provide the funding through an appropriations bill. Expenditure is often influenced by Federal Reserve advisory.
The United States federal budget for fiscal year 2009 began as a spending request submitted by President George W. Bush to the 110th Congress. The final resolution written and submitted by the 110th Congress to be forwarded to the President was approved by the House on June 5, 2008.
The United States federal budget consists of mandatory expenditures, discretionary spending for defense, Cabinet departments and agencies, and interest payments on debt. This is currently over half of U.S. government spending, the remainder coming from state and local governments.
The 2013 United States federal budget is the budget to fund government operations for the fiscal year 2013, which began on October 1, 2012, and ended on September 30, 2013. The original spending request was issued by President Barack Obama in February 2012.
Political debates about the United States federal budget discusses some of the more significant U.S. budgetary debates of the 21st century. These include the causes of debt increases, the impact of tax cuts, specific events such as the United States fiscal cliff, the effectiveness of stimulus, and the impact of the Great Recession, among others. The article explains how to analyze the U.S. budget as well as the competing economic schools of thought that support the budgetary positions of the major parties.
Deficit reduction in the United States refers to taxation, spending, and economic policy debates and proposals designed to reduce the federal government budget deficit. Government agencies including the Government Accountability Office (GAO), Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the U.S. Treasury Department have reported that the federal government is facing a series of important long-run financing challenges, mainly driven by an aging population, rising healthcare costs per person, and rising interest payments on the national debt.
The United States fiscal cliff refers to the combined effect of several previously-enacted laws that came into effect simultaneously in January 2013, increasing taxes and decreasing spending.
The 2015 United States federal budget was the federal budget for fiscal year 2015, which runs from October 1, 2014 to September 30, 2015. The budget takes the form of a budget resolution which must be agreed to by both the United States House of Representatives and the United States Senate in order to become final, but never receives the signature or veto of the President of the United States and does not become law. Until both the House and the Senate pass the same concurrent resolution, no final budget exists. Actual U.S. federal government spending will occur through later appropriations legislation that would be signed into law.
The United States federal budget for fiscal year 2018, which ran from October 1, 2017, to September 30, 2018, was named America First: A Budget Blueprint to Make America Great Again. It was the first budget proposed by newly elected president Donald Trump, submitted to the 115th Congress on March 16, 2017.
Government spending in the United States is the spending of the federal government of the United States and the spending of its state and local governments.
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