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So if the Fed decides to increase money supply, the Treasury puts the plan into place, although the Fed can also create more money by injecting money into the banking system directly, and has done that a lot recently. If Congress decides to change tax policy, the Treasury (through the IRS) carries that policy out. The Treasury does not decide on tax policy, nor does it create or change tax law.
The Treasury also performs other roles, such as measuring economic activity; providing economic and budgetary advice for the executive branch, Fed, and others; and producing other revenue through alcohol and tobacco taxes, postage stamps, and so forth. Until 2003, the Treasury also handled firearms regulation, customs and duties, and the Secret Service, but these functions have been transferred to the departments of Justice and Homeland Security.
Why You Should Care
Aside from the fact that its building is on the back of the $10 bill, and its original secretary, Alexander Hamilton, is on the front, it’s good to know what the Treasury is and does. Most of us have at least a
41. FEDERAL BUDGET
The federal budget, known more formally as the Budget of the United States Government, is a document prepared by the president and submitted to Congress for approval. The document outlines revenue, spending projections, and recommendations for the government fiscal year, which starts October 1 of the current year—so the 2013 federal budget covers the fiscal year begi
What You Should Know
The federal budget, by nature, outlines the nation’s spending priorities and is used as a tool to manage and solve social and economic problems on a large and small scale. Budgets don’t always cover emergencies, as discovered by additional fiscal year 2009 appropriations made for TARP and other economic relief in the wake of the financial crisis. Certain military operations like those in Iraq and Afghanistan may also be wholly or in part funded and administered outside the budget process.
The size of the federal budget has increased dramatically over the years. The 2013 budget calls for a budget of some $3.8 trillion, well more than double the 1999 level of $1.7 trillion. Some of that increase reflects inflation, but it also, more importantly, reflects an ever-growing role of government in the operation of our nation, as well as a continued solidifying and stimulating of the economic base in the wake of the financial crisis.
Has revenue growth kept up with spending growth? Indeed not; the 2013 deficit is projected at $901 billion, down from the $1.17 trillion in 2010 and the record $1.75 trillion in 2009. Budgets are typically construed as part of a longer-term plan, and President Obama had pla
It’s interesting to look at the specific areas of revenue and expense in the 2013 budget, and how those specifics compare to the recession-riddled year 2010. Note the effects of the rebounded economy and the $80 billion in interest “income” derived from bonds purchased in Fed open market operations:
REVENUES ($2.902 TRILLION, (+21.9% VS. 2010))
$1.359 trillion: Individual income taxes (+28.1%)
$959 billion: Social Security, other payroll taxes (+2.0%)
$348 billion: Corporate income taxes (+56.8%)
$88 billion: Excise taxes (+14.3%)
$33 billion: Customs duties (+43.5%)
$13 billion: Estate and gift taxes (−35.0%)
$80 billion: Deposits of earnings and Federal Reserve System (not previously separated out)
$21 billion: Other (−44.7%)
Unfortunately, so-called “mandatory” expenditures continue to grow, and will probably do so until “entitlement reform” actually takes place. Sizeable increases in the Social Security, Medicare/Medicaid, and Interest on the National Debt lines drive the mandatory spending increase:
MANDATORY SPENDING (MANDATORY SPENDING: $2.293 TRILLION (+5.0% VS. 2010))
$820 billion (+18.0%): Social Security
$860.3 billion (+15.8%): Medicare and Medicaid
$246 billion (+50.0%): Interest on National Debt
Some restraint on spending growth is evident in the “discretionary” side:
DISCRETIONARY SPENDING (Discretionary spending ($1.510 trillion (+10.4% vs. 2010)).510 TRILLION (+10.4% VS. 2010))
$666.2 billion (+0.4%): Department of Defense (including Overseas Contingency Operations)
$80.6 billion (+2.4%): Department of Health and Human Services
$67.7 billion (+45.0%): Department of Education
$60.4 billion (+15.0%): Department of Veterans Affairs
$56.1 billion (+8.5%): Department of State and Other International Programs
$54.9 billion (+28.6%): Department of Homeland Security
$41.1 billion (−13.8%): Department of Housing and Urban Development
Note that these are just the seven largest line items: there are twenty-one more line items, some as large as cabinet departments, some more specific, such as $7.4 billion for the National Science Foundation.
Why You Should Care
Just as you should care about your own income and spending and budget accordingly to make ends meet, you also should care about whether the government is doing the same thing—whether it is using your tax dollars appropriately, and making good decisions. Budget talk can be contentious at certain times, dull at others, and complex always, but it’s in your best long-term interest to keep tabs on what’s happening. Budgets are usually proposed early in a calendar year; you should find a favorite news source and keep track of them. Budget detail is available at the U.S. Government Printing Office “GPO Access” website from the Office of Management and Budget—see www.gpo.gov/fdsys/browse/collectionGPO.action?collectionCode=BUDGET. The current and upcoming year’s budget documents, while long, are always an interesting read.
42. FEDERAL DEFICITS AND DEBT
After reading the previous entry on the U.S. federal budget, you might understandably be concerned about the excess of expenditures over revenue, and what that might mean for you and for the economy. Put simply, if you spent that much more than you earned, you’d be in big trouble—deep in debt or worse.
What You Should Know
Truth is, the size of the federal deficit and the load of debt it has created is of great concern, especially to fiscally conservative politicians and citizens. Such large deficits and debts sap our future economic strength and may hinder our ability to borrow, as we must service—that is, pay—interest and principal on our current debt. There was great concern that because of already existing debts, the United States may not be able to borrow its way out of the recent economic crisis and downturn. So far, those problems haven’t materialized, as U.S. debt obligations are still considered among the world’s most secure. China in particular needs to support our economy because of the degree to which our economy supports its economy. Now the concern is about what happens next time around, when we’re still further in debt.