The federal budget process involves the President working with the Office of Management and Budget to develop a budget that is then sent to Congress for approval, though the budget is often not passed until after the fiscal year has begun. The document also outlines various principles of taxation such as benefits-received, ability-to-pay, and different forms of taxation like proportional, progressive, and regressive taxes. Additionally, it discusses deficit spending, the national debt, and how interest paid on the debt has increased significantly from 1940 to 2000, with the greatest growth occurring from 1980 to 1990.

1. The Federal Budget
Making Process
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2. The federal budget
prepared 18 months before end of fiscal year.

fiscal year-year by which accounts are kept; for the federal

government, Oct. 1 to Sept. 30 of next year
The President and the Office of Management and

Budget (OMB) work together
The President approves budget; sends to Congress

Congress should pass it before end of fiscal year.

Often budget is not passed until after fiscal year has begun

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3. Taxation
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4. Principles of Taxation
benefits-received principle

those who use a particular government

service support it with taxes; those who do
not use a service do not pay taxes for it.
example-a gas tax is used to pay for

highway repair. Frequent users of
highways often buy more gas and pay
more in gas tax
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5. Principles of Taxation
ability-to-pay principle

those with higher incomes pay more taxes

than those with lower incomes, regardless
of the number of government services they
use
example-all property owners pay school tax

even though they might not have school
aged children
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6. Forms of Taxation
proportional tax-tax that takes same

percentage of all incomes, as income rises,
the amount of tax paid also rises
INCOME Tax Paid(10%)
$1,000 $100
$10,000 $1,000
$100,000 $10,000
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7. Forms of Taxation
progressive tax-tax that takes a larger

percentage of higher incomes than
lower incomes; ability-to-pay principle
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8. Forms of Taxation
regressive tax-tax that takes a larger

percentage of lower incomes that of higher
incomes
opposite of progressive tax

example-poorer families spend a larger

proportion of their incomes on sales tax
Family #1 Family #2
yearly income $75,000 $40,000
yearly sales tax pd $7,000 $7,000
% of income 9% 18%
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9. Deficit Spending and the
National Debt
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10. The National Debt
Year Interest Paid Percent of Federal
on National Debt Expenditures
(billions)
1940 $1 11.0
1950 $5.7 13.4
1960 $9.2 10.0
1970 $19.3 9.9
1980 $74.9 12.7
1990 $264.8 21.8
2000 $370 22.5
1. Write a one sentence summary of the table.
2. Which decade had the greatest increase in interest paid on the
national debt in both dollar terms and as a percentage of federal
expenditures?
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11. budget deficit-situation that occurs when the

amount of government spending exceeds its
receipts during the fiscal year.
This spending is similar to an individual using

credit by overspending his income.
national debt-total amount of outstanding

debt for the federal government
budget surplus-the amount of government

receipts is larger that its expenditures during
the fiscal year
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