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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