Text 1. Spending Policies

Date: 2015-10-07; view: 329.

UNIT 8: SPENDING MONEY FROM THE BUDGET

DISCUSSION: The ideal model of taxation

Possible characters:

1. An independent analyst.

2. A social programs promoter.

3. A rich entrepreneur.

4. A large foreign exporter selling at the Russian market.

5. A representative of Russian oil company exporting its products.

6. A representative of a big trading firm.

7. A Russian legislator supporting tax cuts.

8. A Russian legislator supporting tax increasing.

9.An average tax-payer.

The national government spends hundreds of billions of dollars every year. Where does the money go? The largest amount (20 percent of the total budget) was earmarked for national defense. The social security outlay was nearly as large; the third largest was for interest on the accumulated national debt, which alone consumes nearly 15 percent of all government spending.

To understand current expenditures, it is a good idea to examine national expenditures over time. The effect of World War II is clear: Spending for national defense rose sharply after 1940, peaked at about 90 percent of the budget in 1945, and fell to about 30 percent in peacetime. The percentage allocated to defense rose again in the early1950s, reflecting rearmament during the Cold War with the Soviet Union. Thereafter, the share of the budget devoted to defense decreased steadily (except for the bump during the Vietnam War in the late 1960s) until the trend was reversed by the Reagan administration in the 1980s. Under Bush, defense spending has turned down again.

Government payments to individuals consistently consumed less of the budget than national defense until 1971. Since then, payments to individuals have accounted for the largest portion of the national budget, and they have been increasing. Net interest payments also have increased substantially in recent years, reflecting the rapidly growing national debt. All other government outlays have been squeezed by pressure from payments for national defense, individuals, and interest on the national debt.

Because of continuing price inflation, we would expect government expenditures to increase steadily in dollar amounts. However, national spending has far outstripped inflation. There are two major explanations for this steady increase in government spending. One is bureaucratic; the other, political.

The bureaucratic explanation for spending increases involves the concept of incremental budgeting:Bureaucrats, in compiling their budget funding requests for next year, ask for the amount they got this year plus some increment to fund new projects. Members of Congress pay little attention to the size of the agency's budget for the current year (the largest part of that budget), focusing instead on the extra money (the increment) requested for next year. As a result, few agencies are ever cut back, and spending continually goes up.

Incremental budgeting produces a sort of bureaucratic momentum that continually pushes up spending. Once an agency is established, it attracts a clientele that defends its existence and that supports the agency's requests for extra funds to do more year after year. However, the huge budget deficit has substantially checked the practice of incremental budgeting. For example, Bush's 1992 budget planned a cut of $15.3 billion for agriculture, and those who benefit from farm programs will do well just to reduce the size of the cut.

Caps on discretionary spending also interfere with incremental budgeting and force closer scrutiny of budgetary proposals by agencies and members of Congress alike. As a result, agencies are now more likely to engage in a form of analytical budgeting, in which existing programs are justified in terms of their effectiveness. Still, Bush will find it impossible to reduce government spending enough to balance the budget because politics has put most of the budget beyond his control.