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Federal government revenue and budgeting

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Macro-economic choices, particularly in the areas of fiscal policy, are not just about economics but about deeply social goals and values as well. This Case asks you to think about some of these dimensions.

The Congressional Budget Office (CBO) prepares reports for congress. It is a non-partisan office.

For this Case, please read "The Budget Outlook" section of the CBO's The Budget and Economic Outlook: Fiscal Years 2009 to 2019, dated January 2009, at

1. What are the three major categories of revenues for the federal government? Please comment on each and indicate their relative importance to each other.

2. What are the three major categories of expenditures for the federal government? Please comment on each and indicate their relative importance to each other.

3. Discuss the current level of the Federal debt, the past trend of that debt, and the future forecast for its level. Discuss your concerns about the debt and level of associated interest expense.

4. Assume you are the Chief Economic Advisor to the President of the United States, what recommendations would you make to reduce the budget deficit. Please be as explicit as possible. Saying general things such as i would suggest forming a committee is not acceptable.

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Problems with deficit spending

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You can see the categories of spending and income for the government on Table 5 of the report. The government's income comes from three forms of taxation: individual, corporate, and payroll (which the report calls social insurance). Payroll taxes are designated for programs such as social security and Medicare. Individual taxation provides the greatest amount of income, with social insurance taxes close behind.

The government's three major areas of expenditure are mandatory, discretionary, and interest on its debt. Mandatory spending is the greatest expenditure, with discretionary somewhat less and interest on the debt considerably less than the other two. Mandatory spending is the result of federal programs which are mandated by law, and involve such things as the recent bailout of the financial markets (TARP). All are anticipated to increase significantly, especially mandatory spending, due to "activities of the TARP and CBO's treatment of Fannie Mae and Freddie Mac as federal entities." Fannie Mae and Freddie ...

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