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AP®︎/College US Government and Politics
Course: AP®︎/College US Government and Politics > Unit 2
Lesson 2: Structures, powers, and functions of Congress- How a bill becomes a law
- The House of Representatives in comparison to the Senate
- Senate filibusters, unanimous consent and cloture
- Discretionary and mandatory outlays of the US federal government
- Earmarks, pork barrel projects and logrolling
- Structures, powers, and functions of Congress: lesson overview
- Structures, powers, and functions of Congress: advanced
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Discretionary and mandatory outlays of the US federal government
The federal government's revenue primarily comes from four tax types: individual income, payroll, corporate, and excise taxes. Over time, payroll taxes have increased, while corporate taxes have decreased. Mandatory outlays, like entitlements, have grown, and discretionary spending has shrunk, raising concerns about future budget deficits.
Want to join the conversation?
- I would love to see an updated 2023 version of this outlays and revenue totals(3 votes)
- Did the government receive enough income last year to cover outlays(2 votes)
- no, that is why there was a debt ceiling crisis last year.(1 vote)
- Why have corporate taxes gone down by 16%?(2 votes)
- Is healthcare, at least aspects of it, a false economy, i.e. the more you spend on it, the more you have to pay?(0 votes)
Video transcript
- [Instructor] What we're
going to do in this video is talk about the broad
categories of where the federal government gets
its revenue, and also the broad categories of where
it spends its revenue. Now when we talk about revenue
for the federal government that primarily comes in the form of taxes. And what we see in this
visual, it shows the four basic types of taxes that the
federal government collects. You have individual income
taxes, which you are probably familiar with. If you ever get a pay
stub, and if you thought you were making, let's say,
$1,000 in a pay period, you might see your
paycheck is closer to $600 because there might be individual
income taxes taken out, and both the federal and the state level. Then you have payroll
taxes, and unless you are an employer, you might not be
familiar with payroll taxes. Above and beyond your
individual income taxes, your employer also pays
taxes called payroll taxes. Now these are primarily
to pay for things like Social Security, Medicare,
unemployment insurance, and some of you are saying
well don't they take that out of my individual
income taxes, as well? And the answer is yes, but
above and beyond what is individually paid by you, they also take payroll taxes to fund that. Corporate taxes are taxes
on corporations' profits, and excise taxes, which
you don't hear folks talk a lot about these days, but
these are taxes on things like gasoline, or alcohol and
tobacco, or airline tickets that are usually baked
into those products, and those taxes can oftentimes
go to the federal government. Now pause this video and see if you see any interesting trends. This visual here shows the
breakdown between these four taxes for the federal
government's revenue and how it's changed from 1950
all the way to 2015. Well it looks like
individual income taxes, as a percent of total government revenue, has stayed roughly stable. But what you see is that
payroll taxes have grown dramatically while
corporate taxes have shrunk. Payroll taxes have gone from
11% of the federal government's revenue in 1950 to nearly 1/3
of the federal government's revenue in 2015. Corporate taxes have gone down from 26.5% all the way down to 10.6%,
and excise taxes are a very small percentage. They used to be a significant
part, but they are now a very small part of
total government revenue. Now one thing to keep in
mind, this visual over here just shows the breakdown. It's not showing the absolute level. If you were seeing the absolute
level of government revenue you would see that grow as
the nation's GDP grew as well. But in big categories, where
does that revenue get spent? Well this is a similar diagram
that shows the breakdown of outlays by the federal
government from 1962 all the way, and these are going into
projected outlays, to 2020. At the time of this video,
we are right over here in 2017, and this chart was made in 2016, so it was made at around this time. But you see a couple of big categories. You first see the mandatory outlays, and in parentheses it says on autopilot. What does that mean? Well these are commitments
that the federal government has already made by law to people. These are things like entitlements, like Social Security, like Medicare. And one interesting trend
is these have grown in 1962 from 25% of the total federal
budget, to a projected almost 2/3 of the federal budget in 2020. Now the discretionary
outlays are things that, when we talk about the
appropriations committees in the Senate, or the
House, this is what they're debating where to spend the money. And even though it might
sound something that's just nice to have, there's some
pretty important things in the discretionary budget. Things like military
expenditure, and as you can see, the discretionary budget
has gone from over 2/3 of federal outlays, to a little
under 1/4 projected in 2020. And then this top category,
net interest, well the federal government has a debt,
and anyone who has a debt tends to pay interest on that debt. So many people will often
categorize this as a mandatory outlay as well,
because we need to pay the interest on that debt,
even though it's not officially a mandatory outlay. And to see how significant
these entitlement programs are, and how big of an impact
they have, not just on the federal government's
budget, but as a percentage of GDP, we have this
visual right over here. Once again, this is projecting
well into the future. This chart was created in
2016, so right about here, but you can see that
these mandatory outlays, as a percentage of the GDP
here, so this is not just as a percentage of the
budget, they are growing, and growing, and growing, and
expected to keep on growing while total revenue as a percentage of GDP is expected to stay flat. And take all of this with a grain of salt. This is based on
assumptions made at the time when this diagram was made. If we have varying levels
of economic growth, or the tax policies
change, it's possible that the total revenue as a
percentage of GDP might change. Also, if there are changes
to some of these entitlement programs, like Social Security,
or the health care programs, or if some of the cost
assumptions baked into this chart changes, well, then
this diagram might change. But if you assume the
data in this visual here, and the source is the White House in 2016, you see that the mandatory
outlays from these entitlement programs,
and the net interest, which is also essentially
mandatory, these are going to take up all of the revenue that the federal government collects. And so if the federal
government wants to do anything above and beyond those things,
discretionary spending, and once again, some of
this discretionary spending is pretty important, like the military, well, then they would
have to run a deficit in those years to fund
those things, or they would have to increase the total revenue. And the thing is, even once
we get past this point, go into the 2040's all
the way to the 2050's, it gets worse, and worse, and worse. So something has got to give here.