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1. What Is the Budget?

The Federal budget is:

• a plan for how the Government spends your money.

  What activities are funded? How much does it spend for defense, national parks, the FBI, Medicare, and meat and fish inspection?

• a plan for how the Government pays for its activities.

  How much revenue does it raise through different kinds of taxes— income taxes, excise taxes, and social insurance payroll taxes?

• a plan for Government borrowing or repayment of borrowing.

  If revenues are greater than spending, the Government runs a surplus. When there is a surplus, the Government can reduce the national debt—money it owes to American and foreign investors.

• something that affects the Nation’s economy.

  Some types of spending on things like education and support for science and technology are done in the hope they will increase productivity and raise incomes in the future.

  Taxes, on the other hand, reduce incomes, leaving people with less money to spend.

• something that is affected by the Nation’s economy.

  When the economy is doing well, people earn more and unemployment is low. In this atmosphere, revenues increase and the surplus grows.

• a historical record.

  The budget reports on how the Government has spent money in the past, and how that spending was financed.

  The 2002 Budget is a document that embodies the President’s budget proposal to Congress for fiscal 2002, the fiscal year that begins on October 1, 2001. It reflects the President’s priorities and proposes that the entire Social Security surplus be saved and set aside for Social Security and debt reduction. The President’s budget also moderates the recent extremely rapid growth in discretionary spending, while funding national priorities and providing tax relief.

  The Federal budget, of course, is not the only budget that affects the economy or the American people. The budgets of State and local governments have an impact as well. While Federal Government spending was 18 percent of the Gross Domestic Product (or GDP, which measures the size of the economy) in 2000, State and local government spending was about another nine percent (see Chart 1–1).

  Chart 1-1. Government Spending as a Share of GDP, 2000

  

  Total Government spending accounts for less than one-third
  of the national economy. Federal spending is about two-thirds
  of this amount, or about 18 percent of GDP.

  State and local governments are independent of the Federal Government, and they have their own sources of revenue (taxes and borrowing). But the Federal Government supplements State and local revenues by making grants to them. Of the $1,152 billion that State and local governments spent in 2000, $242 billion came from Federal grants.

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