Hey there, in episode 12 here, we are going to talk about public policy. And specifically, we are going to talk about how the federal government gets its money, and how they spend its money. We are going to track where the money goes. At the end of this episode, you should know terms debt and deficit and the difference between the two. You should also know about entitlements and discretionary spending. Those are the kind of things that you’ll often see on advanced placement exam. So let’s get started, I hope you are good at math.
Can you read that number? The first one on top? That’s right its 9 trillion dollars. 9 trillion dollars is about the amount of money that this country owes as of today, at the end of July in 2008. It’s the greatest debt in human history on this day. And guess what? Tomorrow that debt will be even greater.
So who do we owe this money to? Maybe it’s to people like you and me. You ever invest in a savings bond or a T-bill. Grandparents love that stuff. But more likely, its owed to somebody who is investing in the United States. After all, we are a pretty good investment. Maybe its people from Japan or China or some place in the Middle East.
Can you read the number on the bottom now? I’m sure you can. That’s about 3 trillion dollars. That’s about the amount of money that president Bush submitted in his budget to congress, as the amount of money we would spend this year. The only problem with that is that, we only took in from the tax payers about 2.6 trillion dollars.
So where is the other 400 billion dollars go? I guess that’s pretty easy. Sometimes the government, just like folks can borrow its of money. Let’s just say that when you finished college and you took out hefty college loan, you might have to start paying it back. And that’s where interest payments come in. And our government is no different than it is for you.
Here’s Lesley’s dollar. We are going to figure out where all that money goes. But the first thing that we are going to do, in order to remain sovereign, is to pay our debts. Our debts amount to about 10% of that annual budget, about 300 billion dollars this year. So what we are going to do is pay our debts, because that’s what good citizens do. There it is, okay we paid our debts.
But now we’ve only got about 90 percent of our dollar to spend on the American people. Where is the rest of that money going to go? Debts and deficits, outlays and expenditures.
Outlays is money going out. Expenditures, money that were spending. We are going to go with entitlements and discretionary spending.
Entitlements are primarily in two specific areas. The first one, social security. You know your grandparents get social security. At age 62 if you take a little less, and age 65. It wasn’t always meant to be a retirement security. But in 1935, when social security came into fare, it could pay for itself. No longer is that the case. We spend about 21 cents out of every dollar on social security. So let’s give the people over 65 their due.
We still got about 70 cents of that dollar to spend out on the rest of the needs for the American people. But that social security is clearly an entitlement. Another entitlement, and the largest expenditure that we have in our federal government, is in Medicare and Medicaid. Taking care of people in terms of their health needs, especially senior citizens. We are going to spend about 31 cents in our dollar this year. And now, my goodness we have less than 50 cents left. And we haven’t spent a nickel of anyone other than senior citizens, and on the interest payment. 46 cents of that dollar is left. My goodness! Where is the rest of it going to go?
That includes all the entitlements. That cannot be taken away by the Congress of the United States. They must give those people their money. Discretionary spending means, we have it at our discretion to raise it or cut it. And lately, that money is being cut.
So after the people flew the flying planes into the buildings in 9/11, our security, homeland security and military costs sky-rocketed. People disagree about the cost of the military right now. The government says it’s about 21 cents, some folks say it’s well over 25 cents. So let’s give the military their money, and let’s keep our country safe. And that’s what we have left for discretionary programs.
Most of that money is going to go into two areas. In the late 1960s and early 70s, Richard Nixon started the program called new federalism. And that was to turn around the money from the federal government, send it back to the states. Ronald Reagan picked up on that as well, and was much loved by conservatives. It means that, a lot of the money is going to get sent back to the states in two particular areas. One is block grants. A block grant is something that states really love. Federal government sends money to a state for something like homeland security, and they get tremendous discretion of how to spend that money. Not a lot of federal oversight.
However, if they get sent a categorical grant, they usually have some strings attached. You are going to spend that money on these roads and this highway. You are going to make sure your schools meetthese standards and it’s got to be spending that way. And so that’s here most of the money goes.
Little bit of money left over, let’s get some money to the education budget if we can. There we go, we’ve got our education. So now we know where most of the money is going to go.
One of the things that you’ll need to know for your advanced placement exam, is how we look after this money. If we are talking about 3 trillion dollars, we are talking about thousands of pages and budgets and things of that nature. In 1974, something called the budget reform act passed. And it created two branches in terms of cheques and balance. One, it offers a management and budget, which is the executive office and how they look after the money that’s spent. The second, the congressional budget office, which comes of course from Congress.
And so, Congress appropriates the money, the executive is required to spend it an efficient way. Where are we? We don’t have a whole lot of money left, but let’s take a look at what we should know at the end of this unit.
So now that we know where the money goes, what do you need to know for the advanced placement exam. Let’s start with some terminology. Do you know the difference between a debt and a deficit? A deficit is a one year thing. It means you spend more money than you took in for that time. A debt, the total amount of money that you owed. Our deficit for this year, perhaps about 400 billion dollars. Total of that, 9 trillion and growing. It’s hard even for me to say that, 9 trillion. Also, be really clear that you know the difference between entitlements and discretionary funds. Entitlements; what are the two entitlements, social security Medicare and Medicaid. That’s key.
That money's got to go out no matter what, and it's rising every single year. Discretionary funds, that’s the money that we can more make less, depending upon the needs at the time. The greatest amount of money in discretionary finds goes to the military. The rest mostly, in block grants, categorical grants.
And finally, know that social security and Medicare are over 50 percent of our annual budget. So those are the three main things. We are going to pick it up next time with episode 13 about civil liberties. We are going to change course a little bit. But in the meant time, Lesley, do you have five dollars I could borrow?