The Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985 was passed in response to increased deficit spending.
Phil Gramm of Texas, Warren Rudman of New Hampshire, and Ernest Hollings of South Carolina co-sponsored the law.
The goals were set by the law.
Automatic spending cuts must be ordered by the president if the goals are not met.
Social Security and interest on the national debt were exempt.
Congress approved a budget in 1989.
The 1993 budget had to be balanced by the law.
Congress has used this law as a guide for overall reductions because of the goals and balanced budget requirement.
Attempting to find a way of helping the economy and closing tax loopholes, President Reagan asked Congress to pass the most far-reaching tax reform measure since the income tax was instituted.
The law was supported by Bill Bradley of New Jersey and called for tax code changes that would result in a restructuring of tax brackets and eliminating many tax deductions.
The law was supported by both Democrats and Republicans.
Many Americans received a tax cut.
It was hoped that additional income would offset the loss of revenue from the tax cut received by the middle class.
The law reduced the number of brackets from 15 to 3, slightly increased deductions for individuals and families, and eliminated many other deductions.
The law succeeded in its objectives, but the expense side of the budget was not kept in check and the deficit increased.
The overall deficit went up from 1981 to 1992.
Clinton's deficit reduction programs eliminated the deficit.
The budget was balanced by the year 1998.
There was a political argument as to what should be done with a surplus.
Reducing the national debt, saving Social Security, decreasing tax rates for all Americans, and increasing spending for government programs were some of the suggested uses for the surplus.
The surplus was short lived.
After the economic recession of 2008, the country again faced deficits.
There are some characteristics of recent budgets adopted by Congress.
The budget was over $2 trillion by 2009.
The outcome of the budgetary process can be a result of disagreements between Democrats and Republicans.
The defense budget was a distant second to entitlements in expenditures, but if you add components from other areas, the gap is much smaller.
Why social programs have increased so much was a second issue.
The philosophy of the Democrats to maintain programs passed as part of FDR's New Deal and Johnson's Great Society is part of the answer.
Reagan succeeded in reducing some of the programs when he was president.
They are still the largest area of the budget.
Political scientists and economists felt that the process encouraged the increase in this area.
They pointed to the way in which the previous year's budget is looked upon as a base and therefore the new budget must increase because of inflation and other factors.
Congress still operated using an incremental approach despite attempts at zero-based budgeting, where budget lines start at a ground-floor foundation so that programs can be reviewed.
Because entitlement programs are mandated by law, they are already built into the budget and increase as a result.
The cost of Social Security increased from $33 billion in 1970 to $265 billion in 1991.
The cost of Social Security was $730 billion in 2010.
Projections show that by the second decade of the twenty-first century the system will go broke, and Congress borrowed from the Social Security trust fund.
The creation of a separate Social Security Administrative agency was approved by Congress in 1994.
Major reforms for Social Security, Medicare, and Medicaid were recognized by both Congress and the president in 2010.
A bipartisan commission was appointed by President Barack Obama to make recommendations regarding Social Security.
We need to define some basic terms.
Income distribution is the portion of national income that individuals and groups earn.
There has not been a significant change in income distribution between the lowest and highest fifth of the American population since the 1960's.
From 1980 to 2010, the incomes of the wealthiest Americans increased at a much greater rate than those of the poor.
Whites had a median income of over $50,000 in 2010 while a family living below the poverty level had a median income of over $22 thousand.
A class-based society in America is characterized by a disparity in income and wealth.
The percentage of Americans living below the poverty line has decreased over the past 15 years.
Wealth is what is actually owned, such as stocks, bonds, property, bank accounts, and cars, whereas income is the specific level of money earned over a specific period of time.
The top one percent of the country's rich have more wealth than the rest.
The poverty line has been adopted by the United States Census Bureau.
The Bureau calls it an "austere standard of living" because it shows what a typical family of four would need to spend.
According to the Bureau, the poverty line for a family of four was less in 2010 than it was in 2007.
Poor people who can't find work, have broken families, and lack adequate housing face a hostile environment.
The Bureau of the Census uses a poverty index developed by the Social Security Administration to determine if families are above or below the poverty level.
A disproportionate number of minorities live in cities when compared to the percentage of poor people in each group.
The level and distribution of individuals' income is affected by taxes because of the relative burden they place on people to pay them.
Taxes are the major source of income for federal, state, and local governments.
The only things certain in life are death and taxes, but they are an essential ingredient in the ability of government to provide services to the population.
There are three types of personal taxes.
They affect groups in different ways.
The current federal income tax collects more money from the rich than the poor on a sliding scale.
If the government takes an equal share from everyone, it is a proportional tax.
During the 1992 presidential campaign, former California Governor Jerry Brown suggested a flat tax.
After the 1994 election, many Republicans suggested an alternative tax structure.
A sales tax has the poor paying more than the rich.
The abolition of the Internal Revenue Service as well as the implementation of a flat tax structure was demanded by some Republicans after the 1996 election.
Collection of taxes is the only other way to pay for the services that governments provide.
Social Security is the root of the foundation for these programs.
It requires the employer and employee to make payroll taxes.
Part of the payments go to the Medicare program.
The program is predicated on forced savings, which makes it different from other programs such as public assistance programs.
The problem of income inequality still exists despite all the efforts made by federal, state, and local governments.
Increased government contributory and noncontributory policies have been seen in the history of social welfare programs.
Relief measures under the Social Security Act began the social welfare era.
It was the most far-reaching piece of legislation that has ever been passed.
The main aim was to help senior citizens.
The act established that the government's responsibility was to aid retirees even if the aid came from the forced savings of the workforce.
Old- Age Survivors Disability Insurance covers 93 percent of the work force through FICA contributions and provides monthly payments to retired and disabled workers, spouses and their children.
Supplemental Security Income gives money to the needy, aged, blind, or disabled through a formula.
Federal grants to state governments will provide money to low-income families with dependent children.
The largest welfare program is this one.
President Clinton signed a major welfare reform act in 1996.
The law gave block grants to the states and will be discussed at the end of the chapter.
The federal government was no longer in charge of welfare.
The National Institute of Health was created in 1935 by a New Deal act.
The National Housing Act was passed in 1937 to provide for public housing.
The prohibition of child labor under the age of 16 was one of the welfare acts of the New Deal.
The Works Progress Administration and the Civilian Corps were forms of welfare that were passed to help end the Depression.
The GI Bill of Rights was passed after World War II.
The National School Lunch Act of 1946 and the Housing Act of 1949 provided for subsidized private housing.
The National Defense Education Act was signed by President Eisenhower in response to the Sputnik satellite launch.
The act gave a lot of federal aid to education.
Lyndon Johnson's Great Society programs led to the turning point in the federal era.
Medicare covers hospital and medical costs of people 65 years of age and older as well as disabled individuals receiving Social Security.
The war on poverty extends benefits to the poor.
The food stamp program gives food coupons to people based on their income and family size.
Medicaid is a shared program between the federal and local governments.
The intent of the civil rights legislation was to increase educational and job opportunities for minorities.
The Great Society programs were expanded during the Nixon, Carter, and Ford years.
The Equal Opportunity Act provided for legal recourse when there was job discrimination.
The cost of living was linked to Social Security and other welfare programs in 1972 and the Comprehensive Employment Training Administration was passed in 1973.
In 1973, the Board of Trustees of the Social Security System reported that the system was running a large deficit.
The Reagan revolution tried to cut back on the scope of the Great Society programs, with his assurance that there would always be a "safety net" for those people receiving the benefits of the many programs previously described.
The rate of increase to OASDI and Medicare was cut after he received the cooperation of the Democrats.
He was able to reduce some of the need assistance programs.
The programs began to increase again after 1984.
The American Association of Retired Persons (AARP) was one of the groups that fought against the cuts in Social Security and Medicare.
During the 1995 congressional term, the Republicans passed a series of bills that cut Medicare and Medicaid in order to prevent their collapse and move toward a balanced budget.
An agreement was reached in 1997.
There would be increased costs for senior citizens as a result of means testing.
The battle cry of the Clinton administration was universal healthcare.
Presidents Truman and Nixon placed the issue on the public agenda.
The United States is expected to be a healthcare world leader.
Canada and Great Britain have had universal healthcare for a long time.
The United States has a lower life expectancy and higher infant mortality rate than other countries.
Even without a universal system, America still spends over 15 percent of its Gross National Product on health.
The cry for reform was taken up because of factors such as medical malpractice suits, skyrocketing insurance, and health costs, as well as the loss of coverage for many workers who changed jobs.
Whites with higher incomes are more likely to have health insurance than African-Americans.
The country lags behind when it comes to dealing with health-related coverage.
The Family Medical Leave Act of 1993 made it possible for employees to take emergency medical leave with a guarantee that their job wouldn't be taken away in the interim.
President Clinton hoped that the adoption of a national health security plan as extensive as the original Social Security Act would be the benchmark of his administration.
Clinton held up a Health Security Card and threatened to veto any bill that did not include universal healthcare as its foundation.
The bill was over a thousand pages and was spearheaded by the nation's First Lady, Hillary Rodham Clinton.
Both houses introduced watered-down versions of Clinton's bill during the summer of 1994.
Legislation remained tied up as a massive lobbying effort took place.
The issues of employer mandates, timing, and the extent of coverage kept Congress from acting on the measure.
The issue of healthcare was put on the back burner as a result of the Republican electoral victory.
In 1996, a health reform law guaranteeing the ability of workers to keep their health insurance if they leave their job was signed into law.
TheAffordable Care Act of 2010 was signed by President Obama.
The law's opponents claimed that it was a government takeover of the health system.
35 million Americans will be fully insured when the law is implemented.
The law reduces the federal deficit over the course of a decade and deals with a number of healthcare issues.
Welfare reform is high on the political agendas of state governors and the federal government.
Workfare became an alternative to welfare, and many states have successfully instituted work programs aimed at removing welfare recipients from the rolls.
The Republicans and the President reached an agreement on the Welfare Reform Act.
Social welfare programs need to provide solutions for homelessness, healthcare coverage, and the problem of drug abuse.
To show the point, you have to look at the Social Security System.
Congress began looking at ways to save the system after it was revealed that the program had a deficit.
Reagan created the National Commission on Social Security Reform.
Some Social Security benefits will be subject to federal taxes for people with incomes over $20,000.
There was a surplus in the system as a result of these reforms.
The system is in trouble again after the government began borrowing from the reserve.
Projections show that by the second decade of the twenty-first century, the Social Security System won't be able to pay everyone.
President George W. Bush appointed a bipartisan commission in 2001.
It wanted to investigate alternatives and enhancements to Social Security.
The feasibility of creating privatized Social Security accounts was studied in the report.
These reforms were not adopted by Congress.
Social Security was considered to be the third rail of American politics because they refused to pass any legislation dealing with the recommendations.
President George W. Bush made Social Security reform his number one legislative priority after he was reelected in 2004.
He wanted to create Personal Retirement Accounts for people who were born after 1950.
His critics said it was privatization.
In 2006 a newly elected Democratic Congress refused to vote on the proposals.
There were suggestions regarding Social Security and Medicare in 2010.
The report aimed to make Social Security solvent over 75 years through a number of measures, including smaller benefits for wealthier recipients, a less generous cost-of-living adjustment for benefits, and a slow rise in the retirement age.
Over 40 years, the amount of workers' income subject to the payroll tax would expand.
The report recommends capping growth in federal health spending to the rate of economic growth.
The recommendations were not considered by the new Congress.
A system where caseworkers help those in need.
The experts don't have enough resources to help those who have problems.
The poor should have political clout.
The poor would succeed if they elected officials sympathetic to their cause.
Local officials who are elected can create programs to assist the poor through community-based programs.
The culture of poverty should be broken if the government gives enough money.
Suggestions such as a guaranteed annual income and family allowance programs are possible.
The private sector should take over many of the government-sponsored social welfare programs.
The government would give the business tax credits.
Social welfare programs are a public policy priority.
Government's ability to continue to foot the bill will be an important part of the debate.
On the one hand, the government has a responsibility to the poor.
There is a proven track record for the programs that exist.
Many legislators voted against Medicare in 1964.
Because these programs are self-perpetuating and are the largest part of the federal budget, there is an ongoing effort to find ways of reducing their costs without reducing their effectiveness.
Major legislative initiatives to reform the welfare system, Medicare, and Medicaid were offered by the 103rd Congress.
Significant reductions in these programs as well as a move to give the states block grants became a major part of the Republican agenda and were eventually approved by Congress and the president.
Many of these programs were supported by the public.
A major reform of the entitlement programs is anticipated by most observers.
The New Deal and Great Society programs have been changed in a dramatic way.
Big business has been a big contributor to the Republicans.
Republican control of the legislative agenda can mean that big business gets a tax break, so this question is important in the unit dealing with the economy.
Choice A is an accusation made against the Democrats.
The Bureau of Labor Statistics keeps an eye on the unemployment rate, the Consumer Price Index, Gross National Product, and Gross Domestic Product.
Raising or lowering the discount rate is one of the ways the Fed tries to influence it.
The Fed will lower the interest rates if the economy is not doing well.
The Fed will raise the interest rates if the economy shows signs of inflation.
The Federal Reserve Board doesn't have the power to change taxes or price supports.
It hopes to influence inflation by raising and lowering the discount rate.
There is no guarantee that inflation will cooperate.
An economic policy that aims to keep the economy stimulated by the private sector through tax decreases such as a capital gains tax decrease or a reduction in the personal income tax is called an economic policy.
Choices A, B, C, and E are not endorsed by supply-siders.
The New Deal was developed by Franklin Roosevelt.
Lyndon Johnson was the father of the Great Society, and Bill Clinton believed that the government should be able to help the economy.
Herbert Hoover believed that the private sector could extricate the country from the Depression.
The president has the power to veto appropriations bills.
A preliminary budget is prepared by the Office of Management and Budget.
Executive agencies have defined spending limitations based on congressional approval of their budgets, and special interest groups attempt to influence spending packages.
The courts can't intervene in this situation.
When a continuing resolution is passed, government offices remain open.
The contingency budget suggests that approval is automatic.
When a continuing resolution is passed, that is not the case.
It can't print a lot of money because of economic conditions.
Foreign investors, money market funds, and commercial banks can be used to borrow money from the federal government.
The law made the process simpler.
The line item veto was approved by both houses of Congress, but not in conference.
The legality of Nixon's actions was never ruled on by the Supreme Court.
Congress passed a direction to balance the budget in 1995 but never passed a balanced budget amendment.
Spending limits were set by the Gramm-Rudman-Hollings Act.
Social Security and payroll taxes make up a small portion of the total.
Corporate taxes account for over 10 percent, while luxury taxes and tariffs are under 10 percent.
A flat tax is based on the idea that everyone should pay the same percentage of taxes.
A tax based on the premise that everyone has to pay a tax on essential goods is called a regressive tax.
A sales tax is an example of a regressive tax.
Supplemental Security Income, Aid to Families with Dependent Children, welfare, and food stamps are all examples of programs that are redistributive in nature.
Choice B is the philosophy of the block grant era.
Choice C is not accepted as a practical philosophy.
Choice D has been talked about, but private businesses don't have enough money to create a safety net for those in need.
Medicare provides healthcare benefits for senior citizens, Social Security provides money for those who contributed to the system and have reached the age set by law, and Medicaid provides for medical assistance for those who cannot afford it.
If a person is hurt on the job and can't return for an extended period of time, disability insurance provides money.
Choice B may be part of future Social Security reform because it was recommended by other commissions.
The questions should be answered based on the graph.
The Consumer Price Index is one of the indicators released by the U.S. Bureau of the Census.
The monetary policies of the Federal Reserve are influenced by the changes in the index.
The data is prepared by the Bureau of the Census based on reports from the Department of Labor.
The market basket list of goods and services is included in the reports for either a base year or the beginning of the calendar year.
Energy-related goods and services fluctuated a lot more than other market-basket items.
The rise and fall of items were calculated to reflect periods of inflation, economic stability, and economic recessions.
If the economy is sluggish and unemployment is rising, the Fed will lower interest and discount rates to encourage spending.
The Board can borrow money from member banks in order to boost the economy.
The percentage increase or decrease of goods and services compared to the base year prices of those goods is known as the Consumer Price Index.
Each trend has one point earned.
Energy-related goods and services fluctuated a lot more than other market-basket items.
Period of inflation, economic stability, and economic recessions were reflected in the rise and fall of all items.
The period from 1990 to 2005 saw low inflation based on all items in the index.
The discount and interest rates are raised by the Federal Reserve.