Page 343 - Encyclopedia of Business and Finance

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Fiscal Policy

Financial Accounting Standards Board (1987). Statement of surplus curtails the economy because now the government
Financial Accounting Standards No. 95: Statement of Cash does not buy as much, and fewer dollars get into the econ-
Flows. Norwalk, CT: Financial Accounting Foundation. omy.
Financial Accounting Standards Board (1993). Statement of
Financial Accounting Standards No. 117: Financial Statements
of Not-for-Profit Organizations. Norwalk, CT: Financial THE FEDERAL BUDGET
Accounting Foundation. In the United States, the fiscal process of the federal gov-
Financial Accounting Standards Board. (1997). Statement of ernment begins each February with the president sending
Financial Accounting Standards No. 130: Reporting Compre- to Congress a proposed federal budget for the coming fis-
hensive Income. Norwalk, CT: Financial Accounting Founda- cal year, which begins in October. Congress then develops
tion.
a budget resolution, which is to be completed by April.
Gross, M., McCarthy, John H., and Shelmon, Nancy E. (2005). The budget resolution contains overall revenue and
Financial and Accounting Guide for Not-for-Profit Organiza-
tions. Hoboken, NJ: Wiley. spending budgets as well as the budget amount of discre-
tionary and mandatory spending for each functional area,
Revsine, L., Collins, D.W., and Johnson, W.B. (2005). Financial
Reporting and Analysis. Upper Saddle River, NJ: such as discretionary and mandatory spending.
Pearson/Prentice-Hall.
BILLS THAT PROVIDE BUDGET
AUTHORITY
Victoria Shoaf
Bills that provide budget authority for annual discre-
tionary spending must be completed by June each year.
Legislative changes can also be made for mandatory
spending or tax provisions at this time. Any legislation
FISCAL POLICY that would cut taxes or increase mandatory spending,
however, must be accompanied by legislation that would
Fiscal policy is a term that denotes the approach that gov-
raise revenue or cut spending in other areas to pay for
ernment takes to managing the income it collects—usu-
these changes. Consequently, any new legislation in this
ally termed taxes—and the expenditures of those taxes. It
area must be “budget neutral” (income and spending
refers ordinarily to any level of government, including fed-
eral, state, municipality, and occasionally private organiza- must be equal).
tions such as Girl Scouts and Boy Scouts, private and According to the Financial Management Office, in
public organizations, and many other thousands of simi- fiscal year 2004, receipts for the U.S. budget totaled
lar organizations. $1,879,799 billion. Outlays totaled $2,292,352 billion.
The term fiscal refers to timing. It is an invention The deficit was $412,553 billion. (Differences between
designed to maximize the convenience of establishing var- any two figures may not be equal because of rounding dif-
ious beginning and ending times. An example would be a ferences. Sources of the above data are the Financial Man-
fiscal year that begins on October 1 and ends on Septem- agement Service, U.S. Department of the Treasury; and
ber 30. Fiscal policy is manifested in a government’s poli- the Congressional Budget Office.)
cies on taxation and expenditures. To obtain funds for
their operation, government units generally collect some FEDERAL GOVERNMENT REVENUE
form of taxes. Individual income taxes have been the federal govern-
Particularly in the case of the federal government, the ment’s largest source of funds for many years. Individual
expenditure of these funds not only provides goods and income taxes for the years 1999–2004 are as follows:
services for constituents, but, additionally, has a direct
impact on the economy. For example, the expenditures of 1999 $879,480 billion
the tax dollars may exceed the amount of the funds 2000 $1,004,461 billion
received by the government. (The government spends
2001 $994,339 billion
more than it receives.) The resulting deficit tends to stim-
ulate the economy. As goods and services are produced for 2002 $858,545 billion
government purchase, it puts extra money into the econ- 2003 $793,699 billion
omy and into the hands of the producers of those goods 2004 $808,958 million
and services.
But what if the expenditures of the government are The enormous impact of the Social Security system
fewer than the tax dollars received? (The government on the federal government’s budget is without question as
spends less than it receives.) The resulting governmental it is the largest outlay of the federal government every

320 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION