Introduction
The main objective of public budgeting is to accomplish the government goals and objectives within a given time frame (Guillermo & Rodrigo, 2008).
Therefore, public budgeting centers on the prediction of government expenditure, establishing the link that exists between the financial and human resources with the objective of realizing the goals, representing the governmental activities in monetary terms and recording the results of the struggle at the expense of political preferences.
Basic description of each budget
The government budget can take various forms at different levels of government such as operating, capital, proposed and departmental government budgets.
The operating budgets at the state and local levels usually govern the plan of approach regarding the expenses and revenues.
Operating budgets at the state level usually take charge of expenditures like appropriations in public educations, part operations at the state, government operations at the state appropriations for operations associated with economic development at the state level.
Capital budgets are used in financing long-term projects associated with infrastructure innovation and construction.
Proposed budgets are prepared at the state, federal and local levels of government as a predictor of the budgetary needs for the government at that particular level (Epstein & Thomas, 2000).
At the federal level, the budget proposal is prepared by the US president and the Office of Management Budgets.
At the state level, budget proposal is prepared by the state governors and the state budget officers.
The budget proposal at the local level is prepared by either the mayor or the officials who have been appointed to undertake the process of budgeting to be applicable within the local level of government.
The power to develop a proposed budget is usually considered as a vital agenda-setting power, implying that budgetary allocations usually prioritize the urgency at that particular level rather than the national directives.
Differences between Federal, State and Local budgets
The federal budget can be used to influence currency circulation through the Federal Reserve while the state and local governments cannot monitor the irculation of money using their budgetary allocations and capabilities (Smith & Lynch, 2003).
The federal budget can be used in regulating the national economy through the use of interest rates in order to keep track of inflation and stimulate the economy , while the state and local budgets cannot make use of their budgetary tools to control and monitor the interest rates, meaning that their budgets cannot have a direct impact on the economy compared to the federal budget.
The federal budget can deploy deficit expenditure to realize eider economic goals and microeconomic policies while the state and local budgets cannot use this concept to influence the economy.
Federal budget is applicable with matters of national defense, the state and local budgets on the other hand are applied on a smaller scope revolving around state and local issues respectively.
Sources of revenue for Federal budget
- The federal budget relies mostly on the federal taxes, which comprises of:
- Individual and corporate taxes;
- Excise taxes;
- Social security taxes;
- Inheritance and estate taxes and capital gains tax.
- Individual income taxes and payroll taxes are the primary source of revenue for the federal budget.
- The following figure shows the contributions to the federal budget for 2011.
- Other sources of revenue for federal budget include government borrowings such as treasury bonds and user charges (Tax Policy Center, 2011).
Sources of Revenue for State budget
The primary source of revenue for the state governments include intergovernmental transfers, state taxes, licenses, lottery and borrowing such as state bonds (Baumol & Alan, 2006).
State taxes includes individual and corporate taxes, sales taxes, fuel taxes, inheritance and estate taxes and special taxes that are imposed on particular commodities such as alcohol and tobacco (Smith & Lynch, 2003).
The following chart indicates the revenue contribution for local budgets for the fiscal year 2008.
Breakdown of the federal, state and local revenue and how the budget fit within each of their domain
Federal revenue usually contributes the largest portion of the total national revenue.
Tax Policy Center reports that federal revenue comprised 50 cent of the total national revenue, state contributed approximately 30 percent while the local government contributed the remaining 20 percent.
The federal budget can be adjusted in order to meet the macroeconomic policies adopted at the national level, mandatory expenditure and entitlements at the national level (Guillermo & Rodrigo, 2008).
Changes in Government Revenue in Future
A reduction of the tax revenues, global recession and financial crisis have had negative implications on state and local budgets, which has compelled the states and local governments to set up strict measures in order to maintain their budgets.
Loans and grants from the federal government has played a significant role in maintaining the revenue levels for the state and local government budgets.
The budget appropriations under the federal government have also been increasing at a modest rate; an increase in the federal revenue also means an increase in the revenue for the state and local government budget (Bovaird & Loffler, 2000).
In cases where the federal aid has proved inadequate to help in stabilizing the revenue for state and local budgets, governments at this level are deploying strict policies in order to meet their financial goals and objectives.
It is projected that taxes are bound to increase in future depending on the policy scenarios that will be implemented by the future governments.
The following graph shows high the tax burden is likely to increase in the United States given the current state of policies that have been implemented by the government.
References
Baumol, W., & Alan, B. (2006). Macroeconomics: Principles and Policy. New York: Thomson South-Western.
Bovaird, T., & Loffler, E. (2000). Public management and governance. Oxon: Routledge.
Epstein, G., & Thomas, F. (2000). Monetary Policy, Loan Liquidation and Industrial Conflict: Federal Reserve System Open Market Operations in 1932. Journal of Economic History, 44, 56-60.
Guillermo, P., & Rodrigo, L. (2008). Fiscal policy, stabilization, and growth: prudence or abstinence? Washington DC: World Bank Publications.
Smith, R., & Lynch, T. (2003). Public Budgeting in America. New York: Pearson/Prentice Hall.
Tax Policy Center. (2011). Tax Topics. Web.