Descriptions of Types of Budgets - Research Paper Example

? REVIEW OF REVENUE s of types of budgets a) Federal Budget Budgeting in federal governments is an extremely complex procedure which involves a series sub processes accompanied by many rules and procedures formulated by persons both in the legislative and the executive arms of government. In the process of making a federal budget, the congress is conferred with the power of the purse which mandates them to set policies of setting revenues and policies that direct borrowing for the federal government in question. They also in the policies direct how the resources are spent with regards to the key provisions of the constitution like Article I, Section 8, Clause 1 providing power to tax and spend; Article I, Section 8, Clause 2 provides power to borrow funds and Article I, Section 9, Clause 7 that provides the procedure from which funds are withdrawn and appropriations made. Regarding federal budgets the constitution dictates that revenues must originate from the House of Representatives. Outside the constitutional requirements the constitution does not provide how the house and senate should organize themselves or the procedure they should use to budget. The federal budget of any given country is formulated annually while forecasting the amount of money to be spent on a variety of expenses in a year (Calleo, 1992). b) State budget Unlike federal budgets which are made by the congress and submitted to the president for approval or vetoing, state budgets are developed by the respective state agencies and then they submit the budget estimates and budget proposals to the governor. The governor after that is responsible approving the budget and the same budget being enacted by the legislature, after this the respective agencies implement the approved programs and policies which must be within the budget estimates implemented by the legislation (CanagaRetna, 2011). Once the governor proves that the budget is consistent with the executive policy frameworks, they recommend the budget to the legislature. The appropriation bills like any other legislation are conferred with veto powers but can be rejected totally or in part within a defined number of days. After a state budget is put to action, the governor is only left with administrative roles which include monitoring the expenditures and the implementation of legislative policy directives (CanagaRetna, 2011). c) Local Budget This is a type of budget that provides a financial plan for a local government. The mere definition that the budget is a financial plan is more complex than just compiling annual reports that are approved by the local fiscal authority. In the local budget, the fiscal body and taxpayers identify the operating which is deemed vital for the successful operation of the local government for any given period of time. The role of preparing and implementing a local government budget is placed of the finance department, the local authority executive offices as well as the local legislative bodies like the city council and school boards. It is through the local budgets that the public priorities will be determined annually and in addition the mode of generating public funds and the parties responsible for repaying them (Gianakis & McCue, 1999). d) Agency Budgets An agency budget is that which is distinct to the formalization and operations of agencies is. Such budgets reflect the actual expenditures with regards to the publications of comprehensive fiscal report. Agency budgets takes keen acre of the organizations involved with regards to the established agency relationships. Differences and similarities of each budget Federal, state, local and agency budgets may appear similar in the diverse sense yet quite different and unique in their own making. A budget is an allocation statement of states resources to help in achievement of the organizational goals with scarce organizational resources (Hiber, 2010). A budget is a financial plan defining the ways in which an organization intends to receive funding and areas to make the spending, therefore, a budget is a prediction of expenditure, a way of an organizational achievement of goals by linking human behavior and financial resources. The other definition are that a budget s the monetary representation of any government activity. A budget is required for two major reasons that are for accountability and prioritization with it is major components being revenues and expenditures. For revenues, the US government through the president and the congress looks for amount of money the government needs to spend in a given fiscal year by finding the individual units they need to spend it on. They then decide on how to raise the money they intend to spend (Calleo, 1992). Depending on the level of government that is whether they are federal, state or local; their revenue sources will always differ. The federal government roots it’s funding from the federal taxes which may be individual and corporate taxes, capital gain and excise taxes, social security tax and inheritance taxes. They also borrow and use charges. State governments on the other hands get their finances from intergovernmental transfers and state taxes which ranges from sales, fuel, inheritance, special and individual taxes. Other sources include lottery, borrowing through state bonds and license fees from businesses, occupation and motor vehicles. Local governments also share sources such as intergovernmental transfers and local taxes like property taxes and sales tax. Other sources are from special assessments, user fees/charges and borrowings using local bonds (Gianakis & McCue, 1999). The main classes of public expenditures are public program budgets, capital budgets, debt servicing and administration which include personnel and other costs. While federal governments are endowed with the responsibility of legally printing money and monitor their circulations through the federal reserves; state and local governments on the other hands cannot mint money (Calleo, 1992). While the federal governments are responsible for the regulation of the economy through interest rates and control of inflation, state and local governments do not possess such controls. The federal governments are therefore in the position of indulging in deficit financing of their budgets as they are in the position of monitoring the economy. State and local government on the other hand are not able to indulge in large scale deficit spending. In addition, federal governments are in charge of national defense of which state, local and agency governments are not responsible for these types of expenses which are quite secretive Housing-related agency budgets for fiscal year 2004. What accounts for the major sources of revenue for each? Sources of revenue for the federal budget The federal government generates its funds from a variety of sources which range from individual income taxes which accounts for about 82% of all the revenue of the federal government (Gianakis & McCue, 1999). They also get funding from corporate taxes which contribute to around 9% of the federal revenue. Other forms of taxes contributing to the federal revenue are; excise taxes, estate and gift taxes, customs duties and earnings from the Federal Reserve System including fees and charges which makes up the balance. Half a century in the past, collection from taxation has drastically changed with the percentage coming from individual income taxes remaining quite constant. Payroll taxes have taken a larger contribution of the revenue while corporate income contributes very little. Federal revenue has ranged form 14% in 1950 to 20% in the year 2000 that is over the past five decades. Even in 1950, individual incomes remained the greatest contributor to the revenue. Following the creation of the Medicare payroll taxes went up due to the taxation of Medicare and increased social security taxes. Fall in taxation contribution from corporate taxes fell from 5% in the year 1950 to 1.3% in the year 2010 with excise taxes falling steadily from 3% to 0.5% in the recent times (Maxwell & Aronson, 1977). Sources of revenue for state budgets For the state governments, state and local tax policies are the major sources of taxes. In the year 2008, the states collected an average of $1.5 trillion from which over 28% of this acme from the federal governments with some smaller percentage coming from the local governments. Others are retrieved from state taxation, fees and miscellaneous receipts. Over 29% of the funds are got from intergovernmental transfers with the largest of the state taxes being got from sales and gross receipts (Gianakis & McCue, 1999). Sources of revenue for the local government budgets The local governments get their revenues from the transfers of both the federal and state governments. The other sources range from local taxes, fees and receipts from miscellaneous transactions (CanagaRetna, 2011). The local government taxes can come from rates that keep changing from time to time with the largest receipts being derived from sales of goods and services. in the year 2008, the local governments received much of their funding and in fact over 30% from intergovernmental transfers. Their local taxation of property contributed to 28% of their earnings with charges and miscellaneous receipts being only 23% of the local government revenues. Sales taxes, gross receipts taxes, individual income taxes and other sources accounted for a mere 12% of the total local government revenues. Sources of revenue for Agency budgets According to Housing-related agency budgets for fiscal year (2004), agencies are independent government branches that are aimed at providing services to the citizens like the Postal Service Corporation; hence they are referred to as Human Service Organizations in most case. They get funding for their budgets from a variety of sources which range from contracts from local and state governments as well as federal governments which it uses to fund for its activities. The other source are grants from both government and private organizations while the others are the money held in reserves which has proved to be the long lasting source as grants and contracts are not permanent. They also get funding from government cutbacks when government trims its budgets (Hiber, 2010). How are the revenue amounts expected to change in the future? An examination by the Congressional Budget Office has projected that pressure is likely to surge on the budget by the US resulting into a reduction in its budget, this presents an agency into new projections and interventions on both the spending by the federal states and their revenue over the decades to come (Maxwell & Aronson, 1977). The aging population under the current laws and regulations is likely to put a pressure on the federal budgets by increasing the expenditure on health care programs and increased social security funds. The federal budget is likely to grow into unsustainable debts if the revenue collections arte not increased at the rate at which the spending is growing (Ott & Ott, 1977). This problem can be corrected by the policy makers who should ensure that adequate policies are created to establish a consistent budgetary path hence allowing revenues to increase with a corresponding amount to the growth domestic product. On the other hand unnecessary spending must also be cut significantly. The two economy regulators of spending and taxation can also be used simultaneously to create a balance (CanagaRetna, 2011). Since the World War II, the US has consistently recorded an increase in deficit in their budgets of which the largest amount of such deficit is held with the public and is consistently in the increase. By the end of the year 2008, a record high public debt of 40% less by 4% the national average since World War II, this percentage is as compared to the national GDP and is computed with relation to the experienced large budget deficit. The debt is projected by the CBO to reach a record high of 62% of the national GDP by the end of next year which would be the highest since the World War II. The cause of the large deficits is realized to be the very low tax revenues and the ever increasing public spending, this debt is also recorded to emanate from the lack of balance between the spending and revenues which derails much of economic development (Calleo, 1992). After the sharp increase of about 62%, the budget deficit will be expected to fall over the next few years as a result of the recovery of the economy and the adoption of effective and efficient policies (Gianakis & McCue, 1999). The crop up of the baby boomers period will result into the increase of the population intended to depend on the lean social security, and Medicare, this will result into more spending on the per person basis on the population on healthcare and other related goods and services for the next many years. The impacts of such costs on healthcare, demography and the general economy can only be averted with substantial changes in the government policies which can boost the federal outlay as compared to the GDP. The CBO projection on a must healthcare expenditure is set at a constant increase of from 5% to 10% in the year 2035 if the current laws and regulations are not changed. These impacts integrate the budgets in the current year which have the impact of increasing the federal spending by a large percentage within the next 10 years and even proceed to other decades to come (Maxwell & Aronson, 1977). If all the parts of the healthcare bill are implemented they are likely to again reduce the spending on healthcare and social security by 2030. The CBO also projects that the spending on social security will also increase as a result of the current laws from 5 % today to about 6% in the year 2030 after which it will stabilize. 25 years from now, factors like the CBO projects, the age brackets of the population and expenditure on Medicare will result in the increase of spend from 10% to 16% of the GDP for the next 25 years. The aggregate spending by the federal government on all its programs and expenditures is projected to average at 18.5% of the GDP over the next 40 years (CanagaRetna, 2011). The CBO and the relevant government organs have made decisions to formulate favorable government policies and laws to govern the future anticipated changes. They have decided to do so by integrating the current laws together with the current and expected future expenditures vs. the revenues. Under such integrations, the tax cuts enacted between the year 2001 and 2003 which are due to expire, the growing need for the alternative minimum tax and the mode in which the current tax systems interact with the level of economic growth is projected to result into higher average tax rates which will raise the level of revenue significantly above expenditure levels. The moderated laws and policies are predetermined to raise the level of revenues to about 23% of the GDP by the year 2035 which is quite higher that has been experienced before (Ott & Ott, 1977). On the other side the overall government spending on all its activities and programs is presumed to be significantly on the decline to the lowest percentage that has never been witnessed before. The public debt will therefore decrease from the current high level against the GDP to a record lower since the World War II. Actually, the growth in federal debt as held by the public will be from 62% currently to about 80% by 2035. Interest payments will rise from the current 1% to about 4% against the GDP by 2035. Such interests absorb so much of the federal resources which could have been employed on better development sectors by up to about a sixth of the revenues by the federal governments (Maxwell & Aronson, 1977). With combined policies, the federal debt will be on the rise very fast than expected; the exceeding expenditure over revenues will raise the debt to 87% of the GDP. Debts will therefore be pushed to unsustainable levels due to the imbalance between the spending and revenues from the expected record high of 109% in 2035 to a skyrocketed 185% in the same year. There is therefore no scenario among the ones discussed that represents the predictions by the CBO fro the coming decades hence there is a very serious fiscal challenge facing the United States in terms of the budget (Calleo, 1992). How does the budget fit with the mission of each domain? The budget of the federal government fits with the mission of each of the domains which requires the collectivity between the federal, state, local and urgency domains. The budget is one of the efficient ones since it gives a projection and in addition formulates the ways of meeting the projections in the budget provisions. The unfavorable rules, laws and regulations are simplified through the regulations of the mandatory provisions (Ott & Ott, 1977). For example the procurement agency proposal which were considered long and tedious are today quite simple and in line with the economic growth goals. Laws and regulations are also well laid to address the issue where expenditures exceed revenues resulting into larger deficit in debts. It is estimated that by 2035, the deficits are likely to decline due to the incorporation of the favorable laws and policies established by the CBO (Gianakis & McCue, 1999). The budgets still remain relevant with the defined domains as the sources of revenue are quite corresponding. For federal government they are purely and largely through taxation while for the other forms of government they are integrated across from corporate taxes and rates to a larger contribution by the intergovernmental transfers. The scenarios discussed under the long term prospects integrate the policies of the CBO which are likely to have impacts in the next decade. Such policies as discussed with relevance to the budget are not actually the same hence if they are implemented their budgetary and economic impacts are likely to shift the balances in the budgets. The domains and the budgets are hence closely related to ensure that a balance between revenue generation and expenditures exists to eliminate the ever rising public debt (CanagaRetna, 2011). Ways of improving the budget and revenue estimation access A budget is a planning tool that helps steer any organization’s future through guided expenditures and sourced ways of getting the funds. The budget can therefore be improved by looking for ways of sourcing that is ways to find resources through taxation and devised ways of controlling expenditures (Gianakis & McCue, 1999). Budgeting as one of the non-value added activity in financial management aids in the preparation of budgets to allocate and provide control of the future resource use. Budgets are therefore faced by the difficulty in prediction of the future one of the causes being that the top level parties in the budget making process do not communicate with the middle level or the actual individuals who makes the budgets. Budgets are therefore likely to be futile as a result of poor communication among the major decision makers, overcrowding of the budget making process and incorporation of outdated events in a budget. The first thing to find out about a budget to ensure the effectiveness and efficiency in the budget making process is the expectation from the budget of which for our case is the projection of more revenue sources to eliminate the public debt which may lead the country into a crisis financially if ignored (Hiber, 2010). The other objective in our federal budget is identification and elimination of projects and activities which are not necessary or outdated hence limit expenditure in such so that the anticipated margin so realized. The budgets should be projected under projected strategic processes which will integrate all the surrounding factors; inside and outside events that may influence a budget (CanagaRetna, 2011). The budgets should also be flexible hence easy to revise. The government budgets should be prepared in such a manner that incase of a prop up of any new data due to the turbulent nature of the environment in which the government operates such as rapid foreign exchange fluctuation and interest rate shift, the data may be incorporated easily (Calleo, 1992). The cost centers of the budgets should be flexed in a way that the public opinion can be properly integrated. In a nutshell, making a budget is a continuously changing process hence a budget must be able to react to constant environment changes for it to be a value adding activity as it should be (Hiber, 2010). References Calleo, D. P. (1992). The bankrupting of America: how the federal budget is impoverishing the nation. New York: W. Morrow. CanagaRetna, S. (2011). State of state budgets. Atlanta, Ga.: Southern Legislative Conference of the Council of State Governments. Gianakis, G. A., & McCue, C. P. (1999). Local government budgeting a managerial approach. Westport, Conn.: Quorum. Hiber, A. (2010). The federal budget. Farmington Hills, Mich.: Greenhaven Press/Gale Cengage Learning. Housing-related agency budgets for fiscal year 2004: hearing before the Committee on Financial Services, U.S. House of Representatives, One Hundred Eighth Congress, first session, March 5, 2003.. (2003). Washington: U.S. G.P.O. :. Maxwell, J. A., & Aronson, J. R. (1977). Financing State and local governments (3d ed.). Washington: Brookings Institution. Ott, D. J., & Ott, A. F. (1977). Federal budget policy (3d ed.). Washington: Brookings Institution. Read More