Master's level assignmentExamine the information about the merit system at the office of Personnel Management at the following OPM sites:U.S. Merit Systems Principleshttps://www.mspb.gov/msp/meritsyst

Introduction

In week 5 we will examine the process, issues and challenges of the budget process focusing on the Federal level. We will examine the history of budgeting.

The Budgeting Process

According to Wildavsky & Caiden (2003), budgeting, the budget processes, and even the budget setting agenda is inherently political and driven by political ideology and the various desires of political actors and their primary stakeholders.

Think this week about the Budget process as not being merely a bland exercise in mathematics, but as a battleground for resources which are obviously limited.  As deficits grow and constraints are implemented, every group is battling for every dollar. As you think about this, consider all the different special interest groups, each wanting more money for their interests. Then consider the number of tax dollars available for everything—all the special interests, purchasing things for government use, paying public employees, and all other government expenses. The budget process is a complicated process.

Much budgeting depends on an understanding of economics. Classical economists thought that cyclical swings in the economic picture would self-adjust.  When demand fell, prices and wages would fall. The lower level of inflation would cause employers to make capital investments and increase employment, which would stimulate economic growth. During this time, the federal government did not try to determine what was best for everyone.

This seemed to work until the great depression when John Maynard Keynes (1965) determined that another path was needed due to the exceptional depression. After studying the Great Depression, Keynes thought the government should increase expenditures and lower taxes during bad economic times, and do the opposite during good economic times. He considered savings bad for the economy. The government, in this theory, decided what was best for everyone in the country. Keynes’ theory is not used much in its original form today, though deficit spending has remained.

Though he did not originate the idea, Arthur Laffer (2016) hypothesized that when tax rates are extreme (such as 0% or 100%) no tax revenue will be raised. At some point, there would be a tax rate that would produce the maximum revenue. Laffer used the intersections of an “arithmetic effect” and an “economic effect.”  This is called the Laffer Curve. This is a very simple explanation of a more complicated concept. However, if we think critically about the situation, it is logical. If the tax rate is 0%, it doesn’t matter how much people earn, there will be no tax revenue. If the tax rate is 100%, few if any people would work to earn money as it would do them no good, again resulting in approximately no tax revenue. The result of critical thinking tells us that people’s actions change depending on the policy that government officials enact, and that tax rate increases do not always increase tax revenue, nor do tax rate decreases always decrease tax revenue (Sowell, 2012).

All this leads to some serious and complicated issues. The important thing to remember is that there are limited resources and unlimited wants. Unfortunately, this can lead the people competing for those resources to exaggerate the benefits of funding their proposals or the consequences of failing to do so. It can also lead some less ethical people to threaten canceling popular programs if their budget requests are not approved, rather than those that the taxpayers can most easily do without. For example, in 2002, Los Angeles County Sheriff Sherman Block was criticized for threatening to release hundreds of non-felon prisoners in response to budget cuts. Many critics argued that the sheriff could easily accommodate the cuts without releasing the prisoners.  (Berry & Therolf, 2002).  Have you experienced anything similar to Sheriff Block’s actions in your area?  Consider how this impacted the budget in your area and how successful such threats are.

Berry, S., & Therolf, G. (2002). Sheriff puts threat on hold. Los Angeles Times. Retrieved from http://articles.latimes.com/2002/may/31/local/me-release31

Keynes, J. M. (1965). The General theory of Employment, Interest, and Money. NY: First Harvest/Harcourt, Inc.

Laffer, A.L. (2016) The Laffer curve: past, present, and future. The Heritage Foundation. Retrieved from http://www.heritage.org/research/reports/2004/06/the-laffer-curve-past-present-and-future.

The Laffer Center. (2016). The Laffer Curve. Retrieved from http://www.laffercenter.com/the-laffer-center-2/the-laffer-curve/

John Maynard Keynes. (2008) The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved from http://www.econlib.org/library/Enc/bios/Keynes.html

Sowell, T. (2012.) Trickle Down Theory and Tax Cuts for the Rich. Stanford, CA: Hoover Institution Press Publication No. 635

U.S. House of Representatives: Committee on the Budget. (2016). The Budget. Retrieved from http://budget.house.gov/budgetprocess/

Wildavsky, A., & Caiden, N. (2003). New Politics of the Budgetary Process (Longman Classics Series), The (5th ed.). Longman.