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2 BUDGETING IN THE UNITED STATES INTRODUCTION The United States finds itself at the beginning of the twenty-first century as the world’s dominant economic and military power. Even though the war in Iraq has shown the limits of U.S. military might and the U.S. economy is increasingly less dominant in the world,American influence remains strong.The United States is influential in budgeting just as it is in entertainment and culture. A. Premchand asserts that in budgeting, “U.S. institutions, systems, and intellectual debates have had and continue to have a pervasive influence, in one form or another, on the rest of the world” (1999, 83).That influence, he argues, is a function of direct U.S. administration, technical assistance, first implementation of innovations in budgeting such as Planning Programming budgeting (PPB), influence on new and emerging democracies, and the dominance of the academic literature on budgeting. We will examine Premchand’s assertion and begin our comparisons with the United States, but not with the intention of setting up U.S. practices as models to be emulated.While the United States may be influential in comparative budgeting, its constitutional system and budget institutions are considerably different than most parliamentary democracies. The United States’ system of separation of legislative and executive branches often results in divided party control, which can make budgeting more difficult. Federalism and extensive devolution of fiscal autonomy to subnational governments are other key structural characteristics of the U.S. system. Fragmentation and the division of control between national and subnational governments can make governing harder in some cases. Conversely, federalism can be a source of innovation in budgetary practices. The United States differs in other important ways as well. It is at the low end of levels of taxation and share of GDP allocated to government, but spends proportionately more on national defense than the vast majority of nations. Its tax structure relies more on payroll and income taxes than 35 on consumption taxes that dominate so many national tax systems. It has a larger private sector component in health care than most other nations. The United States has also shown volatility in fiscal balances, moving from a position of large and projected surpluses in 2000, to significantly high and persistent deficits in a matter of a few short years. We begin by looking at the economic and political context for budgeting in the United States. POLITICAL CULTURE AND THE ECONOMIC CONTEXT FOR BUDGETING IN THE UNITED STATES The United States still maintains the largest economy in the world, with a GDP in 2008 of $14.5 trillion (CBO 2007). It is among the top six countries in the world in per capita GDP (Economist 2006). Throughout its history, however, the United States has a political tradition of limited government, which extends into the realm of public budgeting. It might be accurate to say that Americans have a love/hate relationship with government. While many depend on government benefits and programs, tax cutting is usually much more popular than social spending, excepting Social Security and Medicare. While Europe was shaped by a rigid class system that defined an individual’s opportunities at birth, the United States had a more fluid class structure. The European notion of “noblesse oblige,” that the wealthy had an obligation to take care of the poor, was less present in the United States. Individuals, including the poor, were seen as responsible for their own condition. Partially as a result, social welfare programs emerged later in the United States than in Europe and, to this day, less extensively. In the United States, cultural beliefs surrounding the idea of individualism, values supporting private property and individual liberty helped shape the political and economic system, and subsequent budget choices. As we saw in chapter 1, the United States has a smaller public sector than all but a handful of developed nations. Federal spending composes around 20 percent of GDP, state and local spending another 10 percent or so, for a total “size” of government of less than one-third of the economy. This compares with 45–55 percent for many European nations today with more extensive social service networks. The low U.S. ranking on public social expenditure on a comparative basis must be understood in the context of the long-standing preference of Americans for private rather than public solutions. In terms of health care, for example, because most of the system is private, the United States actually spends more per...

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