    [A Citizen's Guide to the Federal Budget]
    [1. What is the Budget?]
    [From the U.S. Government Printing Office, www.gpo.gov]

    What is ``the Federal budget''? It is:

    a plan for how the Government spends your money.

       What activities are funded? How much does it spend for defense,
       national parks, the FBI, Medicare, issuing passports, and meat and
       fish inspection?

    a plan for how the Government pays for its activities.

       How much revenue does it raise through different kinds of
       taxes--income taxes, excise taxes, and social insurance payroll
       taxes?

    a plan for Government borrowing.

       If spending is greater than revenues, the Government runs a deficit.
       To finance deficits, the Government has to borrow money.
       Government borrowing adds to the national debt.

    something that affects the Nation's economy.

       Some types of spending--such as improvements in education and support
       for science and technology--increase productivity and raise
       incomes in the future.
       Taxes, on the other hand, reduce incomes, leaving people with less
       money to spend.

    something that is affected by the Nation's economy.

       When the economy is doing well, people are earning more and
       unemployment is low. In this atmosphere, revenues increase and
       the deficit shrinks.

    an historical record.

       The budget reports on how the Government has spent money in
       the past, and how that spending was financed.

    The 1997 budget is a document that embodies the President's budget
    proposal to Congress for fiscal 1997, the fiscal year that begins on
    October 1, 1996. It reflects the President's priorities and his plan
    to balance the budget by 2002.

    [[Page 2]]

    The Federal budget, of course, is not the only budget that affects the
    economy or the American people. The budgets of State and
    local governments have an impact as well. While the Federal Government
    spends about 22 percent of the Gross Domestic Product (or GDP, which
    measures the size of the economy), State and local governments spend
    about another 11 percent (see Chart 1-1).

    State and local governments are independent of the Federal Government,
    and they have their own sources of revenue (taxes and borrowing). But
    the Federal Government supplements State and local revenues by making
    grants to them. Of the $961 billion that State and local governments
    spent in 1995, $213 billion came from Federal grants.

    Compared to six other industrialized nations, the United States
    allocates the smallest share of its GDP to government (Federal, State,
    and local combined), except for Japan (see Chart 12).

     Chart 1-1. Government Spending as a Share of GDP, 1995

    [[Page 3]]

    Chart 1-2. Total Government Outlays as a Percent of GDP