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

    The Federal budget 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 1998 budget is a document that embodies the President's budget
    proposal to Congress for fiscal 1998, the fiscal year that begins on
    October 1, 1997. It reflects the President's priorities and his plan
    to balance the budget by 2002.

    [[Page 2]]

     Chart 1-1. Government Spending as a Share of GDP, 1996

    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 21 percent of the Gross Domestic Product (or GDP, which
    measures the size of the economy), State and local governments spend
    about another 10 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 $939 billion that State and local governments
    spent in 1996, $211 billion came from Federal grants.

    As shown in Chart 1-2, compared to six other industrialized nations,
    the United States allocates the smallest share of its GDP to government
    (Federal, State, and local combined).

    [[Page 3]]

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