Public and Nonprofit Budgeting: Monetary and Fiscal Policies Analysis

This assignment delves into the intricacies of public and nonprofit budgeting, offering a comprehensive analysis of key economic concepts. It begins by differentiating between monetary and fiscal policies, highlighting their roles in influencing economic activity. The assignment then explores the distinctions between mandatory and discretionary spending, providing examples of each. Furthermore, it examines various types of taxation, including income, property, and sales tax, as well as tax expenditures. The assignment also investigates the reasons behind the 2019 US government shutdown, attributing it to disagreements over appropriations. Finally, it discusses the Earned Income Tax Credit (EITC) as a primary anti-poverty strategy, highlighting its impact on employment, income, and health outcomes. The analysis is supported by cited research and provides a clear understanding of the concepts presented.

Running head: PUBLIC AND NONPROFIT BUDGETING 1
Public and Nonprofit Budgeting
Student’s Name
Institutional Affiliation

PUBLIC AND NONPROFIT BUDGETING 2
Public and Nonprofit Budgeting
Q1. Differences Between Monetary and Fiscal Policy
Monetary and fiscal strategy are the two key recognized tools which are used in
influencing a nation's economic activity. First, the monetary plan concerns with handling interest
rates as well as the entire money supply in the market. Monetary policy is generally carried out
by the country's chief banks like the US Federal Reserve.
On the other hand, fiscal policy refers to the joint term for government spending and
taxing actions. In the US, the legislative and executive arms of the government are the one which
determines the national fiscal policy. The other difference between the monetary and fiscal plan
is that the later ensures that the economy is developing and growing through government revenue
collection and appropriate expenditure (Ramey & Zubairy, 2018). In contrast, the monetary
policy provides liquidity in the marketplace and makes a country's economy stable throughout.
Besides, monetary policy is established concerning the country's economic conditions while the
fiscal policy is formed annually after a review of the previous year's results. Also, fiscal policy
encompasses a reasonable political influence, while the monetary policy is not associated with
any political power.
An example of both the monetary and fiscal policy can be seen during the great recession
when the US government and Federal Reserve initiated a multipronged response. The monetary
policy took place because the Fed had to respond to the financial crisis during the recession
period. Hence, the crisis emergence made the Fed implement various programs for the provision
of short-term liquidity while still purchasing large quantities of US Treasury and mortgage-
backed securities. On fiscal policy, the US treasury, executive, and legislative arms took a swift

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action through deluging of new programs. The initiated programs pumped billions of dollars into
the economy and stimulated business and consumer spending.
Q2. Differences Between Mandatory and Discretionary Spending
Mandatory spending, which is also referred to as entitlements, is the one governed by
regulations outlined in enacted laws instead of being just periodic appropriations. Hence,
mandatory outlay is usually governed by constitutional criteria but not created by annual
appropriations acts. On the other hand, discretionary spending refers to any expense, which is not
mandatory. Discretionary spending is dictated by the annual appropriations acts that are passed
by Congress and signed by the President (Ramey & Zubairy, 2018). The appropriations are
subjected to various budgetary enforcement processes or rules which vary from the ones
applying to mandatory expenditure.
Examples of mandatory spending include entitlement agendas like Social Security,
Medicare/Medicaid, and other smaller programs such as deposit insurance and student loans.
Social Security, together with various other mandatory expenditure programs, are affected
indefinitely, although some like agriculture plans expire during a given period. Also, in many of
the Congressional budget process, tax legislation is regarded as mandatory spending. The
examples in discretionary expenditures include defense, transportation allocation, as well as
other federal government direct activities (Ramey & Zubairy, 2018). Almost all education
programs are discretionary except for small numbers like school lunch, vocational grants, student
loans, and some tax benefit programs.
Q3. Types of Taxation
Taxation is termed as imposing compulsory levies on individuals or even entities by the
government. The three types of taxation include taxes on income, property, and tax on goods or

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services. A tax expenditure is also another type of tax. First, income taxation is a type of charge
which is levied on personal or business revenue as well as interest income. Income taxation is
mostly progressive, which is an indication that the higher the income, the greater the taxation
rate. Income taxation applies to payroll, estate, and capital gain taxes. The other taxation type is
the tax on property, which is also known as ad valorem tax. Property tax is always imposed on
real estate value or other personal property. Property taxation is executed by local
administrations and regularly levied (Ramey & Zubairy, 2018). Other items subjected to property
tax include airplanes, automobiles, recreational vehicles, and boats. Property taxes are regressive
because individuals living in similar jurisdictions and having the property of the same values pay
equal tax regardless of their income.
The other type of tax is on goods and services, which is commonly referred to as sales
tax. Local and state administrations use this type of taxation to raise revenue. Sales tax is
considered a regressive form of taxation because poor people pay a large portion of their income
in sales tax compared to wealthy individuals (Ramey & Zubairy, 2018). The fourth taxation type
is tax expenditure, which refers to special tax code provisions like deferrals, exclusions, tax rates,
credits, and deductions benefiting a specific group of taxpayers or activities. A tax expenditure is
considered progressive because of creating liberal distribution effects and a way of mitigating
societal ills linked with income inequality.
Q4. Why the Government Was Shut Down In 2019
The current shutdown of the US government occurred because the annual appropriations
bill was not finished before the ending of the fiscal year. Almost half of them were done,
meaning that there was still a massive task at hand. Hence, the shutdown happened because
Congress and President Trump did not settle on the appropriations bill for funding government

PUBLIC AND NONPROFIT BUDGETING 5
functions in the fiscal year 2019. Also, there was no agreement on a temporary current resolution
that could extend the timeframe for the passing of bills.
The shutdown was an impasse because of President Trump demanding for $5.7 billion
state funds for constructing the US-Mexico boundary wall (Zaveri, Gates & Zraick, 2019). Thus,
the shutdown affected various departments because of several reasons. First, the shutdown
departments have a budget, but Congress had decided on what they want to spend money on and
the amount to use. Hence, the appropriations were held up since Congress could not agree about
the amount of money the Treasury should spend. The actual cause of the shutdown could be
termed to be political. However, the technical reason for shutting down is because the Treasury
lacked permission to pay the bills for the shutdown departments.
Q5. Why the Earned Income Tax Credit Is the US Main Anti-Poverty Strategy
The Earned Income Tax Credit (EITC) is an advantage for employed individuals having
little to modest-income. The credit is equivalent to fixed proportion incomes from the initial
earned dollar until reaching the maximum credit. The utmost revenue is remunerated till the
paychecks attain a definite range, after which it reduces with extra dollar pay until no available
proceeds. EITC is considered as the most extensive anti-poverty program because of reducing
the tax amount owed and giving a refund (CBPP, 2018). Also, the program subsidizes small-
income employed families and is the most efficiency anti-poverty plan for salaried-age
households. The program provides extra revenue and boosts employment for small-income
workers.
Besides, EITC encourages persons and key earners for married individuals to work.
Nevertheless, the credit appears as having a negligible impact on the number of hours persons
work when hired. Moreover, EITC is the most extensive anti-poverty program that improves

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health, especially for single mums and children. There is agreement among scholars that EITC
has encouraged single mums in entering the labor force. Mothers can experience health
improvements through decreased stress (CBPP, 2018). For children, there are fewer incidences
of low birth weight and improvements in nutrition, the home environment, as well as economic
and educational attainment. Also, EITC is known to increase household income. For instance,
the Congressional Budget Office estimated that EITC improved average lifetime earnings for
less-educated earnings by 17%. Consequently, EITC increases the probability of women
qualifying for their own Social Security benefits.

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References
CBPP (Center on Budget and Policy Priorities). 2018. “Policy Basics: The Earned Income Tax
Credit.” Washington, DC: Center on Budget and Policy Priorities.
Ramey, V. A., & Zubairy, S. (2018). Government spending multipliers in good times and in bad:
evidence from US historical data. Journal of Political Economy, 126(2), 850-901.
Zaveri, M., Gates, G., & Zraick, K. (2019). The government shutdown was the longest ever.