ChapterChapter

Government and the Government and the

EconomyEconomy13

Objectives:

Identify the three basic aspects of governmental spending

Describe the basic principles of taxation Differentiate between progressive,

regressive, and proportional taxes Explain how the national budget is

formulated Define budget deficits and surpluses

Recall: Chapter 11• Negative Externalities

• Public Goods

• Government Regulation

• Standards

Government Spending

Civics Connection: 3 levels of government:

– local, state, federal

Basic Aspects1. Major consumer of goods and services2. Transfer Payments3. Interest Payments

1970s-1980s

Interest 2%

US Budget

98%

Interest Payments

Government Bonds:– Loans the government

owes– Interest rates

2004

Interest 7%

US Budget

93%

Justification for TaxesWhat does the government spend taxes on?

• The principle of benefits received: Gas Tax

• The principle of ability to pay: Welfare

Taxes should be: – broad– simple– Fair– Ex: Income Tax?

Types of Taxes

1. Progressive2. Regressive3. Proportional

A. ExciseB. IncomeC. SalesD. PropertyE. Social Security

The National Budget

• Mandatory Spending

• Discretionary Spending– Defense– International– Domestic– Government Salaries

• Fiscal Year– October 1-September 30

The National Deficit

• Deficits=shortages

• Surpluses

• National Debt

I’m all out of credit on my card.

Can you raise the limit?

I’ll pay you back, I swear!