fiscal policy what government can do for the economy
TRANSCRIPT
FISCAL POLICY
What government can do for the economy
Fiscal Policy and the Economy
How does the President and Congress affect the economy?
Control of tax rate.Proportional taxes (flat tax) – say 5% of everyone’s income whether you or Bill Gates.
Progressive taxes – Richer should pay more. Luxury taxes.
Regressive taxes – Taxes the poor tend to pay more. Lottery tickets, cigarette taxes.
Taxes
Majority of revenue for the US is through income tax. 45.2%
Second is Social security taxes and contributions. 35%
Third is corporate taxes. 11%
Recession
People have the money but don’t spend it.
Unemployment goes up.
GDP slows.
Fiscal Cures for Recession
Change the tax rates.Puts more money in the economy for Consumption and Investment.
Government Spending. Unemployment benefits, money for projects like roads, building improvements.
Fiscal Cures for Recession
Change the tax rates.Puts more money in the economy for Consumption and Investment.
Government Spending. Unemployment benefits, money for projects like roads, building improvements.
Problem of Fiscal Policy in 2006: The Deficit
When government SPENDS (outlays) more than they TAKE IN (receipts) in taxes for the year – DEFICIT.
Projected 2006 deficit is “around” $300-billion.
When a government increases spending and cuts taxes
When a government increases spending and cuts taxes
DEFICIT!
More outlays than receipts of money
More going out than coming in.
DEBT v. DEFICITDEBT v. DEFICIT
Deficit = yearly budget problem
Debt = YEARS of deficit
Current Debt????Current Debt????
http://www.brillig.com/debt_clock/
OR
Google: “debt clock”
Projected Deficits According to the Congressional Budget Office
What is causing the deficit?
Higher government expenditures
Social Security / MedicareWar in Iraq
War on terrorism
Government needs
Lack of taxes being collected due to
Too many tax cuts?
How do we pay for the debt?How do we pay for the debt?
US Savings BondsIOUs for the government.
Two Terms for Fiscal PolicyTwo Terms for Fiscal Policy
Expansionary PoliciesGovernment policy actions that lead to increases in output
Contractionary Policies
Actions that government does that leads to a decrease in output
Expansionary Policies
Government lowers taxes and spends more to get people jobs and provide services.
Increases debt
Keeps voters happy
More working means more we can tax
Contractionary Policy
To reduce the debt government either/or
Raises taxes
Reduces government spending.
People lose jobs– Govt. employees
– Govt. purchases
People lose services– Notice schools?
What is Government to do?
IF nothing is done, by 2020, 45% of taxes will be used to pay the interest off the debt.
Where will money come from for medical research? Roads? Police? Etc?
Nebraska’s Situation?