Taxes and the Federal BudgetWhere does all my money go and how does the federal government influence the economy?

Who has the power to tax? Constitution gives Congress the

authority to decide where money comes from and how it will be used “The Congress shall have the power to lay

and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and welfare of the United States” Article I, Section 8

Taxes…woo! What are they?

The money that people and businesses pay to support the government

Revenue: The money that the

government collects from taxes

Budget Appropriated money is

part of the Budget President proposes

his/her budget each year.

Operates in the fiscal year October 1-September

30th Reflects the federal

governments “needs and priorities”

Budget President does not have total control due to

uncontrollables: spending mandated by law or previous budgetary commitments.

Interest on national debt Most are entitlements: benefits Congress

has provided by law to individuals (Social Security, Medicare, Medicaid, veterans’ benefits)

(70% of money spent by Federal gov’t)

The Offices The Office of Management and Budget

(OMB) analyzes the economic consequences of the budget for the President.

The Congressional Budget Office (CBO) analyzes the economic consequences of the budget for Congress.

Economists for the OMB and CBO look at multiple inputs in order to make inferences about where the economy is headed.

Taxing and Spending National

government collected about $2.8 trillion in 2013.

The federal government still spent more than it took in, increasing the national debt.

Income Tax Individual Income

Tax is the federal governments biggest single source of income

Which Amendment??

Income Taxes Levied on taxable income total income

of an individual – deductions and personal exemptions.

Examples: charity, state & local income tax paid, home mortgage interest, other expenses (day care)

Personal exemptions : reduce the amount of money that is taxable dependents

Income Tax Income Tax is a progressive tax:

based on a taxpayer’s ability to pay. Higher income should mean a higher tax

rate. File taxes by April 15th and the IRS

handles about 200 million returns and documents.

Social Insurance Taxes Taxes collected to pay for Social Security,

Medicare and unemployment. Employees and employers share in paying

the tax and contributes. Do not go into government’s general fund

Go to Treasury Department’s special trust. Regressive taxes: people with lower

income pay a larger portion than those with higher income.

Excise Taxes Taxes on the manufacture,

transportation, sale, or consumption of goods and the performance of services. Used to be: carriages, snuff (smokeless

tobacco), and liquor. Now: gasoline, oil, cigars, cigarettes,

liquor, airline tickets, long-distance calls. “Luxury Taxes”

Customs Duties Levied on goods

imported into the United States (AKA tariffs). Higher =

protective tariff for American industry.

Raise prices of imports.

Fiscal Policy Fiscal Policy is the government’s use

of spending and taxation to regulate the economy.

Monetary Policy is the Federal Reserve’s control of the money supply to regulate the economy.

Stimulating the Economy

Using fiscal policy to stimulate the economy, the federal government might: Lower taxes Spend $$ on new

projects to create jobs These two reasons are

why the federal government frequently runs a deficit-it is spending money it does not have.

Cooling Down the Economy Using fiscal policy to cool down the

economy, the federal government might: Raise taxes Reduce federal government spending on

programs

Balanced Budget? Why doesn’t the federal

government balance the budget? Opponents of balancing

the budget argue it does not allow the federal government to use fiscal policy to respond to current economic conditions.

A balanced budget means the federal government cannot spend $$ it doesn’t have.

Regulations Why do you think the government regulates

various industries?

Regulations can have unintended consequences, such as depressing growth in various industries because it is too expensive to meet regulations. Protections, like tariffs, can raise prices on

goods while protecting American industries. Subsidies can encourage producers to be

inefficient, or to produce goods no longer wanted by consumers.