TaxesTaxes

Limitations on taxesLimitations on taxes

May be levied on for public purposesExport taxes are prohibitedDirect taxes must be proportional according to a states' populationIndirect taxes must be levied at the same rate throughout the country

Federal Government limitations on Federal Government limitations on statesstates

1) may not tax State or local governments in the exercise of their government duties

2) May tax nongovernmental State and local activities, such as tax on State-sold liquor

Types of revenue-raising taxesTypes of revenue-raising taxes

Individual income taxCorporation income taxSocial insurance taxes (Medicare, unemployment compensation,etc)Excise taxesEstate and gift taxesCustoms duty

Taxing for non-revenue purposesTaxing for non-revenue purposes

Congress levies taxes to regulate activities deemed harmful to the public

This power is limited by the Constitution and by the Supreme Court

Difference between a progressive Difference between a progressive tax and a regressive taxtax and a regressive tax

Progressive taxes are levied according to level of income

while regressive taxes are levied at a flat rate

Nontax RevenuesNontax Revenues

Sources of interest that the government collects as nontax revenues:

1) loans made by some federal agencies

2) canal tolls3) fees for passports4) copyrights5) patents & trademarks

SeigniorageSeigniorage

This is the profit made by the U.S. MintThey can make money for more than its face value

Postal ServicePostal Service

The United States Postal Service is one of the only governmental corporations that generate nontax revenue for the government

Borrowing MoneyBorrowing Money

Reason to borrow money:

1) meet costs of crises2) to finance large projects3) pay for deficit financing

How the government borrows How the government borrows moneymoney

The treasury issues securities to investors

These securities take the form of treasury bills

The government promises to repay them with interest on a certain date

The Public DebtThe Public Debt

Over the past 20 years there has been a trend regarding public debt.

The debt has increased tremendously with no signs of decreasing.

InterestInterest

A fee for borrowing money

Generally a percentage of the amount borrowed

DeficitDeficit

The yearly shortfall between income and spending

When spending is higher than income

SurplusSurplus

The yearly excess between income and spending

When income is higher than spending the public debt is reduced

1998 was the last time there was a surplus

Public DebtPublic Debt

The government's total outstanding indebtedness

Including all the money borrowed and yet repaid

Plus the accrued interest

Debt held by the GovernmentDebt held by the Government

Social Security, civil Service Retirement,

Military Retirement, Medicare, Unemployment

Insurance, Highway and the Airport, the Airway Trust Funds

Spending and the BudgetSpending and the Budget

Controllable SpendingControllable Spending

Meaning: Congress and the President decide how much will be spent on a specific item in the budget

Examples: Military, Education, environmental protection

Uncontrollable spendingUncontrollable spending

Meaning: spending that Congress and the President have no power to change

Examples: Social Security, food stamps, Medicare

SpendingSpending

The President initiates the spending process

This serves as a political statement since it serves as a plan for the execution of public policy (ie where is the government's money going to be spent)

More SpendingMore Spending

The three categories that the government has spent the most money on is:

1) Social Security2) Treasury3) Health and Human

Services

Budget-making processBudget-making process

Begins with each federal agency submitting its spending plans to the OMB (Office of Management and Budgeting)Congress reviews the budget, holds hearings and prepares appropriation bills

EntitlementEntitlement

Any benefit that federal law says must be paid to all those who meet the eligibility requirementsExamples: Medicare, Medicaid, Social Security, OASDI