the federal government taxes, spending, and national debt
TRANSCRIPT
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The Federal Government
Taxes, Spending,
and National Debt
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I. What is the role of the government in free enterprise economies?
A. To enforce private property rights- to establish the rules of the game
B. To monitor external costs and benefits- economic side effects of production (extern.)
C. To ensure market competition- enacting antitrust laws to keep mkts open
D. To protect consumers- from faulty products and false advertising
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E. To manage the economy
Sometimes the govt must intervene- WHY??
_____________________________________
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1. Monetary policy- regulating the money supply / Which government agency is responsible for doing this?? _____________________
• Federal reserve ratio
• Discount rate
• Open market
operations
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2. Fiscal policy- changes in the expenditures or tax revenues of the federal govt.
• Expansionary fiscal policy: an increase in govt spending &/or a decrease in taxes; designed to increase demand (spending by consumers) in the economy
Under what circumstances would the govt practice exp fiscal policy? _______________________________
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• Contractionary fiscal policy: a decrease in govt spending &/or an increase in taxes; designed to decrease demand (cut spending) and to control inflation
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Inflation- rising prices; purchasing power declines
Why would the govt ever need to raise taxes?
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Which policy is our govt practicing now- contractionary or expansionary? _________
• Demand-side fiscal policy: when govt policies affect consumers
• Supply-side fiscal policy: when govt policies target suppliers
List some examples: ___________________
___________________, __________________
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In which phase would we practice expansionary?
In which phase would we practice contractionary?
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Effects of expansionary fiscal policy:
1. Govt buys more G/ S
2. Businesses earn
more profit
3. Business haveMore money
to spend
4. Increased Spending leads to
Hiring moreWorkers
5. More jobsLeads to more
OutputIncreasing
GDP
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Predict the steps in contractionary fiscal policy:
1. Govt …__________
2. _____________________________
3. ________________________________
4. _______________________________
5. ___________________________________
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Which one works better?• Classical economics (monetarists)- says the
govt should rarely if ever interfere in the economy; it works least effectively at the extremes of the business cycle
• Keynesian economics- the govt should intervene in the economy b/c instability is inherent; fiscal takes longer to implement and take effect which means the economy could be over-corrected
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II. Taxes• This is how the
govt takes in money
• This money is then used to pay for the various programs and projects we receive
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Federal Government Revenue, in Billions, by Major Source, 1965 2008 �
Government revenue has soared by more than $1.75 trillion since 1965, in part because top marginal income, capital gains, and corporate tax rates were cut.
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A. Types of taxes (2007 est.)
1. Income taxes (personal and corporate)- taken out of our paychecks; accounts for 56.2% of total receipts = $1,357billion
2. Social insurance & retirement- 36.6% of ttl receipts = $884.1 billion (social security, medicaid, etc.)
3. Excise taxes- 3.1 % = $74.6 billion
4. Other receipts- 4.1% = $100.2 billion
B. Principles of taxation (what is fair?)
1. benefits received
2. ability to pay
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Type of Taxes as a Percentage of Total Federal Revenue, 2007
Social insurance taxes, which fund programs such as Social Security and Medicare, are now the second-largest source of revenue. Yet without reforms, dramatically higher taxes will be needed to pay for these programs.
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C. Tax structures:
1. Proportional- percentage paid is the same for everyone (flat tax)
2. Regressive- the percentage of income paid in taxes decreases as income increases
ex- sales tax
3. Progressive- as your income increases, so does your tax rate or vice-versa
ex- federal income tax
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Levels of Household Income Earners and their Proportion of the Federal Income Tax in 2005
The U.S. tax system is highly progressive. The top 1 percent of income earners, by household, paid 39 percent of all federal income taxes in 2005, whereas the bottom 50 percent paid a little over 3 percent. Further, 32 percent of all tax returns filed in 2005 were from people who paid no federal income tax at all.
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Are taxes an incentive?
_________________________________
Why do we tax certain products or industries?
Why do we want to raise cigarette taxes?
What other products/ industries are taxed differently? Why?
Do we ever use positive reinforcement in our taxation policies? How so?
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III. Federal SpendingFY 2007
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A. Mandatory- money that lawmakers are required to spend by existing law; most of it is for entitlements- social welfare programs that people are entitled to if they meet certain requirements such as FICA, medicare and medicaid , and other welfare programs
B. Discretionary- spending in which govt can make choices on what and how much to spend such as defense and education.
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• Social Security is #1 expense at 21% of the govt’s budget
• National defense is #2 at 19%
• Medicare 14%, Welfare 13.3 %
• Interest on the natl debt 8.9%
• Education is 3.2%
If you total all human resources, it is 64.5% of the budget
(2007 est. numbers)
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National Defense Spending as a Percentage of GDP, 1962-2007
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IV. National DebtA. Budget surplus- when we take in more
revenue than we spend
B. Budget deficit- when we spend more money than we take in
C. National debt- the sum of the budget deficits from year to year = all the money we owe with interest
• Where do we get this money from?
• Who do we owe it to?
• What is our national debt?
• Will we go bankrupt?