warm up how does the government gain revenue?. government revenue
TRANSCRIPT
Warm Up
How does the government gain revenue?
Government Revenue
Taxes
Government’s primary means of raising revenue.
Mandate to pay an amount of income to the State for the “greater good” of the state.
Economic Impact of Taxes1. Resource Allocation - factors of production
are affected. Cost of production is raised and causes supply and demand curve to shift.
2. Behavior Adjustment - Taxes can encourage or discourage certain types of spending.
http://www.nbclearn.com/portal/site/k-12/browse?cuecard=66153
Sin Tax - a high tax on socially undesirable products such as liquor or tobacco.
Economic Impact of Taxes3. Productivity and Growth - taxes can give
incentives to save, invest, and work.
Incidence of TaxThe final burden of the tax
Example: An electric company is taxed by the local government. The electric company then increase their rates to pay this tax and the result is that the consumers pay for the tax.
The more elastic a product the more the burden falls on the producer. The more inelastic a product is the more it falls on the consumer.
Criteria for Effective TaxesSome taxes are needed. How to make them effective…
1. Equity - taxes should be fair and equal. Loopholes (exceptions that allow certain people or firms to not pay tax)create unfairness in taxes charged.
2. Simplicity - Taxes should be easy to understand. Example: Sales tax/Income tax
3. Efficiency - tax should be easy to administer and successful and generating revenue.
2 Principles of Taxation
1. Benefit Principle - Those who benefit from government goods and services should pay in proportion to the benefits they recieve.
2. Ability to Pay Principle - People should be taxed according to their ability to pay. Example: income tax
Types of Taxes
Proportional Tax - imposes same percentage rate of taxation on everyone, regardless of income.
Progressive Tax - a tax that imposes a higher percentage rate of taxation on persons with higher incomes.
Regressive Tax - a tax that imposes a higher percentage rate of taxation on low incomes than on high incomes.
Federal Tax System
Individual Income Taxhttp://www.nbclearn.com/portal/site/k-12/browse?cuecard=69467
A. 16th Amendment - 1913 - constitutional right to collect taxes on income
B. Payroll Deduction - IRS - employer automatically deducts
C.Progressive Tax
Federal Tax System
FICA(Federal Insurance Contribution Act) Taxes
A. Social SecurityB. Medicare
Federal Tax System
Corporate Income Tax - tax corporations pay on profits
Other Federal Income TaxesA. Excise Taxes (Sin Tax)B. Estate and Gift Taxes - tax on transfer of
propertyC.Custom DutiesD.Miscellaneous Taxes
State and Local Taxes
State Government Revenue Systems
A. Intergovermental Revenue - Largest SourceB. Sales Taxes and FeesC.Choice Tax - Lottery
State and Local Taxes
Local Government Revenues
A. Intergovernmental Revenue - Largest Source
B. Property Taxes
Current Tax IssuesReagan’s Tax ReformA. Reduced corporate income tax
a. Went from 16 tax brackets to 6
Alternative Minimum Tax - the personal income rate that applies whenever the amount of taxes paid falls below some designated level
Value Added Tax (VAT)B. added tax at each level of productionC.Used in EuropeFlat Tax - proportional tax on individual income after a specific threshold has been reached
Quiz
1. Describe how taxes can affect people’s behaviors.
2. List and explain the 3 criteria to evaluate taxes.
3. Explain FICA4. Explain Reagan’s tax reform5. Describe the excise tax.
Warm Up
Explain the difference between the “Benefit principle” and the “Able to pay” principle.
Economics of Government Spending
2 Types of Government Spending
A. Goods and Servicesa. Tanks, planes, ships, people for agencies,
land for parks….
B. Transfer Paymentsa. Social Security, welfare, unemployment and aid
Impact of Government Spending
A. Affecting Resource Allocation - what government decides to spend money on effects where resources go.
B. Redistributing Income - influence how much income is brought into households
C.Competing with Private Sector - ex: public universities vs private
Federal Government ExpendituresEstablishing the Federal BudgetA. Executive formulation
a. President establishes budget for multi year periodb. Confers with government agencies and cabinetc. By law federal budget must be presented to
congress.
B. Action by the housea. Sets sub committees and appropriations bills
C.Action by the Senate - Review House budgetD.Final Approval - Senate and House approve
new budget and send back to president.E. Government shutdown
Major Spending Categories
● Social Security● National Defense● Income Security● Medicare● Health● Debt● Education● Employment● Space and Technology● Veteran’s Benefits
State and Local Government Expenditures
Approving SpendingA. Balance budget amendments - budget does
not exceed revenueState Government ExpendituresB. intergovernmental expenditures - funds that
one level of government transfers to another level. example: education
C.Public welfareLocal Government Expenditures
Deficits, Surpluses, and the National Debt
From the Deficit to the DebtA. Deficit Spending - spending in excess of
revenues collectedB. Deficits add to the debt. Government
borrows money through bonds. All outstanding debts including bonds are considered the Federal Debt.
C.Federal Debt is currently around 17 Trillion Dollars
http://www.usdebtclock.org/index.htmlD.Public vs Private Debt
Deficits, Surpluses, and the National Debt
Impact of the National Debthttp://www.nbclearn.com/portal/site/k-12/browse?cuecard=48218
1. Greater taxes taken from upper income 2. Transfer of purchase power from private to
public = more taxes less purchasing power.3. Crowding out effect - higher than normal
interest rates that heavy government borrowing causes.
Taming the Deficit
1. Gramm - Rudman - Hollings: attempt to control deficit in 1985 by balancing the budget by 1991. Called for President and congress to balance. Failed b/c of a loophole to spend and decline in economy.
2. Budget Enforcement Act of 1990: “Pay as you go” provision. Can only be used with discretionary spending and is suspended in times of economic low growth.
Taming the Deficit
1. Omnibus Budget Reconciliation: President Clinton Act that attempted to trim deficit by $500 Billion in 5 years. This was done by limiting spending and increasing tax on higher income households.
2. Balanced Budget Agreement of 1997: Spending caps on discretionary spending. Unfortunately cut out of healthcare and education.
QUIZ
1. Draw a flowchart explaining how the federal budget is formed.
2. List and describe the impacts of government spending.
3. Which of the attempts to “tame the deficit” makes the most sense to you and why?
Money Video
1. What is the purpose of having currency?2. List the security features on the dollar bill?3. Explain the steps in making the dollar?
Money & Banking
1. Copy and Paste the link below into the address bar:
file:///C:/Users/e134435/Downloads/chap11.pdf
2. Answer questions beginning on the next slide
Questions1. Define the following:
1. Wampum2. Fiat Money3. Great Depression4. Federal Reserve system5. Gold Certificate6. Gold Standard7. legal tender8. Commodity money9. Silver certificate10. Treasury coin note11. Savings and Loan12. National Bank Note13. Specie14. Mutual Savings Bank15. Deregulation
Questions
1. List the 3 Functions of Money2. Describe 5 types of early Money3. List 4 characteristics that give money its
value.4. Explain the importance of greenback during
the civil war.5. Describe 4 disadvantages of a gold
standard.6. What is the main difference between the
Federal Reserve System and National Banking System?
Questions
7. Why were coins prefered form of money then paper during colonial period?
8. 4 Factors that contributed to Savings and Loan Crisis.
9. Explain why national Banking system was created.
10.Explain how privately issued bank notes became part of the money supply.
11.Explain how the dollar was adopted as the basic monetary unit.