- income taxes
- payroll taxes
- corporate taxes
- excise taxes
- other sources
Income taxes
- direct tax on individual income
- accounts for roughly 47% of government revenue
- progressive tax
- FICA
Payroll taxes
- tax paid by the employer (money is withheld from your pay)
- accounts for roughly 34% of government revenue
- SSI (Social Security Insurance) portion is regressive
- Medicare portion is proportional
Other taxes
- excise tax
- tariffs
- estate tax (death tax)
Revenues v Expenditures
Federal taxes v Federal spending
If expenditures < revenues, then .....
surplus
Possible solutions: decrease revenues, increase expenditures, both
If revenues < expenditures, then .....
deficit
Possible solutions: increase revenues, decrease expenditures, both, borrow money
In order to borrow money, the US government must sell bonds. Money will be paid back, plus interest, to the bond purchaser.
Deficit v Debt
year to year budget imbalance v total sum over time
United States debt problem??
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Solution to deficits? See above
It's not as easy as it may seem.
Categories of government spending
- mandatory spending
- discretionary spending
Mandatory spending
- required by law; not negotiable as a part of the budget; already spoken for
- roughly 69% of total spending
- Social Security (34%), Medicare/Medicaid (23%), VA benefits (3%), interest payments on debt (9%)
see chart on p.209
Discretionary spending
- spending authorized at Congressional discretion; budget negotiations
- roughly 31% of total spending; mostly tied up in defense (21% of total spending)
- Remaining 10%: Education, Job training, Social Services (3%), Transportation (3%), Justice (2%), International Aid (1%), Environment (1%), other (>1%)
Budget process
- President (w/ help from OMB) proposes budget (Jan-Feb)
- Congress (w/ help from CBO) formally proposes its budget (Mar-Oct)
- House & Senate Budget Committees pass framework resolutions for budget (Mar-Oct)
- House & Senate Appropriations Committees then work out details/ pass bills (Mar-Oct)
- Bills go to President for signature
Note: Government can operate without a budget by way of continuing resolutions for spending
Fiscal & Monetary Policy
Fiscal Policy - policies directed at taxing and spending
- To encourage economic activity in a slow economy, the government can...
- cut taxes (consumers have more of their money with which to buy goods)
- increase spending (government itself directly buys good and/or services)
- both (risky proposition; see graphic on p.212)
Monetary Policy - policies directed at the value of currency
- To encourage economic activity in a slow economy, The Fed can...
- lowering interest rates (encouraging borrowing for consumption/business)
Wait..wait.. Who is "The Fed"
The Federal Reserve System, created in 1913, is as a regulatory commission that serves as the nation's central banking system. 'The bank for banks' The Chairman of the Fed is nominated by the President (guess what comes next..) and, with input from Fed Board members, makes decisions regarding monetary policy. The overall focus is on the amount of money in circulation. If there is more money in circulation (more money available) it may trigger economic growth, but will also trigger inflation. Conversely, if there is less money in circulation, it may slow inflation but may also slow down economic growth.
Ron Paul hates The Fed
I mean, he really hates The Fed.
Other ways in which the Fed carries out monetary policy
- regulating the banking reserve requirement (higher or lower)
- buying and/or selling US government bonds
Note all of the various ways that the government tries to manage the economy. But aren't we the nation of free enterprise and free markets? Hmmmm......
