Presentation on theme: " Spending, taxing, & borrowing policies Government collects taxes to pay programs (Roads, education, National Defense) Taxes used to influence behavior."— Presentation transcript:
Spending, taxing, & borrowing policies Government collects taxes to pay programs (Roads, education, National Defense) Taxes used to influence behavior of individuals (tobacco, etc.)
Tax Rates – the percentage of a person’s income that goes toward taxes. Proportional Taxes – “flat rate tax” Takes same percentage of income from individuals at all income levels. Has greater impact on people with lower incomes.
Progressive Taxes – takes larger percentage of income from a high- income person than lower income person 2000, $26,250 or less = 15% $288,350 = 39.6% (highest tax bracket) Effected those with the higher incomes more than those with lower incomes.
Regressive Taxes – takes larger percentage of income from people with low incomes than from people with high incomes. Falls more heavily on people in lower- income groups than on people who earn high incomes
Individual Income Taxes – progressive (sometimes proportional) tax on a person’s income. Collected by Federal government & most state governments 1996, provided 38% of federal revenue & 14% of state revenues.
U.S. government taxes corporate profits. Many corporations pay at a reduced rate 1996, made up 10% of federal tax revenues & 3% of state tax revenues
Money withdrawn from workers paychecks to fund (OASDI) Old-Age, Survivors, & Disability Insurance & Medicare – provides health care to older Americans regardless of income. Both proportional & regressive Second largest source of revenue for federal government (1999 = 33.5%)
Does not take a persons income into account. 1% of state revenues (25% of local governments revenue)
Regressive tax assigned to certain goods and services by state & local governments 1996, 5% of federal revenues & 21% of state revenues.
Excise tax – tax on manufacture, sale or consumption of a particular good or service (gas, tobacco, firearms, alcohol, telephone services, tires, & gambling) Estate tax – tax placed on the assets of a person who has died Gift tax – placed on the transfer of certain gifts of value (exceeds $10,000 annually) Customs duty – tax on goods brought into the U.S.
Supply-Side Economics – focuses on achieving economic stability & growth by increasing the supply of goods & services throughout the economy Governments role to provide firms with incentives to increase production (tax cuts & less spending) Leading supporter Jean-Baptiste Say – “Supply creates its own demand” Producers provide enough goods & services to meet their own needs – produce more in exchange to meet their wants
1. Assumption that economist can predict the economic behaviors of people 2. Tax cuts unfair Spending cuts fell most heavily on social programs for the poor, unemployed, & other disadvantaged groups.
Focuses on achieving economic growth through governments influence on aggregate demand. John Maynard Keynes – “Father” of demand-side economics Published “The General Theory of Employment, Interest and Money” – marketplace forces alone were not enough to increase aggregate demand during economic downturns. (government needed) Employment Act of 1946 – pledged to promote “maximum employment, production, and purchasing power”
Tax Rates – used to regulate aggregate demand in privately owned businesses Congress reduces taxes to help unemployment Congress raises taxes to limit inflation Tax Incentives – special tax break the government extends to businesses to encourage investments in new capital Investment tax credit – permits firms to deduct from their corporate income taxes a percentage of money spent on new capital
Government Spending Decrease of government spending results in lower aggregate demand & slower business activity Increase results in higher spending, aggregate demand & employment opportunities Public Transfer Payments Redistribution of tax dollars to nonproductive (goods or services that are not created in exchange for government payments) actors in the economy. “Unemployment compensation” Progressive Income Taxes Period of prosperity leads higher incomes into higher tax brackets Periods of recession – taxed at lower rates
Timing Problems Political Pressures Restrictive fiscal policy – increases taxes & reduces government spending Expansionary fiscal policy – decreased taxes & increased government spending to stimulate business activity Unpredictable economic behaviors Lack of coordination among government policies
Federal Budget – federal governments plan for the use of government revenues Summary of the ways in which the government uses fiscal policies.
Wartime spending – causes dramatic increases in the level of government expenditures Increased corruption Progressive Reform Movement
New Budget Process 1921, Budget and Accounting Act – created the Bureau of the Budget Empowered the president to formulate an annual budget OMB (Office of Management & Budget) replaced BOTB Budget Process today President develops it & consults with the OMB, Council of Economic Advisers, The Dept. of the Treasury Focuses on the next fiscal year – 12-month finical period that typically does not duplicate the dates of the calendar year
Budget deficit – government spends more than it collects Budget surplus – government revenues exceed government expenditures Deficit spending – spending more money for its programs than it’s able to cover with it’s revenues. National Debt – total amount of money the federal government has borrowed (includes all deficits from previous years)
Growth of the National Debt 1790 = $75 million Civil War = $1 billion WW1 = $3 billion (two years later $25 billion “Roaring 20’s) 1982 = $1 trillion 2000 = $5.6 trillion Debt Ceilings – legislates a limit on the size of the national debt Increased each time it was set… Impact of the National Debt Spending on social programs = improves quality of life $362 billion on interest alone in 2000
Increasing Revenues Taxation? 1993, Omnibus Budget Reconciliation Act – raised individual income tax rates for highest tax bracket & raised taxes on gasoline Decreasing Expenditures Closing of military bases Reducing defense spending Legislating a Balanced Budget Balanced Budget & Deficit Reduction Act (1985) “GRH” Program set-up to balance budget in 5-years Cuts to nearly every government program