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Taxes and the Federal Budget

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1 Taxes and the Federal Budget
Where does all my money go and how does the federal government influence the economy?

2 Who has the power to tax? Constitution gives Congress the authority to decide where money comes from and how it will be used “The Congress shall have the power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and welfare of the United States” Article I, Section 8

3 Taxes…woo! What are they? Revenue:
The money that people and businesses pay to support the government Revenue: The money that the government collects from taxes


5 Budget Appropriated money is part of the Budget
President proposes his/her budget each year. Operates in the fiscal year October 1-September 30th Reflects the federal governments “needs and priorities”

6 Budget President does not have total control due to uncontrollables: spending mandated by law or previous budgetary commitments. Interest on national debt Most are entitlements: benefits Congress has provided by law to individuals (Social Security, Medicare, Medicaid, veterans’ benefits) (70% of money spent by Federal gov’t)

7 The Offices The Office of Management and Budget (OMB) analyzes the economic consequences of the budget for the President. The Congressional Budget Office (CBO) analyzes the economic consequences of the budget for Congress. Economists for the OMB and CBO look at multiple inputs in order to make inferences about where the economy is headed.

8 Taxing and Spending National government collected about $2.8 trillion in 2013. The federal government still spent more than it took in, increasing the national debt.

9 Income Tax Individual Income Tax is the federal governments biggest single source of income Which Amendment??

10 Income Taxes Levied on taxable income total income of an individual – deductions and personal exemptions. Examples: charity, state & local income tax paid, home mortgage interest, other expenses (day care) Personal exemptions : reduce the amount of money that is taxable dependents

11 Income Tax Income Tax is a progressive tax: based on a taxpayer’s ability to pay. Higher income should mean a higher tax rate. File taxes by April 15th and the IRS handles about 200 million returns and documents.

12 Social Insurance Taxes
Taxes collected to pay for Social Security, Medicare and unemployment. Employees and employers share in paying the tax and contributes. Do not go into government’s general fund Go to Treasury Department’s special trust. Regressive taxes: people with lower income pay a larger portion than those with higher income.


14 Excise Taxes Taxes on the manufacture, transportation, sale, or consumption of goods and the performance of services. Used to be: carriages, snuff (smokeless tobacco), and liquor. Now: gasoline, oil, cigars, cigarettes, liquor, airline tickets, long-distance calls. “Luxury Taxes”

15 Customs Duties Levied on goods imported into the United States (AKA tariffs). Higher = protective tariff for American industry. Raise prices of imports.

16 Fiscal Policy Fiscal Policy is the government’s use of spending and taxation to regulate the economy. Monetary Policy is the Federal Reserve’s control of the money supply to regulate the economy.

17 Stimulating the Economy
Using fiscal policy to stimulate the economy, the federal government might: Lower taxes Spend $$ on new projects to create jobs These two reasons are why the federal government frequently runs a deficit-it is spending money it does not have.

18 Cooling Down the Economy
Using fiscal policy to cool down the economy, the federal government might: Raise taxes Reduce federal government spending on programs

19 Balanced Budget? Why doesn’t the federal government balance the budget? Opponents of balancing the budget argue it does not allow the federal government to use fiscal policy to respond to current economic conditions. A balanced budget means the federal government cannot spend $$ it doesn’t have.

20 Regulations Why do you think the government regulates various industries? Regulations can have unintended consequences, such as depressing growth in various industries because it is too expensive to meet regulations. Protections, like tariffs, can raise prices on goods while protecting American industries. Subsidies can encourage producers to be inefficient, or to produce goods no longer wanted by consumers.

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