Download Government Revenue and Spending

Government Revenue and Spending
Government Revenue
 Revenue—government income from tax and non-tax sources
 Tax Bases
 Individual income tax—on income from all sources
 Corporate income tax—on corporation’s profits
 Sales tax—on value of product; a percentage of sale price
 Property tax—on value of assets, generally real estate; part of
rent
 Growing, shrinking tax base means changes in amount of taxable
wealth
Tax Bases and Structures
 Tax Structures
 Proportional tax—flat tax—all taxpayers pay
same percentage of income
 Progressive tax—higher income earners pay
higher percentage of income (ability to pay)
 most closely linked to ability-to-pay principle
 Regressive tax—lower income earners pay higher
percentage of income
 examples: sales tax, property tax
Impact of Taxes on the Economy
 Resource Allocation
 Tax on a good or service increases cost of production
 Productivity and Growth
 When taxes on interest and dividends high, people save less
 impacts amount of money available to producers to invest in businesses
 Some economists think high taxes reduce incentives to work
 Others think high taxes promote underground economy
 Economic Behavior
 Tax incentive—use of taxes to influence economic behavior
 Tax credits, rebates encourage behavior good for society, economy
 Sin taxes imposed on unhealthful, damaging products, activities
Individual Income Tax
Federal government gets about $2.5 trillion in revenue yearly
 Taxes important sources of revenue
 largest source is individual income tax
 second largest source is social insurance taxes
 Paying Your Taxes
 Withholding—payroll tax taken before worker gets paycheck
 Internal Revenue Service (IRS) collects money, administers tax
system
 Taxable income—taxable portion; exemptions, deductions reduce it
 Tax returns—forms used to report income, taxes owed to
government
 if too much withheld, taxpayer gets refund; if not enough, taxpayer pays rest
Types of Spending
 Mandatory Spending
 Entitlements—social welfare programs with specific
requirements
 Social Security restrictions: former worker, age, extra
income limit
 Medicare provides hospital, other medical insurance;
means tested
 Medicaid is federal-state insurance program for lowincome people
 Other programs’ funding based on number of people
eligible
Types of Spending cont.
 Discretionary Spending
 Defense includes salaries, weapons, military bases,
homeland security
 Interstate highway system and other transportation
 Natural resources, environment; includes: parks, pollution
clean up
 Education; science, space, technology; other research
 Justice administration includes enforcement agencies,
federal courts
The Federal Budget and Spending
 Federal budget—plan for spending federal revenue
 Fiscal year—12-month period for which
expenditures are planned
 Congressional Budget Office helps develop
appropriations guidelines
 appropriations are specific amounts set aside for
specific purposes
State Revenues
 Sales and Excise Taxes
 Almost all states have
sales tax on most
goods, services
 Income Tax and Other
Revenue Sources
 estate, property taxes;
user, business registration,
license fees