Download Chapters 20

(l)The Granger Collection, New York, (r)Lee Snider/Photo Images/CORBIS, The Granger Collection, New York
▲
A statue of Alexander Hamilton
stands in front of the
U.S. Treasury Building
in Washington, D.C.
Below, a Wells Fargo Bank
in San Francisco, California,
in 1852
552
UNIT 7
Public Policies
and Services
P
articipating
government can be balanced or checked by a citizen’s access to Congress.
As you read Chapters 20 and 21, list how specific federal policies affect you.
At the end of the unit, write an essay on whether this impact is positive or
negative on your economic welfare. If a policy negatively affects you, draft
an e-mail message to your representatives.
CORBIS, The Granger Collection, New York
in Government
BIG idea Checks and Balances The impact of the federal
▲ Soldiers carrying flags in an inaugural parade
553
Chapter Audio
Spotlight Video
Essential Question
Chapter Overview Visit connected.mcgrawhill.com for an overview, a quiz, and other
chapter resources available for United States
Government.
▲ Engraving plate
for a ten-dollar bill
554
Kay Chernush
How does the government spend
the taxes you pay, and how do
government expenditures affect
the economy?
SECTION 1
Raising Money
Reader’s Guide
Content Vocabulary
Academic Vocabulary
Reading Strategy
★ taxes (p. 555)
★ taxable income (p. 555)
★ dependent (p. 556)
★ withholding (p. 556)
★ securities (p. 559)
★ national debt (p. 559)
★ anticipate (p. 556)
★ estimate (p. 556)
★ impose (p. 557)
As you read, complete a graphic organizer similar to the one
below to list the types of taxes the federal government uses
for revenue.
Types of
Taxes
Issues in the News
I
n 2009, nearly 67 percent of all individual income tax returns
were filed electronically (up from 20 percent in 1998). Most
people file online because they think it is convenient, despite
some concerns about Internet security. One polling firm
reported that 63 percent of filers use a professional tax preparer, 22 percent use a software program, 9 percent still use
pen and paper, and 5 percent rely on a friend or relative for
help. 56 percent of the people surveyed said that they expect
to get a tax refund, and this is another reason to file online—it
speeds up the turnaround time for receiving a refund. “We
generally apply it [tax refund] to some kind of debt,” said Sharon Caughron, a North Carolina schoolteacher.
C
Katharine Andriotis Photography/Alamy
ollecting taxes is one way the federal government affects the nation’s economy. The
government’s budget is calculated in figures
that are too large for most people to comprehend.
In 2008 the federal government took in about $2.1
trillion in revenues—an average of nearly $6,879
for each person in the nation. Two major sources of
this revenue are taxes and borrowing.
Taxes as a Source of Revenue
“In this world, nothing is certain but death and
taxes,” Benjamin Franklin once said. This quote
sums up a universal feeling about taxes. Taxes are
payments made by individuals and businesses to
support government activities. The Constitution
states the following:
▲ E-filing has become an increasingly popular
method of handling an unpopular activity.
Congress shall have power to lay and
“ The
collect Taxes, Duties, Imposts and Excises,
and to pay the debts and provide for the
common Defense and general Welfare of the
United States.
—Article I, Section 8
”
Individual Income Tax
The individual income tax is the federal government’s biggest single source of revenue. About
50 cents of every dollar the government collects
comes from this source. In a recent year, the individual income tax produced almost $1.05 trillion.
The federal income tax is levied on a person’s
taxable income, an individual’s total income minus
certain deductions and exemptions. People may
elect to take deductions for contributions made to
CHAPTER 20: Taxing and Spending
555
Taxes in America
year on April 15, while the government receives a
steady flow of income throughout the year.
The Internal Revenue Service (IRS), a bureau
of the U.S. Treasury Department, collects taxes
through regional centers that processed about
144 million individual income tax returns in 2008.
IRS staff do a quick computer check on each return
and audit, or check more closely, a small percentage of returns. Each year, the IRS investigates many
suspected criminal violations of the tax laws.
Corporate Income Tax
charity, for state and local income taxes, for home
mortgage interest, and other expenses. Or, they
may take a standard deduction that the government
calculates. The government also allows personal
exemptions that reduce the amount of taxable
income, such as exemptions for the number of
dependents. A dependent is someone who depends
primarily on another person for basic items such as
food, clothing, and shelter. Often dependents are
children under the age of 18.
The income tax is a progressive tax based on a
taxpayer’s ability to pay. The higher a person’s taxable income is, the higher his or her tax rate is.
People with higher incomes can often take advantage of deductions that lower their taxes, but those
with incomes above $150,000 pay about 60 percent of all taxes.
The deadline for filing income tax returns each
year is April 15. Nearly everyone with taxable
income in the preceding calendar year must file
income tax returns by that date. During the year,
employers withhold a certain amount of money
from the workers’ wages. This withholding pays
the anticipated taxes ahead of the April 15 filing
date. Self-employed people—including business
owners, merchants, and professionals—who do not
receive regular salaries are expected to file estimates of their income four times per year and make
payments based on each estimate. In this way, these
taxpayers avoid making one large payment for the
556
UNIT 7: Public Policies and Services
Social Insurance Taxes
The federal government collects huge sums of
money each year to pay for Social Security, Medicare, and unemployment compensation programs.
The taxes collected to pay for these major social
programs are called social insurance taxes. Employees and employers share equally in paying the tax for
Social Security and Medicare. Employers deduct it
directly from each worker’s paycheck, add an equal
amount, and send the total to the federal government. The unemployment compensation program
is a combined federal-state operation that is financed
largely by a federal tax on business payrolls. All these
social insurance taxes are often called payroll taxes.
Social insurance taxes are the fastest-growing
source of federal income. In 1950 they amounted
to $4 billion. In fiscal year 2008, these taxes brought
in more than $891 billion. The second-largest
source of federal tax income, social insurance taxes
were expected to reach $1.16 trillion by 2015.
Unlike other taxes, social insurance taxes do not
go into the government’s general fund. Instead,
they go to Treasury Department special trust
accounts. Congress then appropriates money from
these accounts to pay benefits. These taxes are
referred to as regressive because people with lower
incomes pay a larger percentage of their income for
these taxes than people with higher incomes.
Excise Taxes
Excise taxes are taxes on the manufacture, transportation, sale, or consumption of goods and the
performance of services—gas and cigarette taxes are
Tribune Media Services
Critical Thinking Reformers inside
and outside government have often
suggested ways to simplify the tax
forms. What is the cartoonist suggesting
about the capacity of the IRS to revise
tax forms in a way helpful to citizens?
Corporations also must pay income taxes. The
federal government taxes all the earned income of
a corporation beyond its expenses and deductions.
In recent years, corporate income taxes have made
up about 16 percent of federal revenues. Nonprofit
organizations such as colleges, labor unions, and
churches are exempt from this tax.
excise taxes, for example. The Constitution permits
levying excise taxes, and since 1789 Congress has
placed excise taxes on many goods. Early targets
included taxes on horse carriages, snuff (smokeless
tobacco), and liquor. Today the government imposes
excise taxes on gas, tobacco, and liquor, but also on
airline tickets and highways. Sometimes excise taxes
are called luxury taxes because they are levied on
goods like exotic cars and boats. Excise taxes contribute about $65 billion per year to federal revenues.
Highway and airport taxes bring in the most income.
Customs Duties
Taxes levied on imported goods are called customs duties, tariffs, or import duties. The federal
government imposes them to raise revenue or to
protect domestic business and agriculture from
foreign competition. A high customs duty is called
a protective tariff. Many business, labor, and farm
groups support protective tariffs.
The Constitution gives Congress the authority to
levy customs and to decide which imports will be
taxed and at what rate. In turn, Congress has given
the president authority to revise tariff rates through
executive orders. In doing so, the president takes
trade agreements with other nations into account.
After the income tax was passed in 1916, custom duties shrank as a source for federal revenues.
In a recent period, they have produced about
$26 billion, or 1 cent of every tax dollar collected.
Estate and Gift Taxes
An estate tax is on property and money left after
someone has died. A gift tax is on money someone
gives while they are living. First levied in 1916, the
estate tax in 2007 and 2008 applied to estates
worth more than $2 million. The goal of the gift
tax is to prevent people from avoid paying the
estate tax by giving money to family and friends
before they die. (Different rules apply to money
given to a spouse.)
Critics of the gift tax say it discourages savings
and prevents families from passing on small
businesses and farms to their heirs. Others argue
that an estate tax can be structured only to apply
to the super rich. In 2001, Congress repealed this
tax gradually phasing it out over a number of years.
But this provision had a “sunset” provision, in
other words, it expired in 2010. Congress passed a
new federal estate tax at the end of 2010 of 35% on
any inheritance above $10 million.
Taxes and the Economy
Governments at all levels can use taxes to
influence the economy. Some tax laws aim to
encourage an activity. Tax deductions for home
mortgage interest, for example, encourage people
to buy homes. That, in turn, helps the construction
industry and promotes stable communities. A tax
Estimated Federal Taxing and Spending, 2010
Federal Revenues
Excise
taxes
2.1%
Federal Spending
Other
taxes
3.8%
Other
Spending
17.4%
Social Security
20.0%
Corporate
income tax
11.6%
Social insurance taxes
and retirement receipts
34.3%
Individual
income tax
48.4%
National
defense
19.2%
NOTE: Total percentages may not equal 100% due to rounding
Source: Office of Management and Budget, Budget of the U.S. Government, www.whitehouse.gov/omb/budget
Net interest
on debt
6.3%
Critical Thinking How do figures for federal spending connect to the
aging of the population in the United States?
Medicare,
Health, and
Income Security
37.1%
Visit connected.mcgraw-hill.com.
CHAPTER 20: Taxing and Spending
557
exemption on oil exploration encourages people
to invest their money in businesses that search for
new energy sources. The government also can use
taxes to discourage certain activities. Cigarettes
are heavily taxed because smoking is dangerous to
people’s health.
constantly lobby Congress to pass tax exemptions
for them. Sometimes exemptions granted to one
group negatively affect another group. Tax subsidies for the airline industry, for example, might
adversely affect the railroad industry.
Tax Exemptions
In 1985 President Reagan proposed tax changes
to eliminate what he called a “source of confusion
and resentment.” The resulting Tax Reform Act of
1986 reduced tax deductions, tax credits, tax shelters, and the number of tax brackets or rates. In
2003 President George W. Bush signed the Job and
Growth Act, which was intended to make the massive tax cuts of 2001 permanent. This reduced
taxes for millions and increased the child tax credit
from $600 to $1,000. In 2006 tax cuts were passed
again, with most Democrats opposing the bill and
most Republicans supporting it. These cuts were
meant to stimulate spending and boost the economy but facing a lingering recession in 2010, President Obama and Republican leaders agreed to
extend the tax cuts for two more years.
Tax exemptions are a privilege granted by government that legally frees certain types of property,
sales, or income from taxpaying obligations. Most
states, for example, exempt educational and religious groups from paying property taxes. Another
type of exemption applies to the interest one might
earn from investing in national, state, or local government bonds.
Tax exemptions function as a government subsidy to certain groups. Over the years, railroads,
airlines, farmers, businesses, builders, defense
contractors, the unemployed, the elderly, and veterans have received tax exemptions. In fact, the
federal income tax is a complicated maze of exemptions. These so-called tax loopholes are usually
discovered by attorneys and tax specialists who
are hired for this purpose. Critics of the income
tax system believe that such exemptions are unfair
since only corporations or the wealthy can take
full advantage of them. Special-interest groups
Tax Reforms
Tax Credits
Today the federal government provides tax credits mostly to people with lower incomes. Tax credits
allow taxpayers to reduce their income tax liability.
Government and You
Why We Pay Taxes
558
UNIT 7: Public Policies and Services
▲ Taxes support critical ambulance services.
articipating
in Government Ac
Activity
A
tivity
t
Investigate Determine the role of government in
providing and paying for some facility, program, or service
that you enjoy in your community.
Steve Allen/Getty Images
Government makes life better in many ways. If you are an
average teen, you probably drive on area roads and highways,
attend public schools, and use the local library. Your safety and
property are protected by police and firefighters. You do not
expect to be poisoned by the food you eat and the water
that you drink or to be harmed by the products that you use.
You live free from fear of foreign invasion or guerrilla attack.
No one charges you directly for these services, benefits, and
protections that you enjoy. However, as the old saying goes,
“there is no such thing as a free lunch.” Taxes on gasoline
maintain highways. Sales, property, and income taxes finance
local and state services. Federal income taxes also support
many programs and services. In fact, most government
activities that enhance the quality of life in the United States
are made possible by the taxes we pay.
Tax Cut Debates
Getting Money Back
Republicans often support
cutting taxes to stimulate
business enterprise and
consumer spending. As part
of President Bush’s 2001 tax
cuts, taxpayers received rebate
checks like the one to the right.
In 2008 rebate checks were
sent out again to energize the
economy. Why do you think
Congress gave some low-wage
earners rebate checks even
though they did not pay taxes?
Each dollar of tax credit offsets a dollar of tax liability. The earned-income credit enables many lowincome families to receive refunds.
Workers who must pay for child care or claim
dependents receive a tax credit for that expense.
Certain elderly and retired people may be entitled
to a tax credit, depending on the amount of their
income.
Borrowing for Revenue
In addition to collecting taxes, the federal government borrows money. In 2010, the Obama
administration estimated that borrowing was about
$1.47 trillion, with a projected $1.4 billion expected
to be borrowed in 2011. The government borrows
by selling federal securities—financial instruments
that include bonds, notes, and treasury bills. Federal government securities are popular because they
are among the safest securities in the world and
because interest might not be taxable. The most
popular bonds for small investors are savings bonds,
which lend the government money and allow investors to earn interest on these bonds. The federal
government pays a huge amount of interest.
When the government spends more than its
income, it runs a deficit. Government borrowing
to fund annual budget deficits over time creates
the national debt. The size of the national debt
affects the federal budget and the economy.
SECTION 1 Review
Vocabulary
1. Explain the significance of: taxes, taxable income,
dependent, withholding, securities, national debt.
Getty Images
Main Ideas
2. Explaining What is the federal government’s biggest
single source of tax revenue?
3. Describing What are tax credits, and how do they affect
taxpayers?
Critical Thinking
4. Identifying Alternatives Why does the government raise
most of its revenues through taxing rather than borrowing?
5. Organizing Use a graphic organizer like the one below to
show the steps in collecting federal income tax.
Employers
Self-Employed
April 15
Writing About Government
6. Expository Writing Obtain a paycheck stub—yours or a
family member’s. Note the categories and amounts of money
that are deducted for city and state taxes, FICA, and Social
Security. Create a graph that shows the percentage of the
earned wages deducted in each category. Write a brief summary
that explains the different taxes deducted from the check.
CHAPTER 20: Taxing and Spending
559
SECTION 2
Preparing the Federal Budget
Reader’s Guide
Content Vocabulary
Academic Vocabulary
Reading Strategy
★ fiscal year (p. 560)
★ uncontrollables (p. 561)
★ entitlement (p. 561)
★ incrementalism (p. 564)
★ confer (p. 560)
★ preliminary (p. 561)
★ evaluate (p. 562)
Create a graphic organizer similar to the one below to list
entitlements provided by the government.
Entitlements
Issues in the News
A
S
ince its founding, the nation has always carefully accounted for its revenue and expenditures. Today, the federal budget is used to
predict and control revenue and spending. The
budget follows a fiscal year—the 12-month accounting period from October 1 to September 30 of the
next year. The executive and legislative branches
share in the responsibility of preparing the budget.
Under the president’s direction, the executive branch
proposes a budget. Congress then uses this budget
as a basis for preparing a tax and spending plan to
submit to the president.
The President’s Budget
The federal budget is not just numbers. The
budget expresses important political choices by the
president’s administration. Each year’s budget aims
560
UNIT 7: Public Policies and Services
▲ President Barack Obama makes a
presentation before Congress.
to promote the president’s policies and priorities.
In presenting the 2010 budget, White House staff
highlighted such policy goals as rebuilding our
economy, creating the jobs and industries of tomorrow, and restoring fiscal responsibility.
The Budget and Accounting Act of 1921 makes
the president responsible for directing the preparation of the budget and making key decisions
about national budget priorities. The law requires
the president to propose to Congress the budget
for the entire federal government each fiscal year.
This budget must be delivered within 15 days after
Congress convenes each January.
The actual day-to-day preparation of the budget is
the responsibility of the Office of Management and
Budget (OMB). The OMB, along with the president’s
Council of Economic Advisers (CEA), confers with
the president on a wide range of budgetary matters.
Pablo Martinez Monsivais/AP Images
s he prepared to announce the 2010 federal budget,
President Obama wanted to focus on efforts to halve
the budget deficit by the end of his first term. The nation’s
week economy, however, demanded a priority of improving the economy through more federal spending and
stimulus strategies. Obama knew there would be criticism of his plan: “Budget day is like tax day—it’s never
fun. No matter what, it’s big numbers.” Republican Senator Judd Gregg said that the economic circumstances
“call for a bold, game-changing budget that will turn
things around, put in place a plan to restrain spending,
reduce the debt and tackle the big entitlement programs
that are growing out-of-control. Instead, the president
has sent us more of the same.”
Start of the Process
Budget making begins in early spring for the
budget that will go into effect one year from the
following October. Each federal agency draws up a
list of its own spending plans and sends these
requests to the OMB.
The director of the OMB takes the first set of figures to the president, along with OMB’s analysis of
the nation’s economic situation. At this point, the
president, assisted by the secretary of the treasury
and the CEA, makes key decisions about the impact
of the preliminary budget on the administration’s
general economic policy and goals. They discuss
such questions as: Will the budget increase or reduce
federal spending? Which federal programs will be
cut back and which programs will be expanded?
Will the federal government need to borrow more
money? Should taxes be raised or lowered?
Agencies Review Their Budgets
The White House returns its decisions on the
budget to the agencies and departments with guidelines to help them prepare their final budgets. The
Department of Defense, for example, might be told
to cut its budget by $5 billion, and the Transportation Department might be told it can increase its
budget by $1 billion. Over the next few months, the
executive departments and agencies work on detailed
budget plans that fit the president’s guidelines. During this time, OMB officials and agency heads negotiate cuts and additions to bring each agency’s budget
in line with the president’s decisions.
Steps in the Budget Process
Formulation of the president’s
budget fiscal year
February–
December
December–
February
March–
September
Executive branch agencies develop requests for funds and
submit them to the Office of Management and Budget
(OMB). The president reviews requests and makes fiscal
decisions on what goes in the budget.
Budget preparation and transmittal
The budget documents are prepared and
transmitted to Congress.
Congressional action on the budget
Congress reviews the president’s proposed budget, develops
its own budget, and approves spending and revenue bills.
Implementing the budget
October 1
The fiscal year begins.
October 1–
Sept. 30
Agency program managers
execute the budget provided in law.
October–
November
Data on actual spending and receipts for the
completed fiscal year become available.
Source: A Citizen’s Guide to the Federal Budget.
(Washington, D.C.: Government Printing Office, 1997).
Critical Thinking The Budget and
Accounting Act of 1921 requires the
president to propose a budget to
Congress. What system established in the
Constitution guides the budget process?
Final Presidential Review
Sometime during the fall, the OMB submits a
complete budget document to the president for
final review and approval. Some last-minute
juggling always takes place. Agency heads might
make last-ditch efforts to convince the president to
overrule an OMB decision and save a particular
program. The president might order changes in
parts of the budget in response to pressure from
interest groups or political party members. Finally,
the administration rushes the president’s budget to
the printer—often only days or perhaps hours before
the January deadline. Then the president formally
sends the budget to Congress along with an annual
budget message. After receiving it, Congress takes
the next steps in finalizing the federal budget.
Uncontrollables
Despite having a key role in the budget process,
the president does not have complete freedom in
making budgetary decisions. About 75 percent of
the federal budget consists of what are called
uncontrollables. Uncontrollables are expenditures required by law or resulting from previous
budgetary commitments.
A major part of uncontrollable spending is the
entitlements. Entitlements are benefits that
Congress must by law provide to individuals.
Entitlements include Social Security, pensions for
retired government employees, Medicare, Medicaid, and veterans’ benefits.
The other important uncontrollable item in the
budget is the interest that must be paid on the
national debt. As yearly budgets have forced the
federal government to borrow more and more
money, interest on the debt has grown. In fiscal year
2010, interest on the debt was equal to 6.3 percent
of the total expenses for the federal government.
CHAPTER 20: Taxing and Spending
561
Budget Issues
Discussing the Budget
Then President George W. Bush
(left) listens to a panelist at a
White House conference on the
economy. The costs of the war
in Iraq and fighting terrorism,
as well as economic challenges
in the world market, intensified
budget debates during the
eight years of the Bush
presidency. Which domestic
programs cannot be scaled
back, even in wartime?
Article I, Section 9, of the Constitution requires
that Congress approve all federal spending. Thus,
the president draws up budget proposals, but
only Congress has the power to raise revenue and
pass appropriations. No money may be spent
and no taxes may be collected until Congress
approves.
Congress can revise the president’s budget
proposals as it sees fit. Conflict between Congress
and the president over the budget is inevitable. If
the opposing party, not the president’s party, controls either house of Congress, that house might
criticize the president’s budget.
Even if the president’s party controls Congress,
lawmakers may have different ideas than the president as to how money should be allocated. Key
lawmakers and the president often must negotiate
different parts of the budget. Compromises are
usually necessary on both sides before a budget
is passed.
Congressional Budget Act of 1974
For years, separate subcommittees of the Senate
and House handled each agency’s requested
expenditures. This separation made it difficult for
Congress to keep track of the total annual budget.
562
UNIT 7: Public Policies and Services
To remedy this situation, Congress passed the
Congressional Budget Act in 1974. This law set up
House and Senate Budget Committees and the
Congressional Budget Office (CBO).
The CBO’s job is to evaluate carefully the overall federal budget for Congress. The CBO has its
own professional staff of experts. They report to
Congress and act as a counterbalance to the OMB
in the executive branch.
Gramm-Rudman-Hollings Act
By the mid-1980s, the size and growth of the
national debt worried many economists. In 1985
Congress enacted the Balanced Budget and Emergency Deficit Control Act, known as the GrammRudman-Hollings Act (GRH) after the senators
who designed it. This law was intended to force
the president and Congress to cooperate on programs that would reduce budget deficits.
GRH and later amendments required the OMB
and CBO to issue a joint report each year estimating how much the proposed budget would exceed
income and how much it should be cut to meet
deficit-reduction targets. Yet the federal budget
deficit continued to grow because the president
and Congress could not agree on budgetary priorities and, therefore, on which programs could be
cut or trimmed back. The failure to meet deficitreduction targets prompted Congress to search
for another remedy.
Larry Downing/Reuters/CORBIS
Congressional
Budget Action
Budgetary Enforcement Act of 1990
When George H.W. Bush was in office, debates
regarding what to do about the budget deficit
continued. After lengthy negotiations, President
George H.W. Bush and the Democratic Congress
agreed on the Budgetary Enforcement Act (BEA).
The BEA divided the budget into three areas:
domestic policy, defense, and international affairs.
It was decided that any spending that exceeded the
budgeted limit in any area would come out of the
next year’s funding for that area.
A recession starting in 1990, however, temporarily derailed this deficit-cutting plan. When the economy improved beginning in 1993, partly as a result
of the new Internet economy, tax receipts increased
substantially. This made the job of reducing the
deficit easier. Some members of Congress then
called for a balanced budget. President Bill Clinton
and other members of Congress, however, were
satisfied that the annual deficits had been reduced
from more than $300 billion to about $145 billion.
The booming economy of the Clinton administration created an impression that budget deficits
were a thing of the past, but during the two
terms of the George W. Bush administration,
deficits began to grow again. In 2007 the national
debt was approximately $9 trillion. The debt represented about 64 percent of the nation’s gross
domestic product.
Steps in Congressional Budget Making
The budget-making process generally follows
three steps:
• the House and Senate Budget Committees
review;
• reconcile differences between the House and
Senate versions of the budget bill;
• final budget aligns with the Budgetary Enforcement Act of 1990.
During the first step, House and Senate budget
committees review the major features of the
president’s budget proposals. On April 15, these
committees prepare a concurrent resolution. With
the president’s proposals as a starting point, this
resolution identifies the total federal spending
and tax plan for the coming fiscal year.
The next step, called reconciliation, occurs
between April 15 and June 15. House and Senate
committees reconcile, or fit, the spending and
Making a Difference
Steve Warmowski/WarmowskiPhotography.com
T
axes pay for many community services, but a private citizen can also
step in to meet a need. Leonard Sanders, a retired mine worker in the
tiny town of Elkville, Illinois, won the state lottery in 1995. Sanders had
plenty of uses for the money. After dividing his winnings with his wife and
“Money will never
children, however, he decided to direct some of his extra cash to improving
his hometown. Sanders helped restore the 90-year-old church where his
change my attitude
wife worshiped as a child. Then he bought and refurbished an empty grocery
toward life.”
store to convert into a community center. He purchased two new pool tables,
—Leonard Sanders
exercise equipment, furniture, and a television set for the center. Friends
pitched in to build a small kitchen. The kitchen is stocked with free food and
drinks that are paid for by a trust. Sanders set up the trust to fund the operation for future generations.
The new community center provides a place for Elkville residents to gather for recreation and conversation.
Sanders’s additional plans for his town include a pavilion for the baseball park.
“Money will never change my attitude toward life,” he said. “Elkville is really a nice place with a nice bunch
of intelligent people. I’ve known most of them for 20 or 30 years, and we have always gotten along.”
CHAPTER 20: Taxing and Spending
563
Incremental Budget Making
The Truth About Taxes
Presidents are
not compelled by law to release their tax return
in whole or in part but have routinely done so in
recent years. In 2009, President Obama and the
First Lady filed jointly on an adjusted gross
income of $5,505,409. They paid $1,792,414 in
federal taxes. Obama donated his 1.4 million
dollar Nobel Peace Prize to charity. Vice President
Joe Biden and his wife also filed jointly on a
taxable income of $333,182. They paid $71,147 in
federal income taxes.
taxing plans of the concurrent resolution with
existing programs. Then the agreed-upon changes
are put into a reconciliation bill that both the House
and Senate must vote on and approve.
The House then passes an appropriations bill,
officially setting aside money for expenditures
approved during the reconciliation process. Congress is supposed to complete this bill by June 30,
but the bill is often delayed.
Some analysts use the term incrementalism to
explain how budgets tend to be made in American
government. Incrementalism means that generally
the total budget is changed only by an increment, or
small amount. Based on the fact that historically
budgets have increased incrementally, the best way
to forecast what this year’s budget will be is to assess
last year’s budget and add a little more.
Since incrementalism has been the usual practice, federal agencies assume they will get at least
the same amount of money they received the
previous year. Incrementalism also means that
most budget debates focus on a proposed increment or reduction for an agency. For example, a
battle over the FBI budget might be over whether
its budget should increase by 2 or 5 percent from
the previous year, not on whether the FBI should
continue to exist.
Incrementalism means that most changes in our
political system unfold gradually. This approach
fits the need for predictability in bureaucratic
operations and it helps administrators manage
their agencies on a yearly basis.
Student Web Activity Visit connected.mcgraw-hill.
com. Click on the Student Web Activity for this chapter
and complete the activity about raising money.
SECTION 2 Review
Vocabulary
1. Explain the significance of: fiscal year, uncontrollables,
entitlement, incrementalism.
Main Ideas
2. Identifying Which department is responsible for the
day-to-day preparation of the federal budget?
3. Describing What did the Congressional Budget Act of
1974 establish?
Critical Thinking
4. Expressing Why does the federal government find
it difficult to raise taxes or reduce spending to balance
the budget?
564
UNIT 7: Public Policies and Services
5. Organizing Use a graphic organizer like the one below to
show how the budget process is affected if Congress and
the president are from different political parties.
Cause
Effect
Writing About Government
6. Persuasive Writing Imagine that you are part of a
presidential committee that is set up to decide the
spending priorities for next year’s government budget.
Your job is to list the four top areas that you think
should have the greatest share of the budget. Prepare
a supporting argument for the four areas you choose.
Government Skills
Interpreting a Bar Graph
Bar graphs provide statistics in a visual format
that makes it easy to understand how categories of
information relate to each other. Some bar graphs
are horizontal; others are vertical, depending on
the type of information being shown and the
purpose of the graph. Bar graphs have two axes
that show the categories being compared. The
x-axis is a horizontal list, and the y-axis is a vertical
list of categories, such as time periods, quantities,
percentages, items, programs, or events.
Why Learn This Skill?
Being able to interpret a bar graph is essential for understanding statistics
about a wide range of subjects. Follow the steps on the left to interpret a bar
graph:
2. Read the column
headings to see which
categories are being
presented.
3. Notice the source of the
data. Ask yourself if the
source is reliable.
Percentage Change in Federal Budget Expenditures,
2001–2010
100
90
80
70
60
50
40
30
20
10
0
Percentage
1. Read the title, including
dates and other qualifiers,
to see what information
the graph covers.
47.6%
20%
45.4%
20.8%
23%
15.5%
16.5%
13.9%
2001 2010
2001 2010
2001 2010
2001 2010
Defense and
security
Social Security,
Medicare/aid
Treasury Dept.
All other
cabinet dept.
Source: Congressional Budget Office. Office of Management and Budget.
4. State in sentences what
trend or relationships the
graph shows.
Notes: Total percentages may not equal 100% due to rounding. Defense/security figures include Defense Department,
Homeland Security, Veterans and International Affairs. Figures for 2010 are estimated.
Practicing the Skill
Applying the Skill
Study the bar graph and answer the following questions.
1. What is the subject of the bar graph?
2. Which budget category increased from 2001 to 2008,
and by what percentage?
3. Do you believe the figures in the chart are accurate?
Why or why not?
4. Name some programs whose budgets were cut in 2008.
Ask 20 students which president (recent or historic) they
most admire. Then create a bar graph showing the percentages for the top five presidents named and a bar labeled
“Other.”
CHAPTER 20: Taxing and Spending
565
SECTION 3
Managing the Economy
Reader’s Guide
Content Vocabulary
Academic Vocabulary
Reading Strategy
★ fiscal policy (p. 567)
★ monetary policy (p. 567)
★ gross domestic
product (p. 568)
★ discount rate (p. 569)
★ reserve
requirement (p. 569)
★ open-market
operations (p. 570)
★ portion (p. 566)
★ objective (p. 567)
★ infrastructure (p. 567)
As you read, create a graphic
organizer like the one to the
right to help you take notes
on managing the economy.
I. Where the Money Goes
A. Direct Benefit Payments
B.
C.
II. Fiscal and Monetary Policy
A.
B.
Issues in the News
T
he main job for Ben Bernanke, chairman of the Federal
Reserve since 2006, is to help manage the economy by regulating the money supply. In his report to Congress, Bernanke
said that the sluggish economy was due in large part to problems in the mortgage industry. When housing values were
increasing, loans were made too easily by banks and other financial institutions that hoped to make a quick buck. In 2008 reality
set in. Too many unsold homes were on the market, and too
many people who took on risky loans were unable to make their
mortgage payments. Bernanke promised that the Federal
Reserve would “act in a timely manner as needed to support
[economic] growth.” In October 2008, the Federal Reserve cut
interest rates yet again to combat the growing economic crisis.
B
ernanke’s promise to act is what the nation
expects of the head of the Federal Reserve
in troubled economic times. The Federal
Reserve Board’s decisions have a major impact on
the economy. Other government officials also play
a role in promoting a healthy economy.
Where the Money Goes
The federal government was spending about
$4.6 billion per year when Franklin D. Roosevelt
became president in 1933. Today, that amount would
pay for less than one day of the federal government’s
expenditures. The government currently spends
roughly $3.6 trillion per year, a figure that can be
broken down into its four major components:
566
UNIT 7: Public Policies and Services
•
•
•
•
▲ Ben Bernanke, chairman of the Federal
Reserve
direct benefit payments to individuals
national defense
discretionary spending
interest on the national debt
Direct Benefit Payments
Spending for Social Security, health and welfare
programs has become a big part of the federal
budget. Almost half of every dollar goes for such
items. In the 2010 budget, the federal government
allocated about $1.6 trillion for direct benefit payments of one kind or another. Uncontrollable
expenditures are a large portion of this budget item.
The biggest entitlement program is Social Security.
In 2010 it accounted for about $756 billion.
National Defense
Discretionary Spending
The federal government spends a sizable portion
of tax revenues on the environment, transportation,
criminal justice, and other areas. Much of this discretionary spending is in the form of grants to states and
localities. State and local governments use federal
grants for road repair, public housing, police training,
school lunch programs, flood insurance, and so on.
States and communities have come to rely on
this intergovernmental revenue for an increasing
share of their total revenue. Between 1980 and
1989, however, federal grants to state and local
governments declined. More recent federal budgets have increased federal aid to states while shifting federal grants away from infrastructure
investments and toward public-welfare programs.
Fiscal and Monetary Policy
Beginning with the Great Depression of the
1930s, the federal government has played an
increasing role in managing the nation’s economy.
Comparing Governments
Government Revenue
and Expenditures
Expenditures
$3,456
$2,730
Revenue
2000
$908
$985.9
$1,053
$75
$56
500
$234.3
$263.8
$601.1
$690
1000
$822.6
$762.1
1500
$1,140
$1,776
2500
$2,162
$2,221
3000
Dollars (in billions)
0
Source: CIA, The World Fact Book.
2010 (Washington, D.C.: 2010).
Critical Thinking
Which governments
received more revenue
than they spent?
United States
United
Kingdom
Mexico
Kuwait
Japan
Italy
Canada
Country
Brazil
Spending for national defense was one of the
biggest items in the budget beginning with World
War II. When Ronald Reagan became president in
1981, he made increasing the Defense Department
budget a major objective of his administration.
He believed that the international climate at that
time called for a raise in spending for military equipment and training.
When changes in the Soviet Union and Eastern
Europe signaled an end to the Cold War, President
George H.W. Bush announced adjustments in U.S.
defense. He vowed to eliminate some nuclear
weapons and to end the around-the-clock alert
posture of strategic bombers, and he asked the
Soviets to do the same. The Clinton administration
reduced the share of the defense budget. In 2000
defense spending represented about 16.5 percent
of total outlays, down from 22 percent in 1992.
By the 2000 election, many people believed that
defense spending had been reduced too much.
President George W. Bush fulfilled a campaign
promise to increase spending for the military. In
2002 the defense budget increased by more than
$11 billion to approximately 17.3 percent. The
military response following the September 11,
2001, terrorist attacks demanded even more
increases. By 2007, the defense budget had
increased by about $100 billion from 2004 levels
and was 20.5 percent of the budget.
Visit connected.mcgraw-hill.com.
Arguments continue over how large a part the
government should play. Debates can be frequent
because in the modified free-enterprise system
control over the economy is divided between government and the private sector. Yet most Americans expect the federal government to play a
significant role in moderating the economy’s ups
and downs and in promoting economic growth.
The government can influence the economy in
two main ways: fiscal policy and monetary policy.
Fiscal policy involves using government spending
and taxation to influence the economy. Monetary
policy involves controlling the supply of money
and credit to influence the economy. This control
is exercised through the Federal Reserve System.
Fiscal Policy
The federal budget is a major tool of fiscal policy
because it shapes how much money the government
will spend and how much it will collect through
CHAPTER 20: Taxing and Spending
567
taxes and borrowing. The president and Congress
can use the budget to pump money into the economy to stimulate it or to take money out of the
economy to slow it down.
To stimulate the economy, the government
may spend more money than it takes in. Through
increased spending, the government aims to put
more people back to work and increase economic
activity.
Another way that the government can stimulate
the economy is through reducing taxes. Lower
taxes give consumers and investors more purchasing power.
When the government increases spending or
reduces taxes, it is likely to run a deficit because it
must spend money that it does not have. Since the
1930s, the United States has had deficit, or unbalanced, federal budgets. One reason for these deficits
is that for many years these unbalanced budgets
were thought to benefit the economy. In addition,
this policy was popular politically because it allowed
the government to spend heavily on social programs
that many Americans were demanding.
This policy of deficit spending led to increasingly large budget deficits and a growing national
debt. During the 1970s and early 1980s, economists began to worry about the effects this would
have on the nation’s future.
Demands for cutting the deficit and even balancing the budget grew. Many economists, however,
argued that a balanced budget would mean the federal government could not use fiscal policy to shape
the economy. Some said that the deficit as a percentage of the gross domestic product (GDP) was
more important than the deficit alone. The GDP is
the sum of all goods and services produced in the
nation in a year. They pointed out that the deficit
still represented only 5 to 6 percent of the GDP.
Other economists disagreed. They pointed to
the rapid growth of the deficit and the overall
amount of national debt. When Congress promised to balance the budget in 1981, the gross
federal debt was $930 billion. In 2008 it reached
$5,252 billion ($5.25 trillion). Interest payments
on the debt nearly equaled half of that spent
for defense.
Monetary Policy
The Public Debt,* 1940–2008
$14,123,589,307,190
2011
2000
$5,674,178,209,886
$3,233,313,451,777
Year
1990
1980
$907,701,000,000
1970
$370,918,706,949
1960
$286,330,760,848
1950
$257,357,352,351
1940
$42,967,531,037
* When looking at the increase in absolute numbers, remember that a dollar in 2011
was worth less than a dollar in 1940. For example, it is estimated that $1 in the year
1940 would be worth roughly approximately $16.16 in 2011.
The American economy is a money economy.
Americans exchange goods and services through a
vast system of money and credit. The Constitution
gives the national government authority to “coin
money [and] regulate the value thereof.” Today, the
federal government also tries to regulate the economy through its monetary policy.
Monetary policy involves controlling the supply
of money and the cost of borrowing money, or
credit, according to the needs of the economy. The
government controls the money supply through
the Federal Reserve System.
The Federal Reserve System
The Federal Reserve System, known as the Fed,
is the central banking system of the United States.
When people or corporations need money, they
borrow from a bank. When banks need money,
they borrow from the Fed. Thus, in reality, the
Federal Reserve System is a banker’s bank.
Source: Bureau of the Public Debt; Bureau of Labor Statistics.
Organization of the Fed
Critical Thinking The public debt
increased by more than $4 trillion from
1940 to 2006. What factors or policies
contribute to a budget deficit?
568
UNIT 7: Public Policies and Services
The United States is divided into 12 Federal
Reserve Districts. Each district has one main Federal Reserve Bank. In addition, most Federal
Reserve Banks have branch banks within their
districts.
Federal Reserve Districts
1
9
Cleveland
2
Minneapolis
Chicago
12
San Francisco
10
Visit connected.mcgraw-hill.com.
7
Kansas City
3
4
5
Atlanta
Dallas
New York City
Philadelphia
Washington, D.C.
St. Louis
8
Federal
Open Market
Governors
Boston
6
11
Richmond
Chairman
Board of Governors
(7 members)
Federal
Advisory
Council
12 Federal Reserve Banks
8
Federal Reserve District
Board of Governors of the
Federal Reserve System
Source: www.federalreserve.gov/otherfrb.htm
Federal Reserve Bank Cities
Commercial Banks
(Members and nonmembers)
The Non-Banking Public
Critical Thinking The United States is divided into 12 Federal Reserve Districts. Federal
Reserve Districts are privately owned but publicly controlled. What do low discount rates
from the Federal Reserve encourage banks to do?
About 7,200 of the approximately 13,600 banks in
the United States are members of the Federal Reserve
System. These include all the large banks in the
country. These member banks control the largest
share of total bank deposits in the United States.
Board of Governors
A seven-member Board of Governors in Washington, D.C., supervises the entire Federal Reserve
System. The president selects these members
whose appointments must be ratified, or approved,
by the Senate. The president selects one of the
board members to chair the Board of Governors
for a four-year term.
Once appointed, board members and the chairman are independent of the president. Even Congress exercises little control or influence over the
board, since the board does not depend on Congress
for an annual appropriation for operating expenses.
This allows the Board of Governors to make economic decisions independent of political pressure.
Making Monetary Policy
The Board of Governors has two major responsibilities in forming monetary policy. First, and most
important, it determines the general money and
credit policies of the United States. Second, it supervises the operations of the Federal Reserve Banks in
the 12 districts across the country.
The Fed uses four main tools to control the
financial activities of the nation’s banks and,
through them, the nation’s monetary policy. First,
the Fed can raise or lower the discount rate. The
discount rate is the rate the Fed charges member
banks for loans. Low discount rates encourage
banks to borrow money from the Fed to make
loans to their customers. High discount rates mean
banks will borrow less money from the Fed.
Second, the Fed can raise or lower the reserve
requirement for member banks. Member banks
must keep a certain percentage of their money in
their vaults or on deposit with the Federal Reserve
Banks as a reserve against their deposits. If the Fed
raises the reserve requirement, banks must leave
more money with the Fed. Thus, they have less money
to lend. The Fed has been reluctant to use the
reserve requirement as a policy tool because other
monetary policy tools work better. However, the
reserve requirement can be powerful should the
Fed decide to use it.
CHAPTER 20: Taxing and Spending
569
Chairs of the Fed
Passing the Baton
Third, the Fed can put money into the economy
by buying government bonds on the open market.
These open-market operations stimulate and
help expand the economy. Fourth, the Fed may
also sell government securities. As investors spend
their money on these securities, money is taken
out of the economy, causing it to slow down.
Conflicting Policies
In recent years, the Fed has become an independent policy-making institution. While the
president and Congress largely control taxing and
spending, they have little control over the Fed.
Thus, the Fed’s policy might help or hinder the
economic programs of the president and Congress. Sometimes when conflicting economic
policies arise the president or Congress might
complain that the Fed is interfering with their
economic programs.
Because of conflicts like these, some people
would like to limit the Fed’s role and make it less
independent. Others maintain that the nation
needs an institution that is removed from political
pressures to watch over monetary policy.
SECTION 3 Review
Vocabulary
1. Explain the significance of: fiscal policy, monetary policy,
gross national product, discount rate, reserve requirement,
open-market operations.
Main Ideas
2. Analyzing Why did the federal government adopt policies
that created a huge debt?
3. Explaining How is the Federal Reserve District organized?
Critical Thinking
4. Identifying Alternatives What methods could the
federal government use to stimulate the economy during a
time when people were opposed to deficit spending?
570
UNIT 7: Public Policies and Services
5. Organizing Use a graphic organizer like the one below
to compare recent federal grants with those in the 1980s.
Federal Grants
1980s
Recently
Writing About Government
6. Descriptive Writing Research several back issues of The
Wall Street Journal or selections from the Readers’ Guide to
Periodical Literature to analyze Federal Reserve Board decisions
that affect the economy. Create a poster that displays headlines and captions that are suggestive of the Fed’s actions.
(l)Harry Bates/Fortune Magazine, (cl)AP Images, (cr)Shawn Thew/epa/CORBIS, (r)Joshua Roberts/Getty Images
Alan Greenspan (center above) had a record-long tenure as chairman of
the Fed, from 1987 to 2006 when he was succeeded by Ben Bernanke, right. Based upon the cartoon
image at left, how would you judge the success of Greenspan’s time at the Federal Reserve?
Is the Line-Item Veto Constitutional?
Clinton v. City of New York, 1998
A
rticle I, Section 7, of the U.S. Constitution
outlines how a bill becomes a law, grants
the president a limited veto power, and explains
how Congress can override a presidential veto.
Should the president have the power to veto only
parts of a bill rather than approving or rejecting
the entire bill?
Facts of the Case
In 1992 Congressional Republicans announced
a legislative agenda they called the “Contract With
America.” In it, they called for passage of a lineitem veto that would allow the president to delete
individual items from spending bills, without having to veto the entire bill. The goal was to reduce
wasteful pork-barrel spending and tax breaks that
benefit only a select few. The line-item veto was
supported by President Bill Clinton and several
previous presidents.
When President Clinton signed the line-item
veto bill into law in 1996, he said that it would
allow presidents to fight “special-interest boondoggles, tax loopholes, and pure pork.” Opponents
of the law, however, argued that it violated the separation of powers established in the Constitution
and was, therefore, unconstitutional.
The law was challenged by several groups,
including New York City, several health-care
organizations, and Idaho potato growers. New
York City sued because the president used the
line-item veto to cancel a provision that gave tax
breaks to hospitals caring for Medicaid recipients.
In the case of the Snake River Potato Growers, the
suit was brought because the president canceled a
provision that would have deferred taxes for certain farmers’ cooperatives.
The Constitutional Question
According to the Constitution, the president
can veto bills passed by Congress. If he or she does,
then Congress can decide to consider the president’s objections and revise the bill, or it can vote
on the original bill again. If two-thirds of the members of each house again vote for the original bill,
it becomes law, overriding the president’s veto.
Opponents believed that the line-item veto was
unconstitutional because it effectively allowed the
president to amend legislation passed by Congress.
Supporters claimed that it provided the president
with a degree of discretion in approving or rejecting bills passed by Congress, but that it did not
violate the Constitution.
Debating the Issue
Questions to Consider
1. What was the purpose of the line-item veto?
2. Why did some members of Congress support it?
3. Why did some organizations argue that the line-item
veto was unconstitutional?
AFP/Getty Images
You Be the Judge
When the line-item veto was enacted, the governors
of many states had some form of a line-item veto. Should
the president of the United States have this power?
Why or why not?
▼ President Bill Clinton signs a
letter to Congress urging them to
pass a bill for the line-item veto.
Assessment and Activities
Reviewing Vocabulary
Insert the content vocabulary word(s) below into the
following paragraph to describe how the federal government
regulates the economy. Do not use a word more than once.
withholding
securities
national debt
taxes
taxable income
incrementalism
fiscal policy
GNP
monetary policy
fiscal year
entitlements
uncontrollables
The federal government collects more than $1 trillion in
(1) each year. Through (2) , wage earners pay taxes on
their (3) during the year. The government’s (4) begins
on October 1. Because of (5) such as (6) in the budget,
government spending often exceeds revenue, which
enlarges the (7) . Some economists are not alarmed
because deficits are only about 5 percent of the (8) .
Others would like to see changes in (9) to control
spending or raise taxes. By its (10) , the Fed may stimulate
economic growth to relieve some of these concerns.
12. Describing What are three responsibilities of the Internal
Revenue Service?
Section 2 (pages 560–564)
13. Examining Which executive agency is charged with
preparing the federal budget?
Section 3 (pages 566–570)
14. Stating How do some state and local governments use
intergovernmental revenues?
Critical Thinking
15.
16.
17.
18.
19.
Reviewing Main Ideas
Essential Question Why has the United States
been unable to balance the national budget most of the
time beginning in the 1930s?
Synthesizing What kinds of banks are members of the
Federal Reserve System?
Making Generalizations Why would business groups
support protective tariffs?
Analyzing Why must the Federal Reserve operate free
of pressure from the president or Congress?
Organizing Use a graphic organizer to show how the
government might act if the debt is out of control.
Section 1 (pages 555–559)
11. Identifying Which three institutions are exempt from the
federal income tax?
Rapidly
Growing
Debt
Chapter Summary
Revenue
★ Individual income tax
★ Corporate income tax
★ Social insurance taxes
★ Excise taxes
★ Customs duties
★ Estate and gift taxes
★ Borrowing (by selling bonds,
notes, and certificates)
572
UNIT 7: Public Policies and Services
➧
Federal Budget
Expenditures
★ President directs budget
preparation and sets budget
priorities
★ Day-to-day budget
preparation is carried out
by the Office of Management
and Budget (OMB) along
with the Council of Economic
Advisers (CEA)
★ Social Security
★ Social welfare programs
★ Health-care benefits
★ National defense
★ Discretionary spending (grants
to state and local governments
for road repair, public housing,
police training, school lunch
programs, etc.)
➧
Self-Check Quiz
Visit connected.mcgraw-hill.com and click on the United States
Government Self-Check Quizzes for additional test practice.
Document-Based Questions
Analyzing Primary Sources
Interpreting Political Cartoons
Read the excerpt below and answer the questions
that follow.
Analyze the cartoon and answer the questions that follow.
Base your answers on the cartoon and your knowledge of
Chapter 20.
Joseph Farris/www.CartoonStock.com
”
20. What type of resistance did opponents of the whiskey tax
employ to express their disapproval of the government’s
actions?
21. Why do you think taxes are not protested so violently
today?
22. Washington’s speech justified the government’s forceful
response to the Whiskey Rebellion. What words did he use
that present a negative image of its leaders? How might
the farmers have described their actions and purposes?
★
★★★
P articipating
★
★★★★
23. What is the cartoonist saying about the Internal Revenue
Service?
24. Do you think that the cartoonist’s feelings are
representative of the general feelings of taxpayers?
Why might they feel that way?
★
Combinations to defeat the execution of the
laws laying duties upon spirits distilled within
the United States, and upon stills, have from the
time of the commencement of those laws existed
in some of the Western parts of Pennsylvania.
. . . The said combinations, proceeding in a
manner subversive equally of the just authority
of Government and of the rights of individuals,
have hitherto effected their dangerous and
criminal purpose; by the influence of certain
irregular meetings whose proceedings have
tended to encourage and uphold the spirit of
opposition; by misrepresentations of the laws
calculated to render them odious . . . employing
for these unwarrantable purposes the agency of
armed [bandits] disguised in such manner as for
the most part to escape discovery.
in Government
★★★
“
www.cartoonstock.com
One of the first major taxes the new constitutionally based
government placed on the fledgling American republic was a
1794 tax on whiskey. Western farmers saw this tax as a direct
attack on their business, and in Pennsylvania in particular,
they revolted against this tax, often with arms. George
Washington, the nation’s first president, quelled the rebellion
with troops. This excerpt is from Washington’s proclamation
about the Whiskey Rebellion.
25. Review the various kinds of taxes that are sources of
revenue for local governments. Working in groups of
three, complete the following tasks:
1. Identify three needs that your community has.
2. Estimate the amount of taxes that would need to
be raised to meet these needs.
3. Determine whether any current tax rate may be
increased to meet one or more of these needs.
4. Decide on any additional fair tax to raise money to
benefit the needs that you have identified.
5. Discuss whether people will be in favor of
additional taxes to meet these needs. Summarize
your findings in an informational brochure or flyer.
CHAPTER 20: Taxing and Spending
573