Download Chapter 16 Taxes, Deficits, and Debt

What Are the Major Federal Taxes?
• Personal income tax
• Corporate income tax
• Social security tax
Transparency 16-1
Exhibit 1
Major
Federal
Taxes
SOURCE: Council of Economic
Advisers, Economic Report
of the President, 1999.
Transparency 16-2
Three
Income Tax
Structures
Exhibit 2
Transparency 16-3
What are the Major Federal Government
Spending Programs?
•
•
•
•
•
•
National defense
Income security
Health
Medicare
Social security
Net interest on the National Debt
Transparency 16-4
Exhibit 3
Major Federal
Spending
Programs
SOURCE: Council of Economic
Advisers, Economic Report
of the President, 1999.
Transparency 16-5
DEBT AND DEFICITS
• BUDGET DEFICITS occur when
government expenditures
exceed tax receipts
• A BUDGET SURPLUS occurs
when tax receipts exceed
government expenditures
Transparency 16-6
CYCLICAL DEFICITS
• The portion of the deficit that is a
result of an economic downturn
• many economists (Keynes) believe
that deficits are natural and
necessary during recessions
because tax revenues fall and benefit
payments rise
• Our problem is that we have
continued to run deficits in
expansionary periods
Transparency 16-7
STRUCTURAL DEFICITS
• The structural deficit is the
portion of a budget deficit which
exists when the economy is
operating at full employment
• Total Budget Deficit = structural
deficit + cyclical deficit
Transparency 16-8
National Debt
• NATIONAL DEBT is the total sum
of what the federal government
owes its creditors (the sum of
past deficits)
Transparency 16-9
Exhibit 5 Public Debt for 1987–1999
The 1999 amount is for November 1999.
SOURCE: Bureau of the Public Debt.
Transparency 16-10
Deficits and
Debt as % of
GDP
Exhibit 5
Transparency 16-11
NATIONAL DEBT
• As the debt grows, interest on
the debt grows in its share of the
budget.
• The portion of the budget that
can be cut in order to balance
the budget is SHRINKING
Transparency 16-12
PORTION OF THE BUDGET THAT IS
CONSIDERED UNTOUCHABLE
• Interest on the Debt
14%
• Social Security
22%
• untouchable total
36%
• National Defense
20%
• Total
56%
Transparency 16-13
WHO BEARS THE BURDEN OF THE DEBT?
• CURRENT GENERATION - if
crowding out occurs then
households are giving up
consumption to pay for increases
government spending
• FUTURE GENERATIONS - will have
to pay higher taxes to pay off the
bonds when they come due. They
bear the cost while the bondholders
receive the payoffs.
Transparency 16-14
COUNTERPOINT
• WE-OWE-IT-TO -OURSELVES - if
American taxpayers make payments
to American bondholders, money is
simply shifted from one pocket to
another.
• Only works if debt is held
domestically (currently 14-18% is
held by foreigners)
Transparency 16-15