Download CHAPTER 24

CHAPTER 25.1: THE FEDERAL GOVERNMENT
1. The government, when dealing with the budget, operates according to a FISCAL
YEAR which lasts from October 1 to September 30.
2. BUDGET PROCESS
 Federal spending that DOES NOT need annual approval is called MANDATORY
spending. Examples include SOCIAL SECURITY and DEBT PAYMENTS.
 Federal spending that NEEDS approval is called DISCREATIONARY spending.
Examples include highway construction and defense (military) spending.
3. Before the federal government can actually spend money, CONGRESS has to pass
an APPROPRIATION BILL. They must be approved by both houses and signed into
law by the President.
4. REVENUES
 The biggest revenue-earner for the federal government is INCOME TAX which
makes up nearly 50%.
 The second-largest source of revenue for the federal government is PAYROLL
taxes, which come from our paychecks – to fund SOCIAL SECURITY and
MEDICARE.
5. TYPES OF TAXES
 PROGRESSIVE: increases as income increases, best example is our income tax.
 REGRESSIVE: the amount of you pay drops as income rises. Gasoline tax is an
example, since poorer families spend a higher percentage of their income
paying it.
 PROPORTIONAL: Everyone pays the same PERCENTAGE %
6. EXPENDITURES (where the government spends money)
 The largest expenditure for the federal government is SOCIAL SECURITY.
 The second largest is NATIONAL DEFENSE.
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25.1 REVIEW
1. What is the primary revenue for the federal government?
2. A 6.75% sales tax would be considered what kind of tax?
3. What must the federal government do before it can spend money?
4. Where does the federal government spend the most money?
5. What is our government’s fiscal year?
6. Our payroll taxes fund what two things?
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CHAPTER 25.2: STATE AND LOCAL GOVERNMENTS
7. STATE GOVERNMENT
 STATE REVENUES: Largest source of revenue for state governments is
INTERGOVERNMENTAL revenue, which is money one level of government
receives from another. In this case, the state government gets its money from
the FEDERAL government.
 The second-highest source of revenue for state governments is SALES tax.
 Other sources of revenue for states include contributions from state workers
and state income taxes.
8. STATE EXPENDITURES: The largest expenditure for state government (not
counting passing money down to local government), is ENTITLEMENT
PROGRAMS... or what you refer to as "welfare."
 Another major expenditure is college and universities. States spend a
significant amount of money on SUBSIDIZING (paying part of) the college
tuition costs for their citizens. Without this, less people could go to college
since the price of college would rise.
9. LOCAL GOVERNMENT
 LOCAL REVENUES: The largest source of revenue for local government is
intergovernmental revenue. In this case, the money comes from state
governments.
 The second-largest source of revenue for local government is the property
tax. Other sources of income come from utility payments, local taxes, and
fines/fees.
10.LOCAL EXPENDITURES: The largest expenditure for local government is
education.
 Other expenditures include utilities, police/fire protection, hospitals, sewage
disposal, and water supply.
----25.2 REVIEW
1. What is the largest expenditure for state governments?
2. What is the largest revenue for state governments?
3. What is the largest expenditure for local government?
4. What is the largest revenue for local government?
5. What is an entitlement program? (vocab)
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CHAPTER 25.3: MANAGING THE ECONOMY
11.If a government spends less than it collects in revenue, then that government has
a surplus.
12.If a government spends more than it collects in revenue, then that government
has a deficit.
13.Our federal government has a HUGE deficit. We are currently in debt for
TRILLIONS of dollars.
14.If spending equals revenue, then it that government has a balanced budget. The
federal government isn’t required to do this, but 48 states require their
governments to do so.
IMPACT OF THE DEBT
15.Since taxpayers are the ones who have to shoulder paying this huge debt, the
more it rises, the more we pay. This results in people having less money to spend
on themselves.
-----------------FISCAL POLICY IN PRACTICE
16.People want less taxes and the government to provide as much as possible. The
problem with this is that if the government is expected to provide these services,
they have to raise taxes. Governments on all levels have to tread carefully in
attempting to balance taxes with spending.
AUTOMATIC STABALIZERS
17.An “automatic stabilizer” is a program that works to stimulate the economy
whenever its needed. They’re already in place and don’t need government action
to begin. There are two major ones:
a) UNEMPLOYMENT: These give money to people unemployed so they can pay
for some stuff. It’s not a lot of money, it’s purpose is to “hold you over” until
you find a job.
b) INCOME TAX: When one loses their job, they make less money. Since income
tax is a progressive tax, people who lose their job drop into a lower tax
bracket, which means they pay less taxes. When the economy recovers,
people find more jobs and can go back into higher tax brackets – which means
more money for the government off income taxes.
-----------------25.3 REVIEW
1. Does our federal government have a surplus or deficit?
2. What’s a balanced budget? Who’s required to have it?
3. How does the federal debt impact us?
4. What are two “automatic stabilizers” for our economy?
5. Why is cutting taxes so difficult for our government?