Transcript Taxpayer Responsibilities

Taxpayer Basics
An Overview of U.S. Economics
What is Internal Revenue Service?
The IRS is a government agency that collects taxes from
earnings of businesses and individuals for the U.S.
government. It also enforces tax laws.
• Taxes = Revenue (income) for the government
• Federal revenue is used to fund federal programs such as
• Military
• Foreign Policy
• Education
• Entitlements
Sources:
IRS.gov
About.com
John Koskinen
US Government Spending
Breakdown to spending at the Heritage Foundation Website
Take a look at the U.S. Debt Clock
Who runs the IRS?
The Commissioner of the IRS is chosen by the President of
the United States.
• Appointments require Senate approval
• 5 year terms
• Oversee all IRS operations
• Collection of taxes
• Enforcement of tax laws
• Interpreting tax laws as written
by Congress
Sources:
IRS.gov
About.com
What is the Federal Reserve Bank?
It’s the central bank of the United States of America.
• Holds monies collected by the IRS.
• Independent central bank
• Pseudo-governmental (part public (gov’t), part private)
• Non-profit
• Decisions not ratified by President or Congress
• Subject to congressional oversight
• 12 regional Federal Reserve Banks
Sources:
Federal Reserve.gov
Federal Reserve Education.org
Federal Reserve Districts
Find your bank by Zip Code
Why a Federal Reserve?
First, the history of banking.
• Bank collapses in 1873, 1893 and 1907 – Congress
wanted a central bank to stop this problem.
• Dec. 23 1913 by Congress when the Federal Reserve Act
was signed by Woodrow Wilson
• The central bank issues one currency for the whole
country – no conversion needed when crossing state
lines
• The Fed exists to make monetary policy to promote
economic growth nationally and to balance public
(government) and private interests
o Regulation of interest rates (lower rates = cheaper
for banks to borrow money)
o Control the availability of cash
Federal Reserve Structure
Board of Governors: The Federal Reserve Board
• 7 members selected by the President and approved by
the Senate for 14-year terms
• One member is the Chairman (4-year term)
• Study economic trends and conditions
• Write the policies that ensure financially sound banks
and a stable and strong national economy.
• Supervise member banks to ensure their compliance
12 Regional Banks throughout the country
Federal Open Market Committee (FOMC)
Federal Reserve Banks
12 regional banks throughout the country
• Each has its own 9-member board of directors
• Provide regional perspectives
Responsibilities to Banks
• Provide banking service to other banks, S&L’s, etc.
• Distribute currency and coin to banks
• Lend money to banks
• Process electronic payments
Responsibilities to Government
• Maintain accounts for the U.S. Treasury, process gov’t
checks, conduct gov’t securities auctions.
The banks also research economies and educate the public
about the economy through publications and workshops.
Federal Open Market Committee
Federal Open Market Committee (FOMC) makes financial
decisions – directs the nation’s monetary policy
• 12 members (7 from the Board of Governors and 5
member bank presidents)
• Meet 8 times each year to set interest rates and
decide whether to increase or decrease the money
supply—which the Fed does by buying and selling
government securities
• Establishes a target for the federal funds rate (the rate
banks charge each other for overnight loans)
• An increase in the federal funds rate usually leads to an
increase in all loan rates
See the voting structure chart
at St. Louis Fed.org
Job of the Federal Reserve System
The Fed is responsible for conducting monetary policy in
order to maintain:
• Price stability
• Avoid inflation and deflation
• Inflation is a general rise of the prices of all goods and
services
• Maximum employment
• Keeping interest rates low means business can borrow
cheaper and expand, increasing employment rates.
To maintain stability, the Fed sets targets:
• The amount of money circulating in the economy
• The level of reserves held by banks
• The level of interest rates
How does all of this affect you?
• A percentage of the money you earn is paid to the federal
government, collected through the IRS, and deposited at the
Federal Reserve Banks.
• Federal programs you participate in are funded by these same
dollars. This included education, public roads and parks, as well as
entitlement programs (free and reduced lunches, SNAP cards,
Medicaid).
• The Federal Reserve affects the amount you pay for goods and
services.
• Higher rates slow the economy
• Costs to businesses for borrowing can affect the unemployment rate
• Lower rates = lower borrowing costs
• Cheaper to buy a home/car
• Cheaper to expand a business
• Buying securities
• When the Fed wants to increase the money supply they purchase
government securities i.e. savings bonds, treasury bills and notes (see
quantitative easing).
Review Questions
Copy these questions into a Word document and add your
answers. Upload to Moodle, Unit 2 “Tax Payer Review Questions.”
Read this article about Budget Deficits. In your own words, explain
how a budget deficit impacts interest rates.
1. What does the IRS do?
2. Why do we have a Federal Reserve Bank?
3. What are the 2 main functions of the Fed?
4. Who does the Fed report to (who has to approve their plans)?
5. How many districts are there of the Federal Reserve?
6. Which district does Monroe County, PA belong to?
7. How do interest rates affect the economy?