Chapter 25

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Transcript Chapter 25

Government
Finances
Budget Process
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President must submit a budget
proposal to Congress by the 1st
Monday in February
Congress then passes a budget
resolution through both Houses of
Congress
Budget Process
Spending is divided into 2 types:
Mandatory Spending: Spending that
does not need annual approval.
EX: Social Security Payments
Discretionary Spending: Spending that
must be approved each year EX:
Highway construction
Federal Revenues
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Income taxes account for half of all federal
government revenues
Most of this comes from tax withholdings- money
taken from each person’s paycheck to cover their
taxes
At the end of the year, you file a tax return. If the
government took too much in your checks, you get
a refund. Otherwise you pay the balance.
Corporations also pay taxes on their profits. This is
about 10% of all federal government revenue.
Federal Revenues
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The second largest source of gov’t income
is payroll taxes-money taken from your
paycheck to pay for social security and
Medicare
The government also collects excise taxestaxes on specific goods such as gas,
tobacco, alcohol, & legal betting (also called
sin taxes)
Another tax is the estate tax-tax on money
left in a will
Another tax is a gift tax-tax on large gifts
Forms of Taxes
Proportional tax a tax that has the same percentage no
matter how much you make
 collects less money than other
methods for the government
Forms of Taxes
Progressive tax the more you make, the higher the
percentage you pay
 collects the most money for the
government
Forms of Taxes
Regressive tax opposite of progressive in that the
percentage you pay goes down the
more you make
 ex: social security and sales taxes
Federal Expenditures
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Expenditures-where the government
spends its money
21% on Social Security
17% on national defense
14% on Medicare
8% on interest on debt
Sources of
State Government Revenue
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Main source is intergovernmental
revenue-money received from the national
government, about $.22 per all dollars
received.
Sales tax-tax on the purchase of most
items. Stores pay a lump amount each
month. Ranges in amount from 2% to 8%.
Some states don’t have any sales taxes at
all.
Sources of
State Government Revenue
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Contributions-states take the money
collected from it’s employees for their retire
and invest it.
Income taxes-many states have their own
income tax systems. Some states simply
take a percentage from your federal return.
Others charge a flat rate to all it’s citizens.
Some charge a progressive rate while 7
states have no income tax at all.
State Expenditures
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State welfare programs called entitlement
programs. These programs provide health,
nutrition, or income payments to people who
meet basic requirements
Higher education-states help to subsidize
the cost of a college education for the poor.
Highway construction
Sources of
Local Government Revenue
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Property taxes- must pay a certain
percentage on real property such as
buildings and land. May also charge
property taxes on stocks, bonds, cars,
jewelry, furniture, and fine works of art.
Revenue from utility companies
Also collect sales taxes
Fines from traffic violations and other user
fees
Local Government
Expenditures
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Education-in charge of setting up
local school districts
Police and fire protection
Water supply
Sewage and sanitation
Budget Issues
Difficulties in planning
 Hard to predict tax revenues
 Hard to predict all government
expenses
 Never know when a unique event will
occur (hurricane, blizzard, terrorist
attack)
Budget Issues
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Try to have a surplus-when revenues
are more than expenditures
States also try to put money away for
unforeseen events
Budget Issues
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When expenditures are more than
revenues you have a deficit
Another problem is that the national
government is forcing states to pay for
more programs leading to large state
debts
Government Debt
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When the government runs into debt it must
borrow money to pay it’s bills
May use bonds-an agreement to pay back
a loan with interest
Surpluses may help to pay for these debts,
or governments may cut programs
Raising taxes is another unpopular option
Government Debt
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Governments try to have a balanced
budget, where spending equals
expenditures
The business cycle can make this
difficult as government spending in
recessions can make a balanced
budget difficult
Government Debt
Impact of National debt:
1.
More tax dollars go to paying interest on
loans, leaving less for government
programs
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Higher taxes to pay off debt mean less
money for your expenses
3.
The more money the government borrows
the less available for its citizens to borrow,
slowing down the economy
Automatic Stabilizers
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These are programs that are in place to
stimulate the economy when needed
The main advantage is that are always in
place with no government action needed
Ex: unemployment insurance to help
people till they can find a job
Ex: Medicaid and other welfare programs to
help people maintain a basic standard of
living
Ex: progressive taxes