Government Revenue and Spending
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Transcript Government Revenue and Spending
Government Revenue and Spending
Government Revenue
Revenue—government income from tax and non-tax sources
Tax Bases
Individual income tax—on income from all sources
Corporate income tax—on corporation’s profits
Sales tax—on value of product; a percentage of sale price
Property tax—on value of assets, generally real estate; part of
rent
Growing, shrinking tax base means changes in amount of taxable
wealth
Tax Rate
rate at which a person’s tax liability is determined
Tax Bases and Structures
Tax Structures
Proportional tax—flat tax—all taxpayers pay
same percentage of income
Progressive tax—higher income earners pay
higher percentage of income (ability to pay)
most closely linked to ability-to-pay principle
Regressive tax—lower income earners pay higher
percentage of income
examples: sales tax, property tax
Impact of Taxes on the Economy
Resource Allocation
Tax on a good or service increases cost of production
Productivity and Growth
When taxes on interest and dividends high, people save less
impacts amount of money available to producers to invest in businesses
Some economists think high taxes reduce incentives to work
Others think high taxes promote underground economy
Economic Behavior
Tax incentive—use of taxes to influence economic behavior
Tax credits, rebates encourage behavior good for society, economy
Sin taxes imposed on unhealthful, damaging products, activities
Individual Income Tax
Federal government gets about $2.5 trillion in revenue yearly
Taxes important sources of revenue
largest source is individual income tax
second largest source is social insurance taxes
Paying Your Taxes
Withholding—payroll tax taken before worker gets paycheck
Internal Revenue Service (IRS) collects money, administers tax
system
Taxable income—taxable portion; exemptions, deductions reduce it
Tax returns—forms used to report income, taxes owed to
government
if too much withheld, taxpayer gets refund; if not enough, taxpayer pays rest
Types of Spending
Mandatory Spending
Entitlements—social welfare programs with specific
requirements
Social Security restrictions: former worker, age, extra
income limit
Medicare provides hospital, other medical insurance;
means tested
Medicaid is federal-state insurance program for lowincome people
Other programs’ funding based on number of people
eligible
Types of Spending cont.
Discretionary Spending
Defense includes salaries, weapons, military bases,
homeland security
Interstate highway system and other transportation
Natural resources, environment; includes: parks, pollution
clean up
Education; science, space, technology; other research
Justice administration includes enforcement agencies,
federal courts
The Federal Budget and Spending
Federal budget—plan for spending federal revenue
Fiscal year—12-month period for which
expenditures are planned
Congressional Budget Office helps develop
appropriations guidelines
appropriations are specific amounts set aside for
specific purposes
State Revenues
Sales and Excise Taxes
Almost all states have
sales tax on most goods,
services. Oregon does
not
Income Tax and Other
Revenue Sources
estate, property taxes; user,
business registration, license
fees
Should Online Sales Be Taxed?
Background
In 1992, the Supreme Court upheld a law making Internet
retailers exempt from collecting most sales taxes because
rules varied widely among states.
Today, tax collection is simpler, and Internet purchases are
commonplace. Most states have made tax on Internet sales
voluntary, with poor results.
What’s the Issue?
Should there be sales tax on Internet purchases?
Should Online Sales Be Taxed? {continued}
Thinking Economically
1. Summarize the arguments for and against an Internet sales tax
as presented in the documents.
2. Who is most likely to benefit from Internet sales tax revenue?
Explain your answer, using information from the documents.
3. How has government responded to e-commerce—the selling of
goods and services online? Use information from the
documents in your answer.