Transcript Fiscal Policy newx

Taxes and the
Federal Budget
Where does all my money
go and how does the
federal government
influence the economy?
Who has the power to tax?
 Constitution
gives Congress the authority
to decide where money comes from and
how it will be used

“The Congress shall have the power to lay
and collect taxes, duties, imposts, and
excises, to pay the debts and provide for
the common defense and welfare of the
United States”
 Article
I, Section 8
Taxes…woo!
 What

are they?
The money that
people and
businesses pay to
support the
government
 Revenue:

The money that
the government
collects from taxes
Budget



Appropriated money is
part of the Budget
President proposes
his/her budget each
year.
Operates in the fiscal
year


October 1-September
30th
Reflects the federal
governments “needs
and priorities”
Budget
President does not have total control due to
uncontrollables: spending mandated by law
or previous budgetary commitments.
 Interest on national debt
 Most are entitlements: benefits Congress has
provided by law to individuals (Social Security,
Medicare, Medicaid, veterans’ benefits)
(70% of money spent by Federal gov’t)

The Offices



The Office of Management and Budget
(OMB) analyzes the economic consequences
of the budget for the President.
The Congressional Budget Office (CBO)
analyzes the economic consequences of the
budget for Congress.
Economists for the OMB and CBO look at
multiple inputs in order to make inferences
about where the economy is headed.
Taxing and Spending

National government
collected about $2.8
trillion in 2013.

The federal
government still
spent more than it
took in, increasing
the national debt.
Income Tax
 Individual
Income
Tax is the federal
governments
biggest single
source of income
 Which
Amendment??
Income Taxes
 Levied
on taxable income total income of
an individual – deductions and personal
exemptions.
 Examples: charity, state & local income
tax paid, home mortgage interest, other
expenses (day care)
 Personal exemptions : reduce the amount
of money that is taxable

dependents
Income Tax
 Income
Tax is a progressive tax: based on
a taxpayer’s ability to pay.

Higher income should mean a higher tax
rate.
 File
taxes by April 15th and the IRS handles
about 200 million returns and documents.
Social Insurance Taxes




Taxes collected to pay for Social Security,
Medicare and unemployment.
Employees and employers share in paying the
tax and contributes.
Do not go into government’s general fund
Go to Treasury Department’s special trust.
Regressive taxes: people with lower income
pay a larger portion than those with higher
income.
Excise Taxes
 Taxes
on the manufacture, transportation,
sale, or consumption of goods and the
performance of services.


Used to be: carriages, snuff (smokeless
tobacco), and liquor.
Now: gasoline, oil, cigars, cigarettes, liquor,
airline tickets, long-distance calls.
 “Luxury
Taxes”
Customs Duties
 Levied
on goods
imported into the
United States (AKA
tariffs).


Higher = protective
tariff for American
industry.
Raise prices of
imports.
Fiscal Policy
 Fiscal
Policy is the government’s use of
spending and taxation to regulate the
economy.
 Monetary
Policy is the Federal Reserve’s
control of the money supply to regulate
the economy.
Stimulating the Economy

Using fiscal policy to
stimulate the economy,
the federal government
might:



Lower taxes
Spend $$ on new
projects to create jobs
These two reasons are
why the federal
government frequently
runs a deficit-it is
spending money it does
not have.
Cooling Down the Economy
 Using
fiscal policy to cool down the
economy, the federal government might:


Raise taxes
Reduce federal government spending on
programs
Balanced Budget?

Why doesn’t the federal
government balance
the budget?


Opponents of balancing
the budget argue it
does not allow the
federal government to
use fiscal policy to
respond to current
economic conditions.
A balanced budget
means the federal
government cannot
spend $$ it doesn’t
have.
Regulations

Why do you think the government regulates
various industries?

Regulations can have unintended
consequences, such as depressing growth in
various industries because it is too expensive
to meet regulations.


Protections, like tariffs, can raise prices on goods
while protecting American industries.
Subsidies can encourage producers to be
inefficient, or to produce goods no longer
wanted by consumers.