Transcript File

GOVERNMENT FINANCES
Chapter 25
Be Quiet!!
Be Prepared to write notes.
Laissezfaire
Economic
Bailout
Song
[Fiscal policy] Taxing and Spending.
• Why is it difficult for the federal
government to use fiscal policy to
effectively stabilize the economy?
• It is hard to predict the future
• government policies do not always have
the desired effect.
• Long term planning conflicts with
short term goals.
• Politicians get re-elected based on
short term results even if their
policies are harmful in the long run.
The Federal government
Graph
City
•Executive Branch (2) President & Vice President
•Legislative Branch (535) Congressmen
•Judicial Branch (9) Judges
•They share the responsibility of governing the
nation. (546 people)
Economic Concepts
• John Maynard
• F.A. Hayek

Keynes
• Gov’t. spending
will stimulate
economy out of
recessions &
depressions
• Gov’t. saves
money during
good times
• Gov’t .spends
money to
stimulate
economy
• Gov’t

involvement is
inefficient.
• Economy is
better off with
less Gov't, more
economic
freedom
• Boom & Bust
cycles are
normal
Monetary Policy



Art Laffer
Supply Side
Economics
Lower Taxes
puts more
money in the
hands of private
investors
Private investors
would make
better choices
Private investors
pay for their
failures
Economics
Break Down
Explain the differences between real
property tax and personal property tax
• Page 682
• Revenues
• Local Governments
• Property Tax
• Real Property
• includes land and buildings
• Personal Property consists
of portable objects such as;
• automobiles, stocks, bonds,
jewelry, travel trailers
Preparing the budget
• The federal budget,
1. Proposed by the President
2. Approved by Congress
3. Signed by President
The government’s blueprint for taxing and spending money.
By the first Monday in February, the president proposes a
budget to Congress outlining how the government should
spend its money.
Revenues and expenditures 2012
Revenues:
• Individual income tax 49%
• Payroll tax 29%
• Corporate profits tax 12%
• Other Taxes 10%
Expenditures:
• Social security 27%
• National defense 24%
• Medicaid 9%
• Medicare 17%
• TARP 1%
• Other 22%
Interest on debt & other expenditures
• 15.2% of the federal budget each year goes toward
paying interest on the money the government has
borrowed. (66% Mandatory Spending)
• The federal government spends a small portion of its
revenues on programs such as education, highways, and
natural resources. (33% Discretionary Spending)
State and Local governments
• State and local governments revenue sources.
• Intergovernmental Revenue (Largest source)
• Property Tax (Second largest source)
• Sales Tax
• Income Tax
expenditures
• A large share of local tax revenues in many
states goes to pay for public schools.
• 87% in Arkansas
Surpluses and Deficits
-
Governmental budgeting can result in either a
surplus, a deficit, or a balanced budget.
Vocabulary
• Budget
• Mandatory spending
• Discretionary spending
• Appropriations bill
• Social security
• Medicare
• Intergovernmental revenue
• Sales tax
• Property tax
• Entitlement program
• Subsidize
• Surplus
• Deficit
• Bond
• Debt
• Balanced budget
• Automatic stabilizer
Budget
•A plan for making and spending money
Mandatory spending
•Federal spending required by law that
continues without the need for annual
approvals by Congress
Discretionary spending
•Spending for federal programs that
must receive annual approval
Appropriations bill
•Legislation, earmarking funds for
certain purposes
Social security
•Federal program that provides monthly
payments to people who are retired or
unable to work.
Medicare
•Government program that helps care
for the aged.
Intergovernmental revenue
•Funds one level of government receives
from another level of government.
Sales tax
•Tax levied on a product at the time of
sale.
Property tax
•Tax on land or property.
Entitlement program
•A program using eligibility
requirements to provide health,
nutritional, or income supplements to
individuals.
Subsidize
•To aid or promote with money.
Surplus
•Situation in which quantity supplied is
greater then quantity demanded;
•situation in which government spends
less than it collects in revenues.
Deficit
•Situation in which government spends
more than it collects in revenues.
bond
•Contract to repay borrowed money
with interest at a specific time in the
future.
Debt
•Money borrowed and not yet paid back.
•United States Debt
• $17,000,000,000,000 “17 Trillion”
• $45,000 per person
Balanced budget
•Annual budget in which expenditures
equal revenues.
Automatic stabilizer
•Program that when needed, provides
benefits to offset a change in people’s
incomes.
Which of the following would be most
likely to happen when more jobs become
available?
A. More people will move into a lower income
tax bracket.
B. More people will join the Medicaid program.
C. Fewer people will collect unemployment
payments.
D. Fewer people will become eligible for Social
Security.
A major advantage of automatic
stabilizers is that they
A. do not require additional government action
to take effect.
B. take effect as soon as appropriations bills
are passed into law.
C. prevent the federal government from going
further into debt.
D. allow political leaders to realize when a
recession is ending.
Which of the following is most likely to
happen when the federal government
spends more than it collects in revenues?
A. The federal budget will show a surplus.
B. The federal budget will show a deficit.
C. The federal government will decrease sales
taxes.
D. State governments will help decrease the
national debt.
A sales tax is a general tax levied on the
purchase of
A. jewelry and luxury items
B. stocks and bonds.
C. real property.
D. consumer goods.
Which of the following is true of a
regressive tax, such as the tax on
gasoline?
A. Poorer families pay a larger proportion of
their total income on the tax.
B. Wealthier families pay a larger proportion of
their total income on the tax.
C. The tax rate for poorer families decreases
as they buy more gasoline.
D. The tax rate for wealthier families
decreases as they buy more gasoline.
Which of the following was the largest
single spending category in the 2012
fiscal year federal budget?
A. interest on the national debt
B. Medicare
C. Social Security
D. national defense
As a federal expenditure, income security
covers
A. Social Security benefits.
B. medical research and Medicaid.
C. housing for poorer Americans.
D. national defense.
A budget surplus is most likely to occur
when
A. government spending exceeds collected
revenues.
B. automatic stabilizers stimulate the
economy.
C. collected revenues exceed government
spending.
D. government revenues equal spending.
State governments use contributions
from state workers to pay for state
A. appropriations.
B. entitlements.
C. subsidies.
D. retirement benefits.
Which of the following statements
correctly describes the federal income
tax?
A. People with lower incomes pay a smaller
percentage of their income as taxes.
B. People with higher incomes pay a smaller
percentage of their income as taxes.
C. People with higher incomes pay a
proportional income tax.
D. People with lower incomes pay a
regressive income tax.
About how much of the federal government’s
budget is used for discretionary spending?
A. 25 percent
B. 33 percent
C. 50 percent
D. 66 percent
An example of mandatory spending by
the federal government is the money used
for
A. military operations.
B. Social Security benefit checks.
C. national defense.
D. highway construction.
The greatest source of revenue for the
federal government is
A. payroll taxes.
B. estate taxes.
C. excise taxes.
D. income taxes.
From which source do local governments
receive the greatest amount of money?
A. sales taxes
B. property taxes
C. intergovernmental revenues
D. fees for permits and
services
Which level of government is responsible
for fire protection?
A. local
B. regional
C. state
D. federal
The government can borrow money
by
A. raising taxes.
B. selling bonds.
C. increasing entitlement
D. decreasing the federal debt.
Which 12-month period makes up the
federal government’s fiscal year?
A. January 1–December 31
B. April 1–March 31
C. July 1–June 30
D. October 1–September 30
In what order does the federal
government make budget decisions?
A. Congress passes budget resolution - president
proposes budget - president signs law - Congress
approves appropriations bills
B. president proposes budget - Congress passes
budget resolution - Congress approves
appropriations bills - president signs law
C. president signs law - Congress passes budget
resolution - president proposes budget - Congress
approves appropriations bills
What is the greatest source of revenue to
state governments?
A. contributions and investments
B. intergovernmental revenues
C. state income tax
D. state sales tax
Which level of government is responsible
for maintaining interstate highways?
A. local
B. regional
C. state
D. federal
Because they are prohibited from borrowing
money to pay operating expenses, many
state and local governments rely on
A. automatic stabilizers.
B. emergency funds.
C. bonds.
D. appropriations bills.