CH. 25 GOVERNMENT FINANCES

STANDARD EE 1.1, 3.1, CG 2.2, 2.7

THE FEDERAL GOVERNMENT• MUST PASS A BUDGET FOR EACH FISCAL YEAR (OCT. 1 – SEPT. 30)

OUTLINING TAXING AND SPENDING POLICY

TYPES OF SPENDING

• APPROPRIATIONS BILLS FOR EACH DEPARTMENT ARE PASSED ANNUALLY BY CONGRESS APPROVING SPENDING FOR CERTAIN PROGRAMS

Mandatory Spending Discretionary Spending

spending Congress doesn’t have to approve annually because it is tied to some mandatory program

money that Congress must approve

Examples:Social Security, Medicare, interest on the national debt

Examples:Defense, Transportation, National Security

REVENUES - INCOME• MOST COMES FROM INCOME TAXES - TAXES ON THE WORKERS’

EARNINGS

• PAYROLL TAXES – WITHHELD FROM A PERSON’S EARNINGS FOR CERTAIN PROGRAMS

• SOCIAL SECURITY, MEDICARE

OTHER TAXES

• Estate Tax – percentage of a person’s wealth

when they die

• Excise Taxes – on alcohol, tobacco, gasoline,

telephone service

• Fees – entrance to national parks, museums,

stamps, etc.

EXPENDITURES - SPENDING• MANDATORY SPENDING (SOCIAL SECURITY, MEDICARE, NATIONAL DEBT

INTEREST, ETC.) MAKES UP OVER TWO-THIRDS OF THE BUDGET

• DISCRETIONARY SPENDING MAKES UP THE OTHER THIRD (DEFENSE, TRANSPORTATION, EDUCATION, ETC.)

• DEFENSE IS THE SINGLE LARGEST DISCRETIONARY EXPENSE IN THE BUDGET

NATIONAL DEBT• WHEN THE GOVERNMENT SPENDS MORE THAN IT MAKES IN TAXES

THERE IS A DEFICIT

• WHEN EACH YEAR’S DEFICIT IS ADDED TO THE PREVIOUS YEARS’ BORROWINGS YOU HAVE THE TOTAL NATIONAL DEBT (CURRENTLY OVER $18 TRILLION – 2015)

• BALANCED BUDGET – REVENUES = EXPENDITURES

• OCCASIONALLY A SURPLUS IS RECOGNIZED – REVENUES > EXPENDITURES

STATE AND LOCAL GOVERNMENTS

• MOST MUST DEVELOP A BALANCED BUDGET – NO DEFICIT

• SOURCES OF REVENUE

• INCOME TAXES – PERCENTAGE OF INCOME

• SALES TAXES – PERCENTAGE OF PURCHASE PRICE

• PROPERTY TAXES – BASED ON VALUE OF PROPERTY OWNED

• FINES & FEES – FOR USING RESOURCES (PARKS, LANDFILL, ETC.) OR PENALTIES (SPEEDING TICKETS)

TYPES OF TAXATION

Progressive Taxation Regressive TaxationTax rate changes based on a person’s income level (higher rate for higher incomes)

Tax rate is the same regardless of income level

Income Taxes Fees, excise taxes, sales taxes, flat tax

Progressive vs Regressive Taxation

Which is more fair?

EXPENDITURES• ENTITLEMENT PROGRAMS – MUST ADMINISTER PUBLIC WELFARE PROGRAMS ADDING STATE MONEY TO FEDERAL MONEY (UNEMPLOYMENT, MEDICARE, ETC.)

• EDUCATION – PUBLIC SCHOOLS AND STATE SUBSIDIZED UNIVERSITIES AND COLLEGES

• INFRASTRUCTURE – MAINTENANCE OF HIGHWAYS, RAILS, BRIDGES, AIRPORTS, ETC.

• SERVICES – CORRECTIONS, POLICE, FIRE/RESCUE, LIBRARIES, WATER/SEWAGE, SANITATION, ETC.