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Chapter Menu Chapter Introduction Section 1:Section 1:The Federal Government Section 2:Section 2:State and Local Governments Section 3:Section 3:Managing the Economy Visual Summary

Chapter Intro 1 As taxpayers, American citizens share most of the burden of financing local, state, and federal governments. In return, we receive a host of services that makes our lives better and more secure. These services range from education, entitlement programs, and police and fire protection to national defense and highway construction.

Chapter Intro 2 Section 1: The Federal Government Under our federal system, the executive, legislative, and judicial branches share the responsibility of governing the nation. The president and Congress work together to create the budget—a blueprint for raising and spending the nation’s money.

Chapter Intro 2 Section 2: State and Local Governments Political and economic institutions evolve to help individuals and groups accomplish their goals. State and local governments have their own revenue sources and decide how to spend the money they take in.

Chapter Intro 2 Section 3: Managing the Economy Political and economic institutions evolve to help individuals and groups accomplish their goals. Governments use various tools to manage the economy.

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Section 1-Main Idea Guide to Reading Big Idea Under our federal system, the executive, legislative, and judicial branches share the responsibility of governing the nation.

Section 1-Key Terms Guide to Reading Content Vocabulary budget mandatory spendingmandatory spending discretionary spendingdiscretionary spending appropriations billappropriations bill Social Security Medicare Academic Vocabulary enormous

A.A B.B Section 1-Polling Question Would you be willing to give up government services in order to pay lower taxes? A.Yes B.No

Section 1 Preparing the Budget The federal budget, created by the president and Congress, is the government’s blueprint for raising and spending money.

Section 1 Preparing the Budget (cont.) The president and Congress create the federal budget, which determines how the government raises and spends money.budget Government’s fiscal year (FY): October 1 to September 30

Section 1 Budget process: –President proposes budget to Congress by first Monday in February –President sends proposed budget to Congress, with annual budget message Preparing the Budget (cont.)

Section 1 –Congress passes budget resolution Mandatory spending does not need annual approvalMandatory spending Discretionary spending (about one-third of the budget) is approved each yearDiscretionary spending Preparing the Budget (cont.)

Section 1 –Both houses must approve appropriations bills appropriations bills –President signs into law or vetoes Preparing the Budget (cont.)

A.A B.B C.C D.D Section 1 If you were in Congress and had to cut spending, from which program would you take money? A.Defense B.Education C.Farm subsidies D.Highway construction

Section 1 Revenues and Expenditures The federal budget has two main parts—revenues and expenditures.

The Federal Budget, FY 2007 Section 1 Revenues and Expenditures (cont.) Revenues: –Half from individual income tax returns –Corporate income tax –Payroll taxes fund Social Security and MedicareSocial Security Medicare

Section 1 –Other taxes: Excise tax on gasoline, tobacco, telephone Estate tax on wealth to heirs Tax on gifts Miscellaneous income such as national park fees Revenues and Expenditures (cont.) The Federal Budget, FY 2007

Section 1 Forms of taxation: –Proportional tax—same percentage from everyone –Progressive tax (such as the federal income tax)—proportion increases with income –Regressive tax—proportion decreases with income Revenues and Expenditures (cont.) The Federal Budget, FY 2007

Section 1 Expenditures: –Social Security—largest category in 2007 –Income security –Health costs –Defense—second largest category— 17.4 cents of every dollar spent in 2007 Revenues and Expenditures (cont.) The Federal Budget, FY 2007

Section 1 –Interest on debt –Programs such as education, highways, natural resources Revenues and Expenditures (cont.) The Federal Budget, FY 2007

Section 1 Changes to budget: –Early government had few expenditures –Budget and Accounting Act of 1921 –Increased role of President Revenues and Expenditures (cont.) The Federal Budget, FY 2007

A.A B.B C.C D.D Section 1 How would you like to see government expenditures changed? A.Decrease defense spending, increase money to social programs B.Decrease social program spending, increase defense budget C.Increase health and social security spending, decrease everything else D.Leave the budget the way it is

Section 1-End

Section 2-Main Idea Guide to Reading Big Idea Political and economic institutions evolve to help individuals and groups accomplish their goals.

Section 2-Key Terms Guide to Reading Content Vocabulary intergovernmental revenue sales tax property tax entitlement program subsidize

Section 2-Key Terms Guide to Reading Academic Vocabulary revenue utilize resource

Section 2-Polling Question Do you think it is fair for both states and cities to charge sales tax? A.Yes B.No A.A B.B

Section 2 Revenues State and local governments have their own revenue sources.

Section 2 Revenues (cont.) State and local governments have their own budgets, revenues, and expenditures. State and Local Governments: Revenues and Expenditures

Section 2 State government revenues in order of importance: –Intergovernmental revenues from federal governmentIntergovernmental revenues Revenues (cont.) For welfare, highways, hospitals, etc. State and Local Governments: Revenues and Expenditures

Section 2 –State sales taxsales tax Revenues (cont.) –Contributions from state employees to retirement funds Five states have no sales tax Other states charge 2.9 to 7.25 percent State and Local Governments: Revenues and Expenditures

Section 2 –Income tax Revenues (cont.) Seven states have none Some charge percentage of federal income tax Some charge single rate Some use progressive tax State and Local Governments: Revenues and Expenditures

Section 2 Local government revenues: –For many local governments, most comes from state –Property taxes, usually only on real propertyProperty taxes Revenues (cont.) Real property—land and buildings Personal property—portable objects State and Local Governments: Revenues and Expenditures

Section 2 –Local sales tax –Fines and fees –Revenue from water and utilities Revenues (cont.) State and Local Governments: Revenues and Expenditures

Section 2 Do you agree that all should states tax their residents’ incomes? A.Agree B.Disagree A.A B.B

Section 2 Expenditures State and local governments use the revenues they receive to fund many different expenditures.

Section 2 Expenditures (cont.) State and local governments use revenues to fund many human services. State and Local Governments: Revenues and Expenditures

Section 2 State governments –Entitlement programs for the poorEntitlement programs –Subsidize college tuitionSubsidize –Maintain highways –Retirement, hospitals, corrections, education Expenditures (cont.) State and Local Governments: Revenues and Expenditures

Section 2 Local governments –Public schools –Police and fire protection –Water supply –Sewage and sanitation Expenditures (cont.) State and Local Governments: Revenues and Expenditures

A.A B.B C.C D.D Section 2 Garbage processing should be the responsibility of which level of government? A.Local B.State C.Federal D.All levels together

Section 2-End

Section 3-Main Idea Guide to Reading Big Idea Political and economic institutions evolve to help individuals and groups accomplish their goals.

Section 3-Key Terms Guide to Reading Content Vocabulary surplus deficit bond debt balanced budgetbalanced budget automatic stabilizerautomatic stabilizer Academic Vocabulary precise ideological

A.A B.B Section 3-Polling Question Should the federal government be required to keep a balanced budget? A.Yes B.No

Section 3 Surpluses and Deficits Government budgeting can result in either a surplus, a deficit, or a balanced budget.

Section 3 Surpluses and Deficits (cont.) Surplus—the government budgets more than it spendsSurplus The Deficits and the Debt

Section 3 Deficit—government spends more than plannedDeficit –Issue bonds to raise extra fundsbonds –Outstanding bonds are government’s debt debt –Federal debt about $4.9 trillion in October 2006 Surpluses and Deficits (cont.) The Deficits and the Debt

Section 3 Balanced budget—spending equals revenuesBalanced budget –Not required of federal government –Required of many state and local governments –Must cut spending if revenues drop Surpluses and Deficits (cont.) The Deficits and the Debt

Section 3 Effects of national debt: –Taxpayers must pay interest rather than funding services –Higher consumer interest rates Surpluses and Deficits (cont.) The Deficits and the Debt

A.A B.B C.C D.D Section 3 Why might the government have a budget surplus some years and a deficit other years? A.Planning B.Economic growth C.Wars D.Changes in programs

Section 3 Fiscal Policy The tool of fiscal policy can help governments control the economy.

Section 3 Fiscal Policy (cont.) Fiscal policy is the government using taxes and spending to help the economy grow. –Theory: to increase spending, cut taxes in recession; to reduce spending, increase taxes in boom. –Practice: hard to raise taxes or cut services

Section 3 Many oppose spending increases, while others oppose tax cuts on ideological grounds, or on principle Politics hamper quick action Fiscal Policy (cont.)

Section 3 Automatic stabilizers always in placeAutomatic stabilizers –Unemployment and welfare –Progressive income tax Fiscal Policy (cont.)

A.A B.B C.C D.D Section 3 Why is fiscal policy not always reliable? A.Politics B.Ideology C.Slow government processes D.Automatic stabilizers

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Vocab1 budget a plan for making and spending money

Vocab2 mandatory spending federal spending required by law that continues without the need for annual approvals by Congress

Vocab3 discretionary spending spending for federal programs that must receive annual approval

Vocab4 appropriations bill legislation earmarking funds for certain purposes

Vocab5 Social Security federal program that provides monthly payments to people who are retired or unable to work

Vocab6 Medicare government program that provides some health care to the elderly

Vocab7 enormous very large

Vocab8 intergovernmental revenue funds one level of government receives from another level of government

Vocab9 sales tax tax levied on a product at the time of sale

Vocab10 property tax tax on land and property

Vocab11 entitlement program a program using eligibility requirements to provide health, nutrition, or income supplements to individuals

Vocab12 subsidize to aid or promote with money

Vocab13 revenue the income that a government collects for public use

Vocab14 utilize to make use of

Vocab15 resource the money, people, and materials available to accomplish a community’s goals; wealth

Vocab16 surplus situation in which quantity supplied is greater than quantity demanded; situation in which government spends less than it collects in revenues

Vocab17 deficit situation in which government spends more than it collects in revenues

Vocab18 bond contract to repay borrowed money with interest at a specific time in the future

Vocab19 debt money borrowed and not yet paid back

Vocab20 balanced budget annual budget in which expenditures equal revenues

Vocab21 automatic stabilizer program that automatically provides benefits to offset a change in people’s incomes

Vocab22 precise to be exact

Vocab23 ideological a body of opinions

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