GOVERNMENT FINANCES Chapter 25 Be Quiet!! Be Prepared to write notes. Laissez- faire 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 Executive Branch (2) President & Vice President Legislative Branch (535) Congressmen Judicial Branch (9) Judges They share the responsibility of governing the nation. (546 people) Graph City

Economic Concepts John Maynard 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 F.A. Hayek Gov’t involvement is inefficient. Economy is better off with less Gov't, more economic freedom Boom & Bust cycles are normal  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 Monetary Policy

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.