Fiscal Policy, Inflation & Taxes SSEMA3 Explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. A. Define fiscal policy. B. Explain the government’s taxing and spending decisions. SSEPF3 Explain how changes in monetary and fiscal policy can have an impact on an individual’s spending and saving choices. A. Give examples of who benefits and who loses from inflation. B. Define progressive, regressive, and proportional taxes. C. Explain how an increase in sales tax affects different income groups.
Where does most Of our Federal Revenue come From?
Fiscal Policy Taxes are how the government gets money – it is then used for public goods and services.
What are public goods? Goods that are provided regardless if you pay or not – for example:
The Federal Budget Is the estimated government spending for one fiscal year. (A fiscal year is from October 1 –September 30) Where is most of the money going to be spent?
Do we have a balanced budget? Not usually – when your RECEIPTS are more than your INCOME, then you DO NOT have a balanced budget. We usually have a DEFICIT – which means we spend more than we collect.
Remember this? Notice that most of our governments receipts come in the form of TAXES. There are thee types of taxes that we pay.
What is INFLATION? Inflation is the rate at which the general level of prices for goods and services is rising and consequently, the purchasing power of currency is falling. The Central banks attempt to limit inflation and avoid deflation in order to keep the economy running smoothly.
Who benefits and who loses from inflation? As a result of inflation, the purchasing power of a unit of currency falls. For example, if the inflation rate is 2%, goods and services require more money to purchase, the implicit value of that money falls. If you buy a pack of gum for $1.00 this year and inflation is at 2%, that gum would cost $1.02 next year. So the dollar in your pocket doesn’t have a much value as it did before. This is a very simple example of inflation, but you get the idea. So who benefits and who loses?
3 types of TAXES You need to know the three types of taxes and who they and how they effect
PROPORTIONAL AKA FLAT tax system imposes the same percentage of taxation on everyone, regardless of income or wealth. Example: 6.2% of paycheck taken for Social Security (FICA)
PROGRESSIVE LIKE the current Federal Income Tax, taxes rise as an individual’s income increases. They are supposed to be more of an imposition to wealthy, high –income earners than are to low or middle-class individuals. This is considered a progressive tax – the more money you make the more tax you pay. Rate Single Filers Married Joint Filers 15% $9,275 to $37,650 $18,550 to $75,300 25% $37,650 to $91,150 $75,300 to $151,900 28% $91,150 to $190,150 $151,900 to $231,450 33% $190,150 to $413,350 $231,450 to $413,350
REGRESSIVE Those with low incomes pay a higher amount of that income in taxes completed to high income earners. The government assesses tax as a percentage of the asset that they taxpayer purchases or owns. Sales taxes are considered regressive because they take a larger percentage of income from low-income taxpayers than from high- income taxpayers. To make such taxes less regressive, many states exempt basic necessities such as food from the sales tax. Examples: Real estate property taxes, state and local sales taxes as well as taxes on consumables such as cigarettes, gasoline, airfare or alcohol.
Example: Regressive tax is like the more you make, the less that tax effects you. If Talanda makes $10,000 year, her tax will be 7% and so her tax is $700. Now, if Jacob makes 1,000,000 a year, the 7% tax of $700 doesn’t matter as much to him. This is why regressive tax is the worst kind of tax for lower income people.
Combined Sales Tax Rate 8% Relate to today! Georgia Sales Tax 4% Muscogee County Sales Tax 3% Special Option Tax 1% How much is our tax? Do you have a receipt? Look at it – how much was your tax your paid? How would a tax increase effect different people?