Taxes

Limitations on taxes May be levied on for public purposes Export taxes are prohibited Direct taxes must be proportional according to a states' population Indirect taxes must be levied at the same rate throughout the country

Federal Government limitations on states 1) may not tax State or local governments in the exercise of their government duties 2) May tax nongovernmental State and local activities, such as tax on State-sold liquor

Types of revenue-raising taxes Individual income tax Corporation income tax Social insurance taxes (Medicare, unemployment compensation,etc) Excise taxes Estate and gift taxes Customs duty

Taxing for non-revenue purposes Congress levies taxes to regulate activities deemed harmful to the public This power is limited by the Constitution and by the Supreme Court

Difference between a progressive tax and a regressive tax Progressive taxes are levied according to level of income while regressive taxes are levied at a flat rate

Nontax Revenues Sources of interest that the government collects as nontax revenues: 1) loans made by some federal agencies 2) canal tolls 3) fees for passports 4) copyrights 5) patents & trademarks

Seigniorage This is the profit made by the U.S. Mint They can make money for more than its face value

Postal Service The United States Postal Service is one of the only governmental corporations that generate nontax revenue for the government

Borrowing Money Reason to borrow money: 1) meet costs of crises 2) to finance large projects 3) pay for deficit financing

How the government borrows money The treasury issues securities to investors These securities take the form of treasury bills The government promises to repay them with interest on a certain date

The Public Debt Over the past 20 years there has been a trend regarding public debt. The debt has increased tremendously with no signs of decreasing.

Interest A fee for borrowing money Generally a percentage of the amount borrowed

Deficit The yearly shortfall between income and spending When spending is higher than income

Surplus The yearly excess between income and spending When income is higher than spending the public debt is reduced 1998 was the last time there was a surplus

Public Debt The government's total outstanding indebtedness Including all the money borrowed and yet repaid Plus the accrued interest

Debt held by the Government Social Security, civil Service Retirement, Military Retirement, Medicare, Unemployment Insurance, Highway and the Airport, the Airway Trust Funds

Spending and the Budget

Controllable Spending Meaning: Congress and the President decide how much will be spent on a specific item in the budget Examples: Military, Education, environmental protection

Uncontrollable spending Meaning: spending that Congress and the President have no power to change Examples: Social Security, food stamps, Medicare

Spending The President initiates the spending process This serves as a political statement since it serves as a plan for the execution of public policy (ie where is the government's money going to be spent)

More Spending The three categories that the government has spent the most money on is: 1) Social Security 2) Treasury 3) Health and Human Services

Budget-making process Begins with each federal agency submitting its spending plans to the OMB (Office of Management and Budgeting) Congress reviews the budget, holds hearings and prepares appropriation bills

Entitlement Any benefit that federal law says must be paid to all those who meet the eligibility requirements Examples: Medicare, Medicaid, Social Security, OASDI