BASIC ECONOMICS FOR THE CITIZEN

The ECONOMY - a system by which goods and services are produced, sold, and bought in a country or region. The ECONOMY Who would ever think that a word with such a dull definition could be the source of contentious discussion, dispute and debate?

When the ECONOMY is doing well citizens; find a job earn livable wages buy goods with cash and wise use of credit enjoy a high standard of living The ECONOMY BUT WHAT SYSTEM OR APPROACH IS MOST LIKELY TO SECURE THE ABOVE?

Capitalism Socialism Competing Economic Systems

Socialism An economic / political philosophy that believes the government should distribute wealth and services equally the government should own institutions so that equal public access is allowed. Capitalism An economic / political philosophy that believes in small government and Privately owned businesses Wages determined by market forces Profit motivation

The United States is primarily a regulated capitalist nation.

The Role of Government Protector? Referee? Provider? Moralist? What the role should government play in our lives? Generally speaking, the more roles government takes on, the more revenue is required to run the government.

Military Law Enforcement Education Mail Government is bigger today than it used to be. Infrastructure Legislators Welfare Medicare Social Security While some support a bigger role for government, others oppose it.

Help poor Provide for elderly Expand Education Keep greed in check Support of Bigger Government Less taxes More freedom Encourage productivity Reward entrepreneurship Opposition to Bigger Government

In order for big or small government to work, revenues (taxes) need to match expenditures (cost)

You do not want to run a deficit. Revenue Expenses

Deficit Spending and Debt Raising taxes or cutting services makes government officials unpopular. Perhaps related, often the government deficit spends (spend more $ than they collect.) Deficit spending creates debt, with interest. Funding Government programs requires taxes.

Budgeting can be complicated, but it really boils down to expenditures and revenues Let’s talk about expenditures first.

National Government Expenses

National Government Expenses Entitlements Entitlement government programs include: Social Security Medicare Medicaid Welfare An entitlement is the right to a particular privilege or benefit, granted by law or custom.

Social Security Primarily a government pension program. Created in 1935 during the Great Depression. Social Security is funded through payroll taxes. There is a Looming Social Security Crisis Why the Crisis?Baby boomers are retiring.

Medicare Federally funded health care for citizens aged 65 or over Created in Medicare is also funded through payroll deductions. There is a Looming Medicare Crisis. Why the Crisis?Baby boomers are retiring.

On top of all these federal expenditures, there are state and local expenditures.

State Government Expenses The Rhode Island budget includes: Education Transportation Health Welfare Infrastructure Protection Pensions

Local Government Expenses The North Kingstown budget includes: Education Police Fire Recreation Government

Let’s talk about revenues. If there is enough revenue (taxes) to pay for the expenditure then there will be no deficit spending and everything will be fine. If it were only that simple.

TAXES There are only two things guaranteed in life; death and taxes. Both are unpleasant.

TAXES Progressive: The tax is collected with consideration to your income. Regressive: The tax is collected without consideration to your income. Flat: The tax is collected without consideration of deductions (#of children, mortgage interest …).

TYPES OF TAXES Progressive: Federal Income State Income Regressive: Property (Town) Sales (State) Other: Fees (State and Local) Penalties

Progressive Income Tax Federal Income Tax The NATIONAL government deducts money from your pay. State Income Tax: The STATE government deducts money from your pay. National Income Tax Rate for 2011

Regressive Taxes Sales and Property Tax (and fees) Sales Tax: States tax your purchases. This is sometimes referred to as a consumer tax. Property Tax: States and/or local government tax the worth of your home and car.

State Sale Tax Rate for 2009

SOME MORE CONSIDERATIONS.

The Shrinking Middle Class Decreasing buying power Lower percentage of all wager earners Struggling to pay bills Can’t handle a tax hike

At the end of the day there are two solutions to fix the economy: 1. Reduce expenditures and / or 2. Raise revenues NEITHER ARE POPULAR.

THE DEBATE