1. FISCAL POLICY AND THE FEDERAL BUDGET

2. Key Concept: Government influences the economy by: Collecting Spending and Borrowing money

3. WHAT ARE TAXES?

4. Taxes = Required payment to local, state, or national government

5. TAXES ARE USED FOR……

6. Revenue = Income received by a government from taxes & nontax sources

7. WHAT ARE 3 TYPES OF TAX STRUCTURES?

8. Tax Structures Proportional Progressive Regressive

9. Proportional Percentage of income paid for tax is the same for all income levels

10. Property Taxes = Millage rate = same rate for all property Ad Valorum – At value = license tag = same rate for all cars Ranch or trailer ; Cadillac or Chevy

11. A Flat 20% Income Tax Rate IncomeTax___ $10,000$2,000 $20,000$4,000

12. Progressive Percentage of income paid increases as income increases The more you make, the more they take

13. Example: Income tax is a type of progressive tax A tax on a person’s earnings

14. Percentage of income paid on the tax decreases as income increases Regressive People with lower incomes, pay a greater percentage of incomes = Example:sales tax

15. Sales tax - regressive A tax on the dollar value of a good or service being sold We all pay the same amount regardless of income

16. VIDEO BREAK While you watch: 1.One fact that you know. 2.One fact that is new to you 3.Question?

17. Incidence of a tax means: “Who bears the tax burden?” ie “who pays it?”

18. It can be either CONSUMER OR PRODUCER

19. Elastic demand: If price changes there is a large change in quantity demanded Inelastic Demand: If price changes there is only a small change in quantity demanded

20. DEMAND ELASTICITY AND THE INCIDENCE OF A TAX How elastic a good or service is affects who will pay the tax

21. If the demand is elastic, the incidence of the tax falls on the producer

22. WHY? Because it is less likely the burden can be shifted from the producer to consumer - people do not need it and there is a substitute

23. Inelastic demand: Incidence, or burden, falls on the consumer

24. WHY? Because producers can make consumers pay it. The good or service is a necessity and there is no close substitute YOU HAVE TO BUY IT

25. Federal Taxes

26. Individual Income Taxes FICA Corporate Income Taxes

27. Individual Income Tax Tax on earnings Withholding from your paycheck

28. FICA taxes fund Social Security & Medicare FICA

29. FICA Taxes 2 nd major source of federal tax revenue Federal Insurance Contributions Act Retirement benefits to workers

30. A national health insurance program that helps pay for health care for people over 65 and people with specific disabilities

31. The tax a corporation pays on its profits Corporate Income Taxes 3 rd largest source

32. OTHER TAXES Find and define on your worksheet 1.Excise Tax 2.Estate Tax 3.Gift Tax 4.Tariff 5.Tax incentive 6.Tax Credit

33. WHAT TAXES DO YOU OR YOUR FAMILY PAY?

34. FISCAL POLICY

35. Fiscal policy The use of government spending & revenue collection to influence the economy

36. The Government has 2 tools it can use to stabilize the economy…… 1. Fiscal Policy- Actions by Congress to stabilize the economy. 2. Monetary Policy- Actions by the Federal Reserve Bank to stabilize the economy. 36

37. For now we will only focus on Fiscal Policy. 37 Copyright ACDC Leadership 2015

38. What are goals of fiscal policy? The same as macroeconomic goals…remember them? 1.Economic growth 2.Full employment 3.Low inflation

39. BASIC TERMS OF FISCAL POLICY

40. Expenditure = Spending

41. Revenue = Income received by a government from taxes & nontax sources

42. Government spending (expenditure) Per capita = Per person Turn and talk: What is the other Per capita number We have studied?

43. Public sector Refers to the federal, state, and local governments They usually buy things from the…

44. Private sector Refers to individuals and businesses

45. Federal budget Written document detailing government revenues & expenditures for a certain fiscal year

46. Fiscal Year 12 month financial period Govt: October 1 – September 30 Prepare for upcoming year

47. Balanced Budget Surplus Budget Deficit

48. A budget in which revenues are equal to spending Balanced Budget

49. A situation in which the government takes in more than it spends Budget Surplus

50. A situation in which the government spends more than it takes in Budget Deficit

51. Sequence for the approval of the federal budget is: President to Congress back to President

52. Vote is YES: The President signs the budget. The President can VETO the budget. Vote is NO: It does not pass.

53. Appropriations bill A bill that sets money aside for specific spending

54. Deficit spending Government spends more than it collects

55. Question: How can the federal government pay for things if they have a budget deficit?

56. Print more money? Remember this causes inflation!

57. Borrow money by selling bonds

58. BONDS ARE LOANS TO THE GOVERNMENT

60. National Debt The total amount of money the federal government owes

61. NATIONAL DEBT The national debt will INCREASE each year that there is a budget deficit and the federal government borrows money to cover it.

62. Fiscal policy The use of government spending & revenue collection to influence the economy

63. COPY THIS: FISCAL POLICY TAXESSPENDING EXPANSIONARY – GROW ECONOMY CONTRACTIONARY – SHRINK ECONOMY

64. Expansionary Policy Contractionary Policy

65. A fiscal policy that encourages economic growth = higher spending and tax cuts Expansionary Policy

66. Overall goal is to increase aggregate demand and output

67. Used when the economy is in a recession or the government is trying to prevent one.

68. If the federal government increases spending… Expansionary Policy

69. …it is buying more goods & services. Expansionary Policy

70. This increases demand which causes prices to increase Expansionary Policy

71. Higher prices causes supply to increase. Expansionary Policy

72. An increase in supply causes companies to need more workers (less unemployment) Expansionary Policy

73. Workers will spend their money on goods & services Expansionary Policy

74. If the federal government cuts taxes… Expansionary Policy

75. …people & businesses will have more money to spend & invest. Expansionary Policy

76. Expansionary Policy Contractionary Policy

77. A fiscal policy that reduces economic growth = lower spending and higher taxes Contractionary Policy

78. When the federal government increases taxes people & businesses have less to spend on goods and services Contractionary Policy

79. Decreasing government spending & raising taxes Contractionary Policy

80. Try to avoid inflation A decrease in government spending leads to a decrease in demand Contractionary Policy

81. A decrease in demand drives prices down. Lower prices reduce supply. Contractionary Policy