1. BELLWORK What is the title of Unit 7, as well as Chapter 20? (Hint: Chapter 20 is right after Chapter 19 and right before Chapter 21)

2. PASS FORWARD Ch. 19 Assessment DUE NOW

3. TAKE NOTES OF ANYTHING IN: BLACK

4. Taxing and Spending CHAPTER 20 Essential Question: How does the gov’t spend the taxes you pay, and how do gov’t expenditures affect the economy?

5. Raising Money Two major sources of gov’t revenue are taxes and borrowing. Taxes are payments made by individuals and businesses to support gov’t activities. The individual income tax is the federal gov’t's biggest single source of revenue. For income tax, most employers withhold a certain amount of money from workers' wages and send this money to the Internal Revenue Service throughout the year, corporations must also pay income taxes, but nonprofit organizations are exempt. A withholding is the money an employer holds back from workers’ wages as payment of anticipated income tax.

6. Raising Money (con’t) A taxable income is the total income of an individual minus certain deductions and personal exemptions, such as claiming dependents. A dependent is someone who depends primarily on another person for basic items like food and shelter. The federal government also collects huge sums of social insurance taxes to pay for Social Security, Medicare, and unemployment compensation programs. Other forms of taxes include excise taxes on the manufacture, transportation, sale, or consumption of certain goods and services; customs duties; and estate and gift taxes.

7. Raising Money (con’t) Governments use taxes to influence the economy and economic behavior. For example, Tax deductions for mortgage interest encourage people to buy homes. Tax exemptions free certain groups and industries from particular taxpaying obligations. The Tax Reform Act of 1986 overhauled the tax system, resulting in less tax deductions.

8. Raising Money (con’t) In addition to collecting taxes, the federal government borrows money by selling federal securities—bonds, notes, and treasury bills. Securities are financial instruments sold as a means of borrowing money, with the intention of paying back with interest. Small investors purchase savings bonds. The government pays a huge amount of interest on these borrowed funds. When the government spends more than its income, it runs a deficit. All the deficits over time create the national debt. National debt is the total amount of money the gov’t owes at any given time.

9. Types of Taxes (Activity) Types of Taxes

10. Types of Taxes (Activity) Types of Taxes Individual income tax

11. Types of Taxes (Activity) Types of Taxes Individual income tax Corporate income tax

12. Types of Taxes (Activity) Types of Taxes Individual income tax Corporate income tax Social insurance taxes

13. Types of Taxes (Activity) Types of Taxes Individual income tax Corporate income tax Social insurance taxes Excise taxes

14. Types of Taxes (Activity) Types of Taxes Individual income tax Corporate income tax Social insurance taxes Excise taxesCustoms duties

15. Types of Taxes (Activity) Types of Taxes Individual income tax Corporate income tax Social insurance taxes Excise taxesCustoms duties Estate and gift taxes

16. Preparing the Federal Budget The federal budget expresses important political choices by the president's administration. The law requires the president to propose to Congress the budget for the entire federal government each fiscal year. The fiscal year is a 12 month accounting period from October1 to September 30 of the next year. The actual preparation of the budget is the responsibility of the Office of Management and Budget (OMB). Each federal agency draws up a list of its own spending plans and sends these to the OMB.

17. Preparing the Federal Budget (cont.) The president and his advisers study this preliminary budget and send the spending requests back to the agencies for fine-tuning. After a final presidential review, the budget is sent to Congress. Uncontrollable are expenditures required by law. Certain items in the budget cannot be changed, such as entitlements and the interest that must be paid on the national debt. Entitlements are benefits that Congress must by law provide to individuals, like Social Security and Medicare.

18. Preparing the Federal Budget (cont.) The Congressional Budget Office (CBO) carefully evaluates the president's budget for the House and Senate. The House and Senate Budget Committees review the budget, reconcile differences between their two versions of the budget, and make sure the budget aligns with the Budgetary Enforcement Act of 1990. After the budget is approved, the House passes an appropriations bill, officially setting aside money for expenditures. Incrementalism means that generally the total budget is changed only by a small amount.

19. Managing the Economy The federal government plays an increasing role in managing the nation's economy. It spends roughly $3 trillion per year on four major components: direct benefit payments to individuals, national defense, discretionary spending, and interest on the national debt. The government influences the economy in two ways: Fiscal policy involves using gov’t spending and taxation to influence economy. Monetary policy involves controlling the supply of money and credit to influence the economy.

20. Managing the Economy (cont.) Fiscal policy involves using government spending and taxation to either stimulate or slow down the economy. Gross domestic product (GDP) is the sum of all goods and services produced in a nation’s year. Monetary policy involves controlling the supply of money and the cost of borrowing, or credit. The Federal Reserve System is in charge of monetary policy.

21. Managing the Economy (cont.) The Fed—the central banking system of the United States— is a banker's bank. The United States is divided into 12 Federal Reserve Districts. It determines the general money and credit policies of the United States, and it supervises the Fed member banks. The Fed uses four main tools to control the financial activities of banks and monetary policy. The Fed can raise or lower the discount rate or reserve requirements. Open-market operations, it can put money into the economy by buying government securities.

22. Where Do Your Tax Dollars Go? Fill-in-the-blank: About 25% of our national budget goes towards our ________ ________.

23. Closing Activity: Quick Write From what we learned in the video, most of our tax money goes towards National Defense, Healthcare and Social Security. If you were to reform what our taxes pay for, how would you adjust spending?