1. Government Finances: Fiscal Policy, Taxing and Spending Fiscal Policy Government Budget Federal Government Revenue Federal Government Expenditures State Government Local Government

2. Fiscal Policy Fiscal Policy – government policy toward taxing & spending. Federal Budget Prepared annually by the President Approved by Congress Budget Year – October 1 – September 30 Government Spending Mandatory Spending – does not need annual approval. Discretionary Spending – needs annual approval. Types of Taxation Progressive Tax – tax that takes a larger percentage from the wealthy (ability to pay principle) Regressive Tax – tax that takes a larger percentage from lower incomes (benefits received principal) Proportional Tax – tax that takes the same percentage from all incomes.

3. GOVERNMENT BUDGET Government Revenue - $ that government has to operate. Taxes, fines, user fees, etc… Government Expenditures - $ the government must spend on programs it operates. Balanced Budget – Revenue = Expenditures Budget Surplus - Revenue > Expenditures Budget Deficit - Revenue < Expenditures National Debt – Accumulation of Budget Deficits

4. Federal Government Revenue Federal Taxes Income Tax - #1 source of government revenue. Progressive tax on individual earning. Payroll Tax – 2 nd largest source of income Corporate Income Tax – up to 36% of profits. OTHER FEDERAL TAXES Excise Tax Estate Tax Luxury Tax Social Security Tax

5. Federal Government Expenditure Social Security – 21.2% National Defense – 17.4 % Income Security – 14% Medicare – 13.5 % Health – 10.5% Interest on Debt – 8.2% Other – 15.2 %

6. State Government Intergovernmental Revenue - $ paid from one level of government to another. States get it from the federal government. Sales Tax – Paid by retail stores to the state government. (passed onto consumers) Income Tax – taken from workers paychecks. Excise Tax – Alcohol, tobacco, & gasoline.

7. Local Government REVENUE Intergovernmental Revenue – paid by the state government to local governments. Property Tax – paid on land, houses, automobiles, etc… EXPENDITURES Education Police & Fire Protection Water Supply Sewage & Sanitation