1. Financing Government
Chapter 21

2. 21.1 Economic Goals & Federal Budget
US Economic Goals
Two functions
Protect nation’s economy / Economic security
US Government
Free Enterprise – limited government involvement in the Economy.
Executive and Legislative Branches have a big say in the economy
People create economic goals, priorities, and policies
Conservatives – less government involvement = greater economy
Less restrictions
Liberals – Government has a responsibility to protect people
Consumers, unsafe working conditions, unfair business practices

3. Economic Goals Budget Revenue Budget Surplus Budget Deficit
Plan for an individual / government (Income and Expenses)
Revenue
Money an individual or government collects
Budget Surplus
Extra money left in a budget
Budget Deficit
Spending more money than income
National Debt
Total debt the government has (borrowed money)

4. Economic Goals Economic Freedom Economic Growth Full Employment
Freedom from Government intervention
Consumers have the choice
Economic Growth
Create businesses / innovation will lead to economic growth
Full Employment
Using people to work = thriving economy.
Economic Equity
Values shared distribution of wealth
Security + Stability
Reduce economic risks, avoid rapid increase and decrease in the prices of goods/services.
Efficiency
Fully and efficiently using government resources.

5. Budget Process Federal Budget Legislative Branch
Fiscal Year – Federal budget plan for the year.
Executive and Legislative Branch shares responsibility
Executive Branch
1. President + Federal Depts.
Office of Management and Budget.
Takes first set of plans to the President and economic situation in the country
Federal Depts. organize their budget plans
President reviews the depts. Requests
Approve or deny.
Send budget to Congress
Legislative Branch
Congress has final decision.
Congress has power to raise revenue + spend
1. House and Senate Review major features
Ask dept. officials to defend their proposals
2. Send proposals to Congressional Budget Office
3. House + Senate Budget Committee reviews
Sends proposals to the floor for a vote
4. Combine Senate and House Budget Bills
5. Budget sent to the President to sign into law.

6. Federal Spending Uncontrollable Entitlements
- expenditures required by law or from previous budgetary commitments.
Most come from direct benefit payments and interest paid on national debt.
Entitlements
Required government expenditure, from year to year
Social Security, Medicare, Medicaid.
Department of Defense
Military spending
Environment. Transportation, Criminal Justice,

7. 21.2 Raising Revenue

8. Taxes and the Economy How does the Government get money? – TAXES
Taxes – payments made by individuals and business to support the government and provide services.
Congress has ability to tax
16th Amendment – Income Tax
Income taxes – people’s income
Tariffs – taxes on imports and exports
Excise Taxes – tax on manufacture, transportation, sale and consumption
Gas/Cigarettes/Sales Tax
Federal Taxes (5 types)
Excise
Tariffs
Protective Tariffs – high tax on export
Estate + Gift
Property tax
Benefits (Will)
Gift Tax – large amount of money given to someone
Income
Social Security – Retirement + Disability

9. Where Federal Money Comes From$
There are several types of taxes…
Social Security
Income Tax
This tax is based on a percentage of what you make. The more you make, the higher percentage you pay!
Excise Tax
This tax is taken to provide retired people with income they need. In 2010 it was 6.2% of your total income!
These are taxes paid on certain goods like alcohol, cigarettes, jewelry, and gas.
Corporate Income Tax
Other Taxes
Just like the personal income tax, corporations must pay income taxes!
This includes estate taxes (when someone dies) and taxes on goods brought from other countries (tariffs).

10. Income and Social Insurance
Income Taxes
Progressive Tax
Higher incomes – pay higher taxes
Regressive Tax –
Lower income – pay a higher tax rate based on income
Marginal Tax Rate – tax rate increases and pay increases
Taxable Income – total income minus deductions
Exemptions
Dependents – someone who depends on another person for basic needs (children)
Social Income
Everyone pays the same rate regardless of income
Taken directly from paycheck
Taxes go directly to people using these programs
Pay into the program to receive benefits.
Social Security – retired or disabled
Medicare – health insurance for elderly
Unemployment – compensations for losing job.

11. Managing the Economy
21.3

12. Influencing the Economy
Federal Government
Free enterprise – consumers play a large role / limited government involvement
Mixed Economy – economy is divided between government and consumers
Important factors
Spending money on programs
How revenue is shared
How taxes are assessed
How to handle the national debt
Credit / Interest rates to borrowers

13. Economic Indicators Unemployment Rate
Not working, but looking for jobs
Monthly report (average hours work and average wages)
Dow Jones + NASDAQ + S&P 500 (Stock Market)
DOW – 30 largest companies
S&P large companies having common stock listed on the NYSE or NASDAQ.
NASDAQ - The Nasdaq Stock Market is an American stock exchange. It is the second-largest exchange in the world by market capitalization, behind only the New York .
Consumer Price Index
Average change in price over time (inflation rate)
Consumer Confidence
Survey on how American’s feel about the economy (5,000 people surveyed)

14. Fiscal and Monetary Policy
Fiscal Policy
Government’s use of spending and taxing to influence economy
GDP – Gross Domestic Product
Gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy.
Federal Budget dictates governments plan on how to spend money (Military/Health Insurance/ Education etc.)
Stimulate Economy - spend money on projects = put people to work (infrastructure) + Lower taxes = increase consumer spending
Leads to government debt
Deficit Spending
Monetary Policy
Managing the supply of money
Credit rates
Federal Reserve System control supply of money and credit to influence the economy
Constitution – coin money + regulate money

15. Making Monetary Policy
Board of Governors
Major Functions
General money and credit in USA
Supervises operations of Federal Reserve Banks in USA (12 banks)
Discount Rate
Interest rates the FED charges the banks
Lower interest rates – stimulate consumer borrowing
Higher Interest rates – slow consumer borrowing
Open Market Operations
Buying or selling government securities
Increase money = lower interest rates + increase consumer spending
Reserve Requirements
Money banks must keep in their vaults
Higher requirements – less money to loan out to people.

16. Federal reserve System
Central banking system in the USA
Role of the FED
Keep inflation low
Economy produce jobs - Unemployment low
“Bankers bank” – banks borrow from the FED
Organizing the FED
Independent from the Government
Board of Governors – 7 members who supervise the FED
Act in the interest of the American Public

17. State and Local Finances
21.4

18. Sources of Revenue Taxes
-States have two types of revenue:
1. Taxes
2. Non-taxes
Taxes
Sales Tax-a percentage of price of an item (i.e. $1.00 pen cost $1.05  5% sales tax)
Ohio has a 5.75 % sales tax, Illinois has a 6.25% sales tax, sales tax varies per state
Sales tax is placed on general goods
Excise Tax-like the federal government, states also levy excise taxes
Generally they tax gasoline and cigarettes
-Income Tax-states have both individual and corporate income tax
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19. (continued) Non-Taxes
UNIT #8
State and Local Government
CHAPTER #21
State Government
LESSON #4
Financing State Government
(continued)
These taxes may be progressive or proportional
Note: Income tax makes up about 50% of state revenue and sales tax about 30%
-Inheritance (Estate) Tax-like the federal government, states also levy estate taxes
Fees-are nothing more than a regressive tax
These fees are generally hunting, fishing, driver’s and marriage licenses as well as car registration
Non-Taxes
-Borrowing-is simply states issuing bonds
- Bonds are investments that are paid off, plus interest by a certain date
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20. (continued) The Budget Process
UNIT #8
State and Local Government
CHAPTER #21
State Government
LESSON #4
Financing State Government
(continued)
-States often sell bonds for major construction projects
-State Lottery-is essentially legalized gambling to raise funds for state programs
--Federal Grants-return taxpayer money to the states in two forms
-Categorical grants and block grants
The Budget Process
-The state budget process is the same as the federal process, starting with the governor, onto the legislature, then back to the governor for final approval
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21. Intergovernmental Revenue
Federal Government provides 1/4 States revenue
Grants-in-aid – money given to states for specific reasons
Grants promote national governments goals
EX: Welfare program – states provide aid for disadvantage groups.
Formula Grants – money go to states based on a formula
Population size / wealth of state
Project Grants – state and local agencies apply for funding
Crime, infrastructure, pollution
Block Grants – large money to be used for general purpose
Fewer guidelines/requirements
Public health/Crime

22. Federal Mandates Mandate – order given by the federal government
State and Local governments have to raise funds
Health and Environment
Unfunded Mandate
requires a state or local government to perform certain actions, with no money provided for fulfilling the requirements.
EX: National Traffic and Motor Vehicle Safety Act in 1966, they mandated that automobile manufacturers begin installing certain safety features in their cars in order to comply with the requirements of the new law.

23. Local Government Property Tax Market Value Other taxes
Real property – land and buildings
Personal – furniture, jewelry, stocks, bonds
Critics
1. heavy burden on low income people/families + retired people
2. difficult to determine value of property.
3. unequal services
Higher taxes / larger tax base = better services
Market Value
Estimated worth of a home
Other taxes
Sales tax, income taxes, fines and fees
Special Assessments – fee property owners must pay
EX: city projects (parks, sidewalks, trees)
Municipal bonds – raise money for projects
Stadiums, schools,
Intergovernmental Revenue
National and States provide funding
Schools, highways, public health,
Categorical Grants – guidelines on how money should be spent.