1. Economic Policy
Ms. Walker

2. Raising Revenue: Fiscal Policy
The US Government raises money by collecting taxes.
Taxes- are laid on individuals and businesses by a government

3. Taxes You Do!! Who Pays Taxes?
Personal Income-Taxpayers are allowed Deductions-amounts that the government allows taxpayers to subtract from their taxable income and Exemptions-an amount of income the government does not levy a tax
Pay by April 15th

4. Taxes Form 1040EZ
Complete the 1040EZ form using the following information:
Suzy Student
Gross Income $3,288.10
Federal Income tax withheld $
Social Security withheld $
Medicare withheld $
State Tax withheld $

5. Corporate Income Tax
Tax is based on the corporation’s net income. Corporations receive many tax breaks

6. Social Insurance Taxes
Two Huge Social Welfare Programs:
Old-Age, Survivors, and Disability Insurance (OASDI) or Social Security
Medicare, which provides health care to the elderly regardless of their income level

7. Excise Taxes
Excise taxes are levied on the manufacture, sale, or consumption of certain goods or services, such as:
Tobacco
Gasoline
Alcohol
Telephone systems

8. Regressive Taxes
Regressive taxes charge all taxpayers the same rate, regardless of income. The poor pay a larger percentage of their income for certain items.
Excise taxes are regressive taxes.

9. Progressive Taxes
A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals. The United States income tax is considered progressive:
2010, $8,375 10% tax bracket,
$373, % tax bracket.
Taxpayers are broken down into categories based on taxable income; the more one earns, the more taxes they will have to pay.
Redistributes income…..

10. Proportional Tax
A tax by which the government takes the same share of income from everyone.

11. Estate and Gift Taxes
Estate taxes are taxes placed on a deceased person’s assets when they are transferred to someone else.($1.2 million or more)
A gift tax is placed on the transfer of certain gifts of value to individuals.

12. Customs Duties
Also known as Tariffs, customs duties are taxes levied by the federal government on goods brought into the US from abroad.

13. How much do you pay in taxes?
2006
Per capita income was $46,400 (09)
Pay local, state, and Federal taxes of $12,000
The average person contributes 27% of their earnings to taxes
In 1900, the figure was 5-7%
2011
Per Capita income: $47, 400
2012
Per Capita income: $48, Source: CIA FACTBOOK

14. Nontax Revenues Federal Reserve Bank Earnings
Fees and fines collected by various government agencies:
Passports
Patents, trademarks, or copyrights
Sale or lease of public lands
Seigniorage-$ made from
the sale of coins-(US can
make a quarter for .20 and
sell it for .25)

15. Federal Income: 2010

16. Federal Income 2010

17. 2010 Federal Outlays

18. Based on 2011 Budget Legislation

19. Tax Policy and the Public Good
Tax policy decisions affect the overall Standard of Living, or how well people in general are doing
Should the government redistribute wealth through taxes?

20. Organization of the US Economy
Based on the theory of Free-Enterprise-one in which business can be conducted freely, with little government intervention

21. Free –Enterprise System
To own private property
To make individual choices
To engage in economic competition
To make decisions based on self-interest
To participate in the economy with limited government and regulation
Munn v. Illinois the US government could regulate business

22. Benefits of the Free-Enterprise system
Produces what consumers want
Private Ownership and Free Markets provide for Economic Growth

23. Government and the Economy
How far should the government intervene in the economy?
Recession-Economic Downturns
Inflation- the general rise in prices that often accompanies economic booms.
Democrats favor greater government intervention
Republicans favor Laissez Faire economics or minimizing government intervention

24. Stabilization Goals
Full employment
Low Inflation

25. Tools for Economic Stabilization
Fiscal Policy-a set of government spending, taxing, and borrowing practices used to achieve desired levels of economic performance
Monetary Policy-a set of procedures designed to regulate the economy by controlling the amount of money in circulation as well as the level of interest rates.

26. Fiscal Policy To Encourage Growth
The government spends more money to stimulate growth in the economy
The government cuts taxes to increase individual spending and business output-A tax cut will increase a person’s disposable income-the amount you have to spend after taxes
Businesses expand and create jobs
Result: Increased growth in the economy and higher employment

27. To encourage Stabilization
Fiscal Policy
To encourage Stabilization
The government increases taxes to slow a rapidly growing economy and widespread price increases
Individuals spend less and businesses make smaller profits
Slower business activity and decreased spending lead to lower prices
Result: Low inflation rates and stable growth in the economy

28. Monetary Policy
Controlled by the Federal Reserve System- An Independent Government Agency which is the central Banking system for the US
When banks need money they borrow from the Fed
Controls the supply of money and the cost of borrowing money

29. Organization of the Fed
12 Federal Reserve Districts
Each district has 1 main bank and several branches
Large private “member” banks belong to the Fed system

30. Organization of the Fed
Board of Governors
7 members appointed
by the president and
Confirmed by the
Senate
Federal Reserve
Banks
12 Federal Reserve
District Banks and 25
Branch offices
Federal Open Market
Committee
7 members of the Board
of Governors plus the
President of the Federal
Reserve Bank of New
York and 4 District Bank
presidents
Member Banks
5,700 out of 13,600
Banks in the US are
Members of the Fed
system

31. Board of Governors Chairman 7 members (Washington DC)
Selected by the President
Chairman serves 4 year terms
Act independently from the president and Congress
Alan Greenspan-(retired)
Ben S. Bernanke
Chairman

32. Making Monetary Policy
Supervises the operation of the Federal Reserve Banks
Determine the general money and credit policies of the US

33. Making Monetary Policy
Raise or lower the Discount Rate- the rate the Fed charges member banks for loans. Lower rates encourage borrowing, higher rates deter borrowing
Raise or lower Reserve Requirements- Member banks must keep a certain % of their money in reserve. Raise the rate, banks have less to lend.
The Fed can control the amount of
money in circulation by buying or
selling government bonds/securities
through Open Market Operations.
(Stock Market)
Wall street 1929

34. The Federal Budget
The national spending program is known as the Federal Budget
Operates in a Fiscal year-Oct. 1 to Sept. 30
Reflects the government’s view of the nation’s needs and priorities

35. Federal Spending 2010
Entitlements or uncontrollables- benefits that must be made to all those who meet the requirements (Social Security, veteran’s benefits etc.) Discretionary or controllable-Funds that the president and Congress may make choices on (Education, Environment)
Military % % %
SS % % %
Medicaid % % %
Discret % % %
Debt % % %
Other Man 8% % %

36. The Budget Process
Executive Branch Agencies develop requests for funds and submit them to OMB-Office of Management and Budget
The budget documents are prepared and sent to Congress
Congress reviews the budget, develops its own budget and approves spending and revenue bills
The fiscal year begins
The Budget and accounting act of 1921 requires the president to propose a budget to Congress

37. Federal Spending Appropriations-To assign money for a particular use
Resolution- a formal declaration of policy by the president concerning a specific issue or matter
Continuing resolution-When signed by the president, this measure allows the affected agencies to continue to function on the basis of the previous year’s appropriations

38. Deficit Financing
The government often spends more money than it collects in taxes
Annual Deficit-the yearly shortfall between income and outgo
The government Borrows heavily to make up the difference (investors: Individuals and financial institutions)

39. Federal Spending http://www. usgovernmentspending
Total outlays
Billions
1,551.4
1,788.8
1863.9
2,011.0
2,211.7
2,272.4
Surplus (+)
Deficit
(-)
-163.9
+236.4
+127.1
-157.8
-455.4
-475.0
2,470
2,655
2,730
2,983
3,100
3,456
-248.0
-162.
-459
-400
-1.4 tril

40. The Federal Deficit per Person
The deficit Per Person
The Federal Deficit per Person
Here we look at the deficit per person. The deficit can be thought of as the taxes we should be paying to cover our own spending. The deficit can be though of as the taxes we dump on our children for benefits they will never receive.

41. Borrowing
Congress has the power to “Borrow money on the credit of the US” (I,8,2)
Allows the government to:
Meet the costs of short- and long-term crisis situations
Finance large scale projects that could not be paid out of current income

42. The Public Debt
The Public Debt is a result of the Federal Government’s borrowing over many years
Includes all of the money borrowed and not yet repaid, plus accrued interest

43. Public Debt: 13.6 trillion (2010) Today: 17 Trillion (2013)
$12000
$1100
$1000
$9000
$8000
$7000
$5000

44. Deficit Fact-O-Rama 2004 $477 Billion Dollar Deficit
2004 $2.3 Trillion Dollar proposed Budget
GNP-Gross National Product-the sum of all goods and services produced in the nation in a year
The largest annual deficit, as a % of GDP, was at the height of WWII-30%
2004 Deficit as a % of GDP is 2.7%
2010 deficit as a % of GDP is 10.6%
From 1934 to 2004, there have been 12 surplus (more income than outgo) budget years ( )

45. How Big is $12 Trillion in federal Debt?
About $41,000 per US resident
At $1 a second, it would take 484,000 years to pay off
Dollar Bills laid end-to-end
would circle the globe
39,129 times
A string of $20.00 bills
2,406 times

46. What Can You Do?
If you’d like to have an influence on the way your tax money is spent, the best action you can take is to participate in our democracy.
VOTE

47. Questions for Thought?
Why do you think it is easier to borrow money than to cut the deficit?
Why is it difficult for the federal government find it difficult to raise taxes or reduce spending to balance the budget?
What methods could the federal government use to stimulate the economy during a time when people were opposed to deficit spending?

48. Federal Income 2008
Excise, Customs, estate, gift and miscellaneous taxes
Personal Income Taxes
39%
Social Security, Medicare, unemployment 30% 6%
10%
Corporate Income Taxes
15%
Borrowing to Cover
the Deficit

49. Federal Outlays 2008 37% 24% National Defense Veterans, foreign
Social Security, Medicare
37%
24%
National Defense
Veterans, foreign
Affairs
Law enforcement
And general government 2% 8%
20% 9%
Net interest
on the debt
Social Programs
Physical, human and
Community development