1. Chapter 14 Government Spending, Taxation, and the National Debt: Who Wins and Who Loses? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. 14-2 What Are People Afraid Of? Size of Government Tax Inequities

3. 14-3 Total Government Expenditures and Federal Government Expenditures as a Percentage of GDP, 1960-2008

4. 14-4 Total Government Purchases, Transfer Payments and Interest Paid as a Percentage of GDP, 1960-2008

5. 14-5 Total Government Receipts and Federal Government Receipts as a Percentage of GDP, 1960-2008

6. 14-6 Economic Analysis of the Problem of Size An Efficient Level of Government Expenditures Pure Public Goods  Nonrival in consumption  Nonexclusion External Benefits and Costs Income Distribution Price per unit P P0P0 PEPE QQEQE D T = MPB D DTDT S = MPC = MSC Quantity per unit of time MEB D = MPB

7. 14-7 Tax Equity Equal tax treatment doctrine – horizontal equity Relative tax treatment doctrine – vertical equity Ability-to-Pay Principle Benefits-Received Principle

8. 14-8 Tax Efficiency Administrative cost Compliance cost Excess burden

9. 14-9 Price Elasticity of Demand Quantity per week Price per week P P1P1 Q DADA Q1AQ1A Q1BQ1B DBDB

10. 14-10 Perfectly Price Inelastic Quantity per week Price per week D Q P1P1 P2P2

11. 14-11 Perfectly Price Elastic Quantity per week Price per week D Q

12. 14-12 Output Tax Quantity per week Price per week D1D1 Q S1S1 D2D2 S2S2 Pretax equilibrium Post-tax equilibrium Amount of tax per unit

13. 14-13 Output Tax Quantity per week Price per week D Q S S1S1 Pretax equilibrium Post-tax equilibrium Amount of tax per unit Q1Q1

14. 14-14 Tax Share in Selected Countries, 2003 NationTaxes Collected as a Percent of GDP Australia36.4 Canada38.1 France54.4 Germany49.4 Italy48.5 Japan38.3 Spain39.3 United Kingdom42.8 United States31.8

15. 14-15 Federal Tax System, 2008

16. 14-16 Effective Federal Tax Rates by Income Category Effective Federal Tax Rate (%) Income Category20042014 Lowest quintile6.78.3 Second quintile13.214.7 Middle quintile16.518.2 Fourth quintile20.622.4 Highest quintile27.628.8 Overall22.624.1 Top 10 percent29.330.3 Top 5 percent30.831.6 Top 1 percent33.433.6

17. 14-17 The Personal Income Tax 2008 Tax Rate Schedules

18. The Debt and the Deficit, 1998-2008 14-18 The National Debt

19. 14-19 Economic Analysis of Budget Deficits and Surpluses Economic effects of government borrowing on interest rates Expansionary effect of budget deficits Contractionary effect of budget surpluses Economic Effects of Federal Debt Retirement

20. 14-20 Recent Tax Reforms The Economic Growth and Taxpayer Relief Reconciliation Act 2001  Rationale for the Bush tax cuts  Critique of the Bush tax cuts Job Creation and Worker Assistance Act 2002 Jobs and Growth Tax Relief Act 2003 American Recovery and Reinvestment Act 2008