Chapter 16 – Financing Government

By: Jason Winchell, Brock Pfingsten, Rasy Nhol, Mikhaela Creekmore

Taxes

 Benjamin Franklin – “in this world nothing is certain but death and taxes.”

The Power to Tax

 Congress has the power “to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States.” – Article I, Section 8, Clause 1

Income Tax

 Authorized by the 16 th Amendment  Largest source of federal revenue  Rates can be adjusted to produce the amount that Congress deems necessary  Is a progressive tax

Individual Income Tax

  Projected to provide about $800 billion to the government for 2004 Levied on each person’s taxable income   Deductions allowed for medical care, State and local taxes, interest on home mortgages, and charitable contributions April 15 – tax returns due

Corporation Income Tax

 Every corporation pays a tax on its net income   Most complicated of all federal taxes because of all the possible deductions Nonprofit organizations aren’t subject to this tax

Social Insurance Tax

 Taxes collected to fund Social Security, Welfare, and unemployment compensation  Taxes used to fund Social Security and Welfare are collected from employers and their employees  Taxes used to fund unemployment compensation is run by a joint federal-State operation  All are regressive taxes

Excise Tax

    Laid on the manufacture, sale, or consumption of goods and/or the performance of services Some are “hidden taxes” – already figured into the price Some are “luxury taxes” – imposed on goods not usually considered necessities Some are “sin taxes” – imposed on vices

Estate and Gift Tax

 Estate tax – imposed on assets of one who dies  – Added in 1916 Gift tax – imposed on a gift made by a living person – Added in 1932 to plug the loophole where people gave away their money before they died

Custom Duty

 Tax laid on imported goods   Also known as a tariff, import duty, or impost Was a major source of the government’s income, but now only accounts for 1 percent

Nonrevenue Purposes for Taxes

 Regulate or discourage activities that Congress believes is harmful to the public – Narcotics – Firearms – Prospecting on public lands – Hunting – Uneconomic vehicles

Nontax Revenues

 Much comes from the Federal Reserve System, mostly in interest charges   Other sources are canal tolls, the sale or lease of public lands, sale of surplus property, and fees for passports, copyrights, patents, and trademarks Seigniorage – the profit the U.S. Mint makes in the production of coins

Borrowing

    Congress has the power “to borrow Money on the credit of the United States.” – Article I, Section 8, Clause 2 Way to meet the costs of short- and long-term crisis situations Way to finance large scale projects that couldn’t be paid for by current income Also used for deficit financing

The Public Debt

  Result of the Federal Government’s borrowing over many years The government’s total outstanding indebtedness  Includes all money borrowed and not repaid, and the accumulated interest on it  No limit on what can be borrowed or on the debt  Over $8 trillion

Federal Spending

 Before 1930, government spending had little effect on the nation’s economy  The Department of Health and Human Services is the highest in government spending  Social Security is second in government spending  Interest on the public debt is forth in government spending

Federal Budget

    Is an estimate of federal income and proposed outgo for the next fiscal year Congress decides how much the government can spend, and what it can spend it on The President initiates the process by proposing a budget to Congress The building of the budget begins 18 months before the start of the fiscal year for which it is intended

Source Page

 Magruder’s American Government text book, published by Prentice Hall 

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