Chapter 16 Financing Government

(a) Over the past seventy years, has the Federal Government most often ended a fiscal year with a surplus or a deficit? (b) Describe trends in the federal budget deficit since 2000.

(a) A deficit. (b) From 2000 to 2001, the Federal Government operated with a surplus. Beginning in 2002 and continuing to the present, the Government returned to deficit spending.

(a) Approximately what percentage of federal spending now goes to pay the interest on the public debt? (b) If the government continues to run a deficit each year, what effect will that have on that percentage figure?

(a) About 9 percent. (b) The percentage will increase with continued deficit spending.

(a) What is the difference between uncontrollable and controllable spending? (b) About what percentage of the annual budget is controllable?

(a) Controllable spending: items that Congress and the President can attach specific budgets to; uncontrollable spending: spending that Congress and the President have no direct control over. (b) About 20 percent.

(a) Describe the different methods the Federal Government can use to borrow money. (b) Why does the Federal Government find it fairly easy to borrow money?

(a) It can attract such investors as private individuals, banks, investment companies and other financial institutions; it can issue securities in the for of Treasury notes. (b) It can borrow at lower rates of interest and without taxation on the interest.

(a) Which federal tax raises the largest amount of money each year? (b) How did the Federal Government gain the power to levy that tax?

(a) The individual income tax. (b) The 16th Amendment gave Congress this power.

Gift Tax

A tax on a gift by a living person.

Entitlement

A benefit that federal law says must be paid or who met the legibility requirements, examples: Medicare, Food Stamps, and Veterans pensions.

Interest

A charge for borrowed money, generally a percentage of the amount borrowed.

Tax Return

A declaration of taxable income and of the exemptions and deductions claimed.

Continuing Resolution

A measure which allows agencies to continue working based on the previous year's appropriations.

Payroll Tax

A tax imposed on nearly all employers and their employees, and on self-employed persons- the amounts owed by employees withheld from their paychecks.

Custom Duties

A tax laid on goods brought into the United States from a broad, also known as tariffs, import duties, or imposts.

Excised Tax

A tax laid on the manufacture, sale, or the conception of goods and/or the performance of services.

Regressive Tax

A tax leaved at a flat rate, without regard to the level of tax payers income or ability to pay them.

Progressive Tax

A type of tax proportionate to income.

Public Debit

All of the money borrowed by the government and not yet yet repaid, plus the accrued interest on that money; also called the national debit or federal debit.

Controllable Spending

An amount decided upon Congress and the president to determine how much will be spent each year on many individuals government expenditures including environment protection programs, aid to education, and so on.

What is the one implied limitation on the power to tax?

Federal taxes cannot be imposed on State governments carrying out vital government activities.

According to the critics of deficit financing, who will pay the costs of that practice?

Future taxpayers will not only have to the debt to pay, but the staggering amount of interest that the debt has accumulated.

Identify the several different taxes by which the Federal Government raises revenue.

Income, corporate, payroll, excise, estate, and gift taxes; custom duties.

Identify five of the Federal Government's nontax sources of revenue.

Interest, findes by courts, the "conscience fund," seigniorage, and stamps bought by stamp collectors that are not used.

Estate Tax

Levy imposed on the assets on one who dies.

Surplus

More income than spending.

Are excise taxes regressive or progressive taxes? Explain your answer.

Regressive, because people would be paying a flat rate that does not take into account their ability to pay.

What is the largest item on which the Federal Government spends the money it raises?

Social Security

Uncontrollable Spending

Spending that Congress and the president have no power to change directly.

What are the four expressed limitations on the Federal Government's power to tax?

Taxes must be for public purposes only; export taxes are prohibited; direct taxes must be equally apportioned; and all indirect taxes must be levied at the same rates nationwide.

What are the roles of the Budget Committees and the Appropriations Committees in the budget process?

The Appropriations Committees hold hearings on federal agencies' budget requests and then create priations measures; the Budget Committees propose con(my notes cut off here, possibly conflict?) resolutions on the budget (also cut off here) their respective chambers.

What two major events marked a dramatic change in the amount of federal spending and its impact on the nation's economy?

The Great Depression and World War II.

Deficit

The eerily shortfall between revenue and spending.