Econ: Chapter 14

True or false: The budget process at the local level varies considerably from one local government to the next.

True

Which of the following is most like a national sales tax?

VAT

From whom or what do state governments receive the majority of their funds?

Federal government

four largest categories of local government revenue

Intergovernmental Revenue Property taxes Sales taxes Hospital revenue

match the rank order of each expenditure category below for state governments.

Intergovernmental expenditures Public Welfare Higher Education State employee retirement Unemployment and workers compensation

What item appears in both state and local revenue sources that does NOT appear as a federal government revenue source?

Intergovernmental revenue

largest sources of local government revenue with their rank order.

Intergovernmental revenue Property taxes Sales taxes and gross receipts Hospital revenue

The _________________ is the branch of the U.S. Treasury Department that collects taxes.

Internal Revenue Service

What is a sin tax?

It is a tax designed to reduce consumption of products that are socially undesirable.

four largest sources of state revenue by their ranking.

Largest - Intergovernmental revenue Second - Employee Retirement Third - Sales taxes and gross receipts Fourth - Individual income taxes

What are spending caps?

Legal limits on annual discretionary spending

Which level of government has primary responsibility for funding elementary and secondary education?

Local

Why do local governments regulate natural monopolies rather than break them up into competing companies?

Natural monopolies are a market structure in which average costs of production are lowest when all output is produced by a single firm, and they can charge higher prices if not regulated.

What is a fiscal year?

October 1 to September 30 12 month financial period that doesn't have to coincide with the calendar year

Which level(s) of government both receive and distribute intergovernmental revenues?

Only the state level

Why is resource allocation affected by taxes on products and services?

People buy less of a product or use a service less, so companies allocate less to production.

What is the benefit principle of taxation?

People pay a tax according to how much they use a product or service.

personal income tax rate that applies to cases in which taxes would otherwise fall below a certain level

alternative minimum tax

Each House subcommittee prepares a(n) ___________, authorizing spending for certain purposes.

appropriations bill

annual budget in which expenditures equal revenues

balanaced budget

What is the main purpose of a sin tax?

behavior adjustment

"Those who benefit from government goods and services should pay in proportion to the amount of benefits they receive." So states the ______ .

benefit principle

The debt ceiling is the total amount of money that the U.S. government is authorized to ______ to meet existing commitments.

borrow

profits from the sale of an asset held for 12 months or longer

capital gains

Which type of tax is levied on the sale of an asset held for 12 months or longer?

capital gains tax

line item budget expenditure that circumvents normal budget building processes and procedures and benefits a small number of people or businesses

earmarks, or pork

The largest category of local government expenditures is _____ and ____ education.

elementary, secondary

program or benefit that uses established eligibility requirements to provide health, nutritional, or income supplements to individuals

entitlement

An economist might argue that a progressive income tax is effective because it is ______ .

equitable

Which type of tax is levied on specific items or services, including gasoline and telephone services?

excise tax

general revenue tax levied on the manufacture or sale of selected items

excise tax

If I have more _____ than _____, I have a ______.

expenditures; revenues; deficit

proportional tax on individual income after a specified threshold has been reached

flat tax

_________________ of a tax is the term for the final burden of the tax.

incidence of a tax

the final burden of a tax

incidence of tax

The largest tax levied on the wages, salaries, and other income of individuals is known as the _________________ tax.

individual income tax

Which of the following is the single largest source of federal revenue?

individual income tax

The tax code is indexed to compensate for ______ .

inflation

"The most important source of state government revenue." "Primarily transferred from federal government to state governments." "The most important source of local government revenue." All of these statements are true of ______ .

intergovernmental revenue

funds that one level of government receives from another level of government

intergovernmental revenue

According to bar graph here, the largest source of state government revenue is from _____ revenue. The second-largest source is employee _____, followed by ____ taxes and individual _____ taxes.

intergovernmental, retirement, sales, income

Elementary schools, police departments, and electrical service are typically paid for by ______ .

local government

At the local level, power to approve spending often rests with the ____ , the city ______ , the county ______ , or some other elected representative or body.

mayor, council, judge

the total amount borrowed from investors to finance the government's deficit spending

national debt

the total amount borrowed from investors to finance the government's deficit spending

national debt

Which of the following is NOT an example of federal mandatory spending?

national defense

Which of the following could be considered a synonym for FICA?

payroll tax

per person basis; total divided by population

per capita

that part of the economy made up of private individuals and businesses

private sector

In discussing taxes, which is the opposite of regressive?

progressive

A general state or city tax levied on a product at the time of sale is called a _________________ .

sales tax

Which of the following is the single largest federal expenditure?

social security

True or false: The budget process each state follows is fairly uniform from one state to the next.

False

What type of tax is Medicare?

A proportional tax

What is the alternative minimum tax?

A tax rate that applies when taxes paid fall below a certain amount

An effective tax is one that exhibits one or more of the following characteristics.

All of the Above: Equity, Simplicity, Efficiency

When is VAT added to a product's price?

At every stage of production

four largest categories of local government spending

Elementary and secondary education Utilities Hospitals Police protection

What are intergovernmental expenditures?

Expenditures that one level of government makes to a lower level of government

The term "intergovernmental revenue" refers to

Funds that one level of government distributes to another level of government. The revenue state governments receive from the federal government.

What is the primary source of revenue for the government?

Individual income taxes

Which of the following is not a significant revenue source for local governments?

Individual income taxes

What are the criteria for effective taxes?

Simplicity, efficiency, and equity

Expenditures for what government program are considered mandatory spending?

Social Security

How do taxes transfer purchasing power from the private sector to the public sector?

Taxes reduce the amount of money people have to spend, and increase the amount of spending that the government can do.

Which statement is most accurate?

The debt ceiling permits borrowing for expenditures that have already been authorized by Congress and the president.

What is the incidence of a tax?

The final burden of a tax

Which level of government has the largest portion of its expenditures on hospitals?

The local level

What is the relationship between the national debt and the budget of the federal government?

The national debt grows whenever the government runs a deficit. The debt shrinks when the government runs a surplus.

What role does a tax assessor play in determining property taxes?

The tax assessor determines the value of property that will be taxed.

What effect did the tax cuts of 2003 have?

They caused the government to have a bigger deficit.

What is the average tax rate?

Total taxes paid divided by the total taxable income

T/F Some states have biannual budgets, which cover two years at a time, and other states have a balanced budget amendment—a constitutional provision requiring that annual spending not exceed revenues.

True

How does a balanced budget amendment work?

When revenue drops below spending levels, spending must, according to state law, be curtailed.

The property tax is a tax on ____ and ____ possessions and is the second-largest revenue source for local governments.

tangible and intangible

Exceptions or oversights in the tax law that allow taxpayers to avoid taxes are called _________________ .

tax loopholes

Which is the primary source of revenue for the federal government?

taxes

Higher-than-normal interest rates caused by heavy government borrowing hurts private borrowers through ______ .

the crowding-out effect

One of the reasons it has been so difficult for Congress to bring federal spending under control is because

the federal budget has many entitlements that people do not want cut.

payments for which the government receives neither goods nor services in return

transfer payments

The terms proportional, progressive, and regressive refer to ______ .

types of taxes

tax on the value added at every stage of the production process

value-added tax (VAT)

Which of the following best identifies the incidence of the individual income tax?

workers