Public Policy

Property Tax

Definition: A tax levied on the value of real property, such as land, homes, and buildings. How it works: chief source of income for local governments. EX: These are typically a tax on assets when a person dies. 1. pro- real property cannot be easily hidden from the tax collector 2. con- the tax levied on real property may not reflect the owner's ability to pay

Individual Income Tax

Definition: A tax on the income of state residents How it works: allowed by 16th amendment EX: Today, 43 states and a number of cities collect income taxes. 1. pro- progressive tax 2. con- high rates may drive wealthy people to states with no or low income taxes

Regressive Tax

Definition: Any tax in which the burden falls more heavily on the poor than the rich, at least as a percentage of their incomes How it works: set at a flat rate with no regard for income or ability to pay EX: A person earning $20,000 a year pays the same excise tax on local phone service as someone earning $2 million a year. 1. sales taxes are regressive 2. excise taxes are regressive

Progressive Tax

Definition: Any tax in which the tax burden falls more heavily on wealthy than poor tax payers How it works: rates progress from low to high as one's income rises EX: A person who makes the least amount of money has the lowest marginal tax rate, while a person who makes a lot of money has a high marginal tax rate 1. income taxes are progressive 2. corporate taxes are progressive

Deficit Spending/Financing

Definition: Government expenditures financed by borrowing rather than by tax revenues How it works: (money government spent) - (money government took in) EX: It is the federal government's policy of spending more money than it takes in. 1. when deficits pile up, so does national debt 2. lately deficits have been going down due to end of recession and lower government spending

Mandatory Spending

Definition: Government expenditures required by law to be allocated in specified ways How it works: can be altered by special legislation EX: Examples of mandatory spending include: Social Security, Medicare, Medicaid, Affordable Care Act, Interest on the Debt. 1. one type is interest on the national debt 2. the other type is entitlements- programs through which individuals receive benefits based on their age, income, or some other criteria

Discretionary Spending

Definition: Government expenditures that can be raised or lowered as determined by Congress How it works: can be raised or lowered as Congress sees fit EX: Examples of discretionary spending include: Defense Budget, Education, Transportation, Dept. of Veteran's Affairs, EPA, NASA, etc. 1. complaint about process focuses on practice of using earmarks- specific spending proposals that members of Congress attach to legislation, usually to benefit their home districts or states 2. Congress has made earmarking more transparent, open to public scrutiny

Revenue

Definition: Government income, raised through taxes and other means, to be used for public expenses How it works: building block of government EX: There are many different ways that the government collects revenue including: taxation and tributes. 1. needed to provide security 2. needed to pay for public goods

Debt

Definition: How much the government owes How it works: occurs when the government borrows money or deficits pile up EX: Currently in the US, our debt has reached around $19 trillion. 1. mandatory spending is a major cause of debt due to the high prices of medicare, medicaid, social security etc; however, must discretionary spending on the defense has cause major debt problems in US 2. different than deficit because its an amount owed not a calculation

Monetary Policy

Definition: Involves the money supply (amount of currency in circulation) and the availability of credit in the economy How it works: Federal reserve implements this policy by performing operations that influence short term interest rates EX: Expansionary monetary policies speed up the economy while contractionary monetary policies slow down the economy. 1. to decrease money supply: sell securities, increase reserve requirement, and raise interest rates 2. to increase money supply: purchase securities, decrease reserve requirement, and lower interest rates

Factors of Production

Definition: Resources required to produce most goods and services How it works: way the factors are used depend on a society's economic system EX: There are 4 factors of production including: land, capital, labor, and entrepreneurship. 1. land- natural resources of nation (fertile soil, plants, water, and minerals) 2. capital- money, machinery, buildings, tools, equipment, knowledge(human capital) 3. labor- mental and physical effort put into producing goods and services 4. entrepreneurship- human effort that goes into organizing land, labor, and capital to produce and sell goods and services

Excise Tax

Definition: Tax levied on the sale of certain goods or services How it works: raises money for government EX: Also called "sin taxes" because they are often levied on tobacco, gambling, and alcohol. 1. pro- taxing "sin" is easy for politicians 2. con- if raised too high, may encourage illegal traffic in taxed goods

Sales Tax

Definition: Tax on the sale of goods that is paid by the customer at the time of the purchase How it works: goes up when times get tough EX: Today, 45 states and many cities have a general sales tax. 1. pro- relatively easy to collect 2. con- regressive tax(affects rich&poor equally)

Fiscal Policy

Definition: The government's dealings with the budget How it works: President makes specific recommendations with regard to the economy, legislative branch enacts laws that put fiscal laws into action, and exec. branch carries out these laws EX: These policies affect tax rates, interest rates and government spending, in an effort to control the economy. 1. reduce gov spending to slow inflation and increase spending to increase employment/tax revenues 2. decrease taxes to heighten economic activity and increase taxes to reduce economic activity/slow inflation

Mixed Economy

Definition: blend of reliance on market forces with some government involvement in the marketplace How it works: EX: Traditional, market, and command economies are theoretical extremes, so most countries have mixed economies. 1. US has free-market economy; however government plays a vital role in economic affairs, so it's more of a blend 2. china started out communist but has adopted market socialism, another blend

Command Economy

Definition: economy with government planners who decide what goods and services should be produced and how along with determining how goods and services should be produced and at what cost How it works: means of production are publicly owned EX: Based on European political theories that arose in 1800s known as socialism and communism. 1. pros- full employment, no economic recessions, and greater income equality/economic security 2. cons- inefficient use of factors of production, slower or stagnant economic growth, low-quality goods/services, and lower standards if living

Market Economy

Definition: economy with little/no role of government, producers can decide what goods/services to produce along with how much to charge for them, and consumers are free to decide what to buy How it works: prices are determined by the market EX: It's also known as a free enterprise system and capitalistic system. 1. pros- it's efficient at meeting peoples' needs and allows economic growth 2. cons-instability and unequal distribution of wealth (flip flop command economy's pro/con for more market economy pro/con)

Budget Surplus

Definition: the amount by which an organization's revenues exceed is expenditures How it works: amount of leftover when requirements are met EX: As of 2016, the U.S. government has undergone nine budget surpluses; the Clinton administration eliminated a large budget deficit, resulting in a surplus 1. it is not necessary for a government to maintain a surplus 2. a surplus is an indication that the government is being effectively managed

Spending

Definition: where government money goes How it works: Congress holds power of the purse and decides where government spends their money EX: Government spends its money towards: welfare benefits, pay interest on the public debt, and on defense. 1. one type of spending is mandatory 2. other type of spending is discretionary