Chapter 4 additional terms Inflation\unemployment relationship Monetary and fiscal policy How...
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Transcript of Chapter 4 additional terms Inflation\unemployment relationship Monetary and fiscal policy How...
Chapter 4 additional terms• Inflation\unemployment relationship• Monetary and fiscal policy• How Federal Reserve sets monetary policy• Demand side vs. Supply side (as in Lafer curve)• Line item veto\Balance Budget Amendment
Budgets and TaxesNote: the less important slides are hiddenGo to View | Slide Sorter to see them all
Revenues and Spending (Outlays)
BUDGET CONTROL ACT OF 2011
• Raises the Debt Ceiling in exchange for long term budget cuts (900 Billion 1.2 Trillion) over ten years.
• “Supercommittee must produce something better by November 23, 2011 (it didn’t)
• Mandatory cuts now go into place, beginning January 2013-2021• SEQUESTER: Cuts:
across the board cuts, except Social Security, Medicare and Medicaid beneficiaries
Total Government Surplus\ Deficit, % of GDP
OECD Economic Outlook, Statistical Appendix, 2012
Total Government Debt, % of GDP
OECD Economic Outlook, Statistical Appendix, 2012
Ten Largest Deficits and Debts, % of GDP, 2012
Health Care | Education | Higher Education | Poverty | Crime and Punishment | Debt and Deficits | Defense
OECD Economic Outlook, Statistical Appendix, 2012
Debt
Greece 146%
Japan 134
Italy 98United States 86Portugal
83Belgium
83Ireland 80United Kingdom
73France 66Spain 58
Deficits
Japan -9.9%United States -8.5Ireland -8.1Spain -8.1Greece -6.9United Kingdom -6.6Portugal -5.2Israel..... -4.7Slovak Republic -4.6France -4.5
Fiscal 2013 Budget
Debttriples
InterestPaymentsgo down
Taxation
Fairness?• absolute equity – all benefit from government
– all should pay equally(head tax)
• Ability to pay -- justification for progressive taxation (graduated income tax)
• Benefit principle -- tax in proportion to the benefit (gas tax, social security payroll tax)
Economic Neutrality -- Tax systems should exert minimal impact on the
spending and business decisions of individuals and businesses.
Violations of neutrality:(create positive and negative externalities)• tax subsidies for oil drilling, homeownership,
health care • Tax incentives for positive social behavior • Sin taxes• Brick and Mortar Sales tax vs Internet sales
Top 20 Biggest Tax Expenditure of US Govt.
Efficiency and Simplicity
• Cost of collecting taxes(toll roads vs. IPass)
• Cost of compliance (tax lawyers and accoutnants)
Visibility
• Taxes should not be hidden – those who bear the burden should be aware
(Hidden taxes: Gross Receipts Tax, Lottery?)
Other principles
• Broad base (to allow lower rates)• Predictable and stable supply of revenue• Diverse sources (for stability and lower rates)• Addresses geographic competition
Tax Penalizes RewardsFederalIncome Tax
progressive medium Work tax exemptedincome
Ill StateIncome Tax
flat medium Work tax exemptedincome
Social SecurityMedicare
veryregressive
very low work
Corporationtax
flat low businessinvestment
Sales Tax regressive low brick &mortar stores
savings,Internet sales
Gas tax even low driving,large vehicles
public transportation
Toll roads even high
Property tax flat mediumpropertyimprovmnt
homeownership(exemption)
cigarette\alcohol
regressive low --
drinking smoking healthy people
Economic EffectsProgressive?
CollectionCosts
UserTax?
SinTax?
Revenues
The Laffer Curve
TAX RATEO 100
-2%|
+16%|
+27%|
+82% ---
0
-10%
10%
30%
50%
70%
90%
'81 82 83 84 85 86 87 88 89 92 93 94 95 96 97 98 99 00
Reagan 1982 tax cut Clinton 1993 tax increase
FIGURE 3.1bIncome Tax Revenues after Tax Changes, Cumulative % Change(constant$)