Financing Government

Chapter 16

Taxes

Section One

Objectives:

1. Explain how and why the Constitution gives Congress the power to tax.

2. Describe the most significant federal taxes collected today.

3. Summarize why the Federal Government imposes taxes for non-revenue purposes.

The Constitution gives the power to tax to Congress, but it

places limits on that power.

Congress must tax in accord with all parts of the Constitution.

It can set taxes for public purposes only and may not tax

exports.

Direct taxes, except the income tax, must be apportioned

according to State population.

Indirect tax rates must be the same everywhere.

Congress also may not tax any governmental function of a

State or its local governments.

Americans today pay several kinds of federal taxes.

The largest source of federal revenue, the income tax, is

levied on each person's yearly earnings.

It is a progressive tax, meaning the higher the income, the

higher the tax rate.

Each U.S. income-earner files an annual tax return, a form that

shows the tax owed.

Businesses pay corporate income taxes.

Social insurance taxes fund three programs: Old-Age, Survivors, and Disability

Insurance, known as Social Security; Medicare, or health

care for the elderly; and unemployment compensation.

These taxes are paid as payroll taxes, which employers withhold from paychecks and send to the

government.

Social insurance taxes are regressive taxes, meaning the rate is the same for everyone.

Congress places an excise tax on the making, selling, and using of certain goods and

services.

An estate tax must be paid on the assets of a person who has

died.

Gifts of over $11,000 in one year are subject to a gift tax.

A custom duty is a tax laid on goods brought into the United States from another country.

End

Section One

Non-tax Revenues and Borrowing

Section Two

Objectives:

1. List the non-tax sources of Federal Government revenues.

2. Describe federal borrowing.

3. Analyze the causes and effects of the public debt.

The Federal Government receives large sums of money from multiple non tax sources.

Much of this money comes from the earnings of the Federal

Reserve System, mostly in interest.

Interest is a charge paid for borrowing money and is usually

a percentage of the amount borrowed.

Fees for such items as copyrights and trademarks also

bring in money.

The Constitution gives Congress the power to

authorize federal borrowing.

The government borrows money at lower interest rates

than do private borrowers, and there is no limit on the amount it

may borrow.

These privileges allowed the Federal Government between

1929 and 1968 to regularly spend more money than it took

in.

This process is called running up a deficit.

When the government takes in more than it spends, it shows a

surplus.

Since 1968, the annual federal budget has only shown a

surplus between 1998 and 2001.

The annual interest on the federal debt is the amount that

must be paid each year to those from whom the government has

borrowed.

All past deficits that are yet to be repaid, plus interest, add up to form the public debt-the total amount of money owed by the

government.

The debt has often been criticized because it causes

concern for the country's future stability.

End

Section Two

Spending and the Budget

Section Three

Objectives:

1. Identify the key elements of federal spending.

2. Explain how the President and Congress work together to create the federal budget.

The largest area of government spending is for entitlements.

These are payments made to people whom federal law says are entitled, or have a right, to

them.

(Are we as citizens “entitled” to tax dollars paid by other

citizens?)

Social Security (Old-Age, Survivors, and Disability

Insurance, or OASDI) is the largest entitle ment program.

The next largest areas of expense are payment on the

public debt and national defense.

Entitlement spending makes up part of the government's

uncontrollable spending, that is, payments that the government is obliged by law to make each

year.

Controllable spending is spending that may be adjusted each year, such as spending on the environment or education.

The budget is the Federal Government's spending plan for

one year.

The President and the Office of Management and Budget put

the budget together then send it to Congress.

There it goes to the Budget and Appropriations committees in

each house.

When it has finished reviewing the budget, Congress passes a

budget resolution setting spending limits for all federal agencies for the coming year.

Congress then passes thirteen appropriations, or spending,

bills for the year, each of which the President must sign.

If all thirteen bills are not passed before October 1–the beginning

of the new fiscal, or budget, year–Congress must pass a

continuing resolution.

Such a bill allows affected agencies to function until new

appropriations bills are passed.

End

Section Three

End

Chapter 16