Local Government and Finances Chapter 14. Municipal Government in North Carolina Section 1.
Government Finances
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Transcript of Government Finances
Government Finances
Budget Process
President must submit a budget proposal to Congress by the 1st Monday in February
Congress then passes a budget resolution through both Houses of Congress
Budget Process
Spending is divided into 2 types:
Mandatory SpendingMandatory Spending: Spending that does not need annual approval.
EX: Social Security Payments
Discretionary SpendingDiscretionary Spending: Spending that must be approved each year EX: Highway construction
Federal Revenues IncomeIncome taxestaxes account for half of all federal
government revenues Most of this comes from tax withholdingstax withholdings-- money
taken from each person’s paycheck to cover their taxes
At the end of the year, you file a tax returntax return. If the government took too much in your checks, you get a refundrefund. Otherwise you pay the balance.
CorporationsCorporations also pay taxes on their profits. This is about 10% of all federal government revenue.
Federal Revenues The second largest source of gov’t income
is payroll taxespayroll taxes--money taken from your paycheck to pay for social security and Medicare
The government also collects excise taxesexcise taxes--taxes on specific goods such as gas, tobacco, alcohol, & legal betting (also called sin taxes)
Another tax is the estate taxestate tax--tax on money left in a will
Another tax is a gift taxgift tax--tax on large gifts
Forms of Taxes
Proportional tax- a tax that has the same percentage no
matter how much you make collects less money than other
methods for the government
Forms of Taxes
Progressive tax- the more you make, the higher the
percentage you pay collects the most money for the
government
Forms of Taxes
Regressive tax- opposite of progressive in that the
percentage you pay goes down the more you make
ex: social security and sales taxes
Federal Expenditures
Expenditures-where the government spends its money
21% on Social Security 17% on national defense 14% on Medicare 8% on interest on debt
Sources of State Government Revenue
Main source is intergovernmental revenue-money received from the national government, about $.22 per all dollars received.
Sales tax-tax on the purchase of most items. Stores pay a lump amount each month. Ranges in amount from 2% to 8%. Some states don’t have any sales taxes at all.
Sources of State Government Revenue
Contributions-states take the money collected from it’s employees for their retire and invest it.
Income taxes-many states have their own income tax systems. Some states simply take a percentage from your federal return. Others charge a flat rate to all it’s citizens. Some charge a progressive rate while 7 states have no income tax at all.
State Expenditures
State welfare programs called entitlement programs. These programs provide health, nutrition, or income payments to people who meet basic requirements
Higher education-states help to subsidize the cost of a college education for the poor.
Highway construction
Sources ofLocal Government Revenue
Property taxes- must pay a certain percentage on real property such as buildings and land. May also charge property taxes on stocks, bonds, cars, jewelry, furniture, and fine works of art.
Revenue from utility companies Also collect sales taxes Fines from traffic violations and other user
fees
Local Government Expenditures
Education-in charge of setting up local school districts
Police and fire protection Water supply Sewage and sanitation
Budget Issues
Difficulties in planning Hard to predict tax revenues Hard to predict all government
expenses Never know when a unique event will
occur (hurricane, blizzard, terrorist attack)
Budget Issues
Try to have a surplussurplus-when revenues are more than expenditures
States also try to put money away for unforeseen events
Budget Issues
When expenditures are more than revenues you have a deficitdeficit
Another problem is that the national government is forcing states to pay for more programs leading to large state debts
Government Debt
When the government runs into debt it must borrow money to pay it’s bills
May use bonds-an agreement to pay back a loan with interest
Surpluses may help to pay for these debts, or governments may cut programs
Raising taxes is another unpopular option
Government Debt
Governments try to have a balanced budget, where spending equals expenditures
The business cycle can make this difficult as government spending in recessions can make a balanced budget difficult
Government Debt
Impact of National debt:1. More tax dollars go to paying interest on
loans, leaving less for government programs
2. Higher taxes to pay off debt mean less money for your expenses
3. The more money the government borrows the less available for its citizens to borrow, slowing down the economy
Automatic Stabilizers These are programs that are in place to
stimulate the economy when needed The main advantage is that are always in
place with no government action needed Ex: unemployment insurance to help
people till they can find a job Ex: Medicaid and other welfare programs to
help people maintain a basic standard of living
Ex: progressive taxes