The ECONOMY

The ECONOMY - a system by which goods and services are produced, sold, and bought in a country or region.

The ECONOMY

Who would ever think that a word with such a dull definition could be the source of

contentious discussion, dispute and debate?

When the ECONOMY is doing well citizens;• find a job• earn livable wages• buy goods with cash and wise use of credit

• enjoy a high standard of living 

The ECONOMY

BUT WHAT SYSTEM OR APPROACH IS MOST LIKELY TO SECURE THE ABOVE?

• Capitalism • Socialism

Competing Economic Systems

SocialismAn economic / political philosophy that believes the government should• distribute wealth and services equally 

• the government should own institutions so that equal public access is allowed.

CapitalismAn economic / political philosophy that believes in small government and • Privately owned businesses 

• Wages determined by market forces

• Profit motivation

More Entertaining Definitions• CAPITALISM: You have two cows. You sell one and buy a bull. If you do this well, have some good luck, you can drink a lot of milk. 

• SOCIALISM: You have two cows.  The state takes one (or at least the milk) and give it to someone else – determined to be in need of milk. 

• COMMUNISM: You have two cows, both owned by the government. The government gives you milk. 

• FASCISM: You have two cows. State takes both of them, and gives/sells you milk, maybe, if you follow the party line.

Anti- Capitalism View

Anti- Socialism View

TAXES

There are only two things guaranteed in life; death and taxes. Both are unpleasant.

TYPES OF TAXESProgressive:The tax is collected with consideration to your income.

Regressive:The tax is collected without consideration to your income

Flat: The tax is collected without consideration of deductions (#of children, mortgage interest …) nor your wealth.

TYPES OF TAXESProgressive:Federal IncomeState Income

Regressive:Property (Town)Sales (State)

Other:Fees (State and Local)Penalties

Progressive Income Tax

Federal Income TaxThe NATIONAL government deducts money from your pay.

State Income Tax:The STATE government deducts money from your pay.

National Income Tax

Rate for 2011

Regressive TaxesSales and Property Tax (and fees)

Sales Tax: States tax your purchases. This is sometimes referred to as a consumer tax.

Property Tax: The state and/or local government tax the worth of your home and car.

State Sale Tax Rate for 2009

Government Budgets / Services• Government taxes are collected to pay for government

services (military, welfare, education …)• How much money (taxes) is needed depends in large

part to how many government services the citizens are willing to pay for.

• The relationship between all these factors determines the government’s budget and subsequent tax rate (how much money they need from citizens.)

• When the government’s revenues (taxes) do not amount to the cost of services, they deficit spend. This is like taking a loan for the future which causes debt.

National Government Expenses

National Government ExpensesEntitlements

Entitlement government programs include: • Social Security• Medicare• Medicaid • Welfare

An entitlement is the right to a particular privilege or benefit, granted by law or custom.

Social Security

• Primarily a government pension program. • Created in 1935 during the Great Depression.• Social Security is funded through payroll taxes.

Looming Social

Security Crisis

Medicare• Federally funded health care for citizens aged 65 or over • Created in 1965.• Medicare is funded through payroll deductions.

Looming Medicare

Crisis

Deficit Spending and Debt

• Raising taxes or cutting services makes government officials unpopular.

• Perhaps related, often the government deficit spends (spend more $ than they collect.) 

• Deficit spending creates debt, with interest.

• Government programs are expensive. • Funding these programs requires higher taxes.

State Government Expenses

The Rhode Island budget includes: • Education• Transportation• Health • Welfare• Protection• Pension

Local Government Expenses

The North Kingstown budget includes: • Education• Police• Fire• Recreation• Government

So, there are economic challenges in our society.

How do we solve them?

Conservatives vs. Liberals