Fiscal Policy Taxes Government Spending and Borrowing Fiscal

Fiscal Policy Taxes, Government Spending, and Borrowing

Fiscal Policy • Definition: Use of government spending and revenue collection to influence economy • Goals: – Promote economic growth and stability – Social policy programs with economic effects • • • Social Security TANF (temporary assistance to needy families) Food stamps Medicare Medicaid

Types of Taxes x Y e a : • Progressive Tax: Tax rate increases as income increases F – Ex. Federal Income Tax, GA Income Tax – Wealthy pay higher percentage of income Tax Bracket Single Married Filing Jointly 10% Bracket $0 – $8, 375 $0 – $16, 750 15% Bracket $8, 375 – $34, 000 $16, 750 – $68, 000 25% Bracket $34, 000 – $82, 400 $68, 000 – $137, 300 28% Bracket $82, 400 – $171, 850 $137, 300 – $209, 250 33% Bracket $171, 850 – $373, 650 $209, 250 – $373, 650 35% Bracket $373, 650+ i l i n g S t a t u s :

Types of Taxes • Regressive Tax: Tax rate decreases as income increases – A fee of $1, 000 per household – Sales tax • Proportional Tax: Flat tax – Ex. 15% tax on all taxpayers

Federal Tax System • • Individual Income Tax (16 th Amendment) Bureaucracy: Internal Revenue Service Progressive Income Tax Federal Insurance Contributions Act – FICA – Social Security: 6. 2% up to $106, 800 – Medicare: 1. 45% of all earnings – Employers must match payroll deductions

Other taxes • Corporate Income Taxes – Federal: 35% – State (GA): 6% • Combined adjusted: 38. 9% • Excise Taxes (gas, tobacco, phone, alcohol, airline tickets, . ) – Gas: 18. 4 cpg; 7. 5 cpg + 4% GA – Cigarette: $1. 01 pack; . 37 GA • Estate Tax (death tax) • Gift Tax • Customs Duties (ex. Tariffs)

Federal Government Expenditures • Federal Budget: annual plan of revenues (taxes, borrowing) and spending for year • 2011: $3. 6 TRILLION • Mandatory Spending – Interest on national debt ($217 billion) – Social Security ($723 billion) – Medicare/Medicaid ($825 billion) • Discretionary Spending – Defense ($701 billion) – Housing/welfare ($418 billion) – Education ($127 billion)

Budget Terms • Federal budget surplus: tax revenue is greater than spending in a year • Federal budget DEFICIT: amount spending exceeds taxes in a year – – 2008 deficit: 2009 deficit: 2010 deficit: 2011 deficit: $459 billion $1. 413 TRILLION $1. 56 TRILLION $1. 3 TRILLION • National Debt: total amount of all past budget deficits – $14. 8 TRILLION

How Budgets are Made • Step 1: President prepares the budget – OMB: Office of Management and Budget • Step 2: Budget sent to Congress • Step 3: Appropriations bills sent to committees in House of Representatives • Step 4: Senate receives budget, may approve, modify, prepare own • Step 5: Budget goes to President to sign