Taxes _Reg_.ppt - FCEE wiki by yaofenji


									Deficits, Surpluses, and the National Debt
                         •   Tax his car,                      •   Accounts             •   Marriage License
   Tax his land,        •   Tax his gas,                          Receivable Tax           Tax
   Tax his bed,         •   Find other ways                   •   Building Permit      •   Medicare Tax
   Tax the table        •   To tax his ass                        Tax                  •   Personal Property
   At which he's fed.   •   Tax all he has                    •   CDL license Tax          Tax
   Tax his tractor,     •   Then let him know                 •   Cigarette Tax        •   Property Tax
   Tax his mule,        •   That you won't be done            •   Corporate Income     •   Real Estate Tax
                                                                   Tax                  •   Service Charge Tax
   Teach him taxes      •   Till he has no dough.             •   Dog License Tax
   Are the rule.        •   When he screams and hollers,                               •   Social Security Tax
                                                               •   Excise Taxes         •   Road Usage Tax
   Tax his cow,         •   Then tax him some more,           •   Federal Income Tax
   Tax his goat,        •   Tax him till                                               •   Sales Tax
                                                               •   Federal              •   Recreational
   Tax his pants,       •   He's good and sore.                   Unemployment Tax         Vehicle Tax
   Tax his coat.        •   Then tax his coffin ,                 (FUTA)               •   School Tax
   Tax his ties,        •   Tax his grave,                    •   Fishing License      •   State Income Tax
   Tax his shirt,       •   Tax the sod in                        Tax
                                                               •   Food License Tax     •   State
   Tax his work,        •   Which he's laid.                                               Unemployment Tax
   Tax his dirt.        •   Put these words                   •   Fuel Permit Tax          (SUTA)
   Tax his tobacco,     •   upon his tomb,                    •   Gasoline Tax (42     •   Telephone Federal
   Tax his drink,       •   " Taxes drove me to my doom..."       cents per gallon)        Excise Tax
   Tax him if he        •   When he's gone,                   •   Hunting License      •   Telephone Federal
                                                                   Tax                      Universal Service
   Tries to think.      •   Do not relax,                     •   Inheritance Tax          Fee Tax
   Tax his cigars,      •   Its time to apply                 •   Gross Receipts Tax   •   Telephone Federal,
   Tax his beers,       •   The inheritance tax.              •   Inventory Tax            State and Local
   If he cries, then    •   Utility Taxes                     •   IRS Interest             Surcharge Taxes
   Tax his tears.       •   Vehicle License                       Charges IRS          •   Telephone
   Telephone State &        Registration tax                      Penalties (tax on        Minimum Usage
    Local Tax                Vehicle Sales Tax                     top of tax)              Surcharge Tax
   Telephone Usage          Watercraft                        •   Liquor Tax           •   Telephone
    Charge Tax                                                 •   Luxury Taxes             Recurring and
                             Registration Tax                                               Non-recurring
   Utility Taxes            Well Permit Tax                   •   Workers Comp Tax         Charges Tax
Flat Tax on Income: same % of income, different amounts, so Proportional
Flat Tax on Products: same amount, different % of income, so Regressive
Marginal Tax Rates





                           Single - no
     I only have            tax on 1st
      to pay the
       FICA tax.           $7,825     10% 15%        25%      28%      33% 35%
                       0         $7,825 $32,550 $78,850 $164,550 $357,700 $357,700+

Standard Deduction
[$5,350-dependent]                [7,825-single]   [$11,200-HH]   [$15,650-married filing jointly]
Our Progressive Tax System Is Like A Layered Cake

               35% over $357,700
               33% up to 357,700
               28% up to $164,550
               25% up to $78,850
               15% up to $32,550
               10% up to $16,050
               No tax on 1st $8,025
       Proportional – takes same 20% [not amount] from all income groups
       Example: Medicare – 1.45% on all income earned.

             $30,000 $40,000          $50,000                $100,000
                                     Pay $10,000             Pay $20,000
                                 [So, not same amount but same %, 20%]
                                            Take that, you
 30%                                        “low incomer.”

          Example: Sales Tax
                                                                  I‟m a “low
 10%                                                              incomer.”

                   $30,000         $40,000            $50,000
Flat Tax on Income: same % of income, different amounts, so proportional.
Flat Tax on Product: same amount, different % of income, so regressive.

             Toll Road($1 per day) What kind of
              $10,000    $50,000 taxes are these?
                  $200      $200
                   2%        .4%
 Flat Tax on Cigarettes [Excise][$1.41 cents pack]
                       [1 pack day]   [1 pack day]

                    $10,000           $100,000
                       $515             $515
                        5%               .5%  Addicted
  State 6.25% Excise Tax on Two Identical $20,000 Autos
                     BO           HO
                $10,000      $100,000
                 $1,250        $1,250
                  12.5%        1.25%
Flat Tax on Income: same % of income, different amounts, so Proportional
Flat Tax on Products: same amount, different % of income, so Regressive
         Property Tax of 2.5% on $100,000 Houses
            $25,000              $50,000
           [100,000 house]           [$100,000 house]
                $2,500                     $2,500
                  10%                         5%
             $100 Spent On The Lottery
             $20,000           $100,000
          [$100 Lottery]      [$100 Lottery]
                  5%                .1%         I played
    “The lottery tax is a voluntary           the lottery.”

     regressive tax on morons.”
    What about the .20 a gallon gasoline tax?
    So – all of these taxes were regressive.
                 TAX RATE    State Excise Tax on Cigarettes     TAX RATE
State          (Cents per pack) Rank        State            (Cents per pack) Rank
Alabama(1)      16.5              47        Nebraska            64             24
Alaska           200                4       Nevada              35             39
Arizona          200                4       New Hampshire       52             32
Arkansas(20)       59             26        New Jersey        258               1
California         87             19        New Mexico          91             18
Colorado           20             43        New York (1)      150               5
Connecticut      200                3       North Carolina      30             45
Delaware (3)       24             41        North Dakota        44             34
Florida         33.9              40        Ohio                55             29
Georgia            37             36        Oklahoma            23             42
Hawaii (30       130                7       Oregon            128               8
Idaho              57             27        Pennsylvania      100              12
Illinois (1)       98             17        Rhode Island       246              2
Indiana         55.5              28        South Carolina       7             51
Iowa               36             37        South Dakota        53             31
Kansas             29             20        Tennessee (1)(2) 20                48
Kentucky (2) & cities may impose an additional141 on a pack of
                   30             46        Texas               tax            11
  cigarettes. Also, the federal tax is 39 cents. NYC has an 23
Louisiana         36              37        Utah             69.5
  additional $1.50 for a total cigarette pack price of $7.50.10
Maine            200              3         Vermont           119
Maryland         100              12        Virginia (1)        30             47
Massachusetts    151                4       Washington        203               3
  30 states have increased cigarette taxes since January 1, 2002 some twice.
Michigan         200                5       West Virginia       55             29
Minnesota          48             33        Wisconsin           77             21
Mississippi 10% increase reduces youth smoking by
                   18             49        Wyoming60                   25
  7% and adult smoking byDist. Median
Missouri (1)
                                                  Of Columbia 100
Facts & Figures:
  Causes:            Financial Price Of War
                                Total       Cost per
 Wars                Conflict   Cost        Person
                     WW1        $125 bil. $2,489
 Recessions          WWII       $600 bil. 20,388
                     Korea       336 bil.     2,266
 Tax Cuts            Vietnam     494 bil.     2,204
 No political will   Gulf War I   76 bil.       306
                     Gulf War II 438 bil.*      536
                     * Cost over $12 billion a month

 The War in Iraq has cost $16,000 per family.
      91% on income over $200,000


Medicare tax – 1.45% for an individual [2.9% for
self employed] for every dollar earned.
Harrison Ford – received $25 million for 20 days
work on a movie. 1.45% of $25 million = $362,500
x 2 = $725,000 medicare tax. [Over his 35 years
on the Big Screen, his films grossed over $10 bil.
Jim Carrey – gets $20 million per movie, so his tax is
$580,000. [1.45% of $20 million = $290,000 x 2 = $580,000.]

                                                                Top Marginal Tax Rates
                                                        Year                        Tax Rate
                                                        1900                          No Tax
                                                        1914              1% [over $3,000]
                                                        [Only 1 in 270 paid this tax at all]
                      [91% for dollars over $200,000]
                                                        1930                              30%
                                                        [1 in every 32 was now paying taxes]
                                                        1940                              81%
                                                        [1 in every 3 was paying taxes]
                                                        1943 *Paycheck withholding            (by
                                                        the boss) was launched to stop cheating.
                                                        1950     [over $200,000]          91%
                                                        1970                              70%
                                                        [Everyone was paying with taxable Y]
                                                        1980                              70%
                                                        2000                             39.6%
                                                        2008                               35%
 Do the rich pay their fair
   share of the taxes?

  And why is it the rich who
always benefit from tax cuts?
                                                     Ave. Tax Rate
Top 1%[1,286,000] ($328,000+) paid 37%   of all   taxes–average 24%

Top 5%[6,430,000] ($137,000+) paid 57% - average 21%

Top 10%[12,861,000] ($99,000+) paid 68% – average 18.5%

Top 25%[32,152,000] ($60,000+) paid 85% – average 15%

Top 50%[64,305,000] ($30,000+) paid 97% – average 14%

Bottom 50%[64,305,000] (<$30,000) paid only 3.3% of all taxes.

There 469 billionaires.[793 in world] There are 9.2 million
millionaires. There are 40 millionaires in the U.S. Senate.
100% 134 million filed tax returns but                                                  97%
       only 90 million paid any
                taxes.                                             85%
80%   Our average tax rate was 14%.

                                                                     $61,000 and over

                                                                                          $30,000 and over

                                                $99,000 and over
60%                        57%
40%     37%                      $137,000 +
              $328 000 +



        Top                Top                Top                  Top                  Top                  Bottom

        1%                 5%                 10%                  25%                  50%                  5%
Suppose that every day, ten men go out for beer and the bill for all ten comes
to $100. If they paid their bill the way we pay our taxes, it would go like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and
seemed quite happy with the arrangement, until one day, the owner threw them
a curve. 'Since you are all such good customers, he said, 'I'm going to reduce
the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first
four men were unaffected. They would still drink for free.
But what about the other six men - the paying customers? How could they divide
the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from
everybody's share, then the fifth man and the sixth man would each end up
being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the
same amount, and he proceeded to work out the amounts each should pay.! And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings)
The ninth now paid $14 instead of $18 (22% savings)
The tenth now paid $49 instead of $59 (16% savings).
Each of the 6 was better off than before. And the first 4 continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth
man,' but he got $10!„
'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that
he got ten times more than I!„
'That's true!!' shouted the 7th man. 'Why should he get $10 back when I got only two?
The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We
didn't get anything. The system exploits the poor!'
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had
beers without him. When it was time to pay the bill, they discovered something important.
They didn't have enough money between all of them for even half of the bill!
And that is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction. Tax them
too much, attack them for being wealthy, and they just may not show up anymore. In fact,
they might start drinking overseas where the atmosphere is somewhat friendlier.
1. Taxes – mandatory payments made to the
   government to cover the costs of public goods and
   services (like national defense and highways).
2. Tax Rate – percent of income taken by the government.
       The Two Roles of Taxes
A. Finance government operations and functions
   [regulations-F.D.A., public goods (highways),
   transfer payments, government & military pensions.]
B. Influence economic behavior of individuals & firms.
  1). Excise taxes (tobacco, alcohol & gasoline) raise revenue
  and discourage their use. Canada quadrupled the tax on
  cigarettes and reduced consumption by one-third.
Three Tax Bases
1. Income
2. Wealth
3. Consumption
3. Progressive Taxes - takes a larger percent of income
  as income rises [takes more from rich people].
  Federal Income Tax of 10%, 15%, 25%, 28%, 33%, & 35%

4. Proportional Taxes (flat rate) – takes the same
  percent from all income groups.
  Ex: 20% on all income groups or 1.45 Medicare tax

5. Regressive Taxes – takes a larger percentage from
   low income groups.
   Ex: Sales and excise tax; any consumption tax.
6. Ability-To-Pay principle – people with more income
  or wealth should pay more taxes. It doesn’t make any
  difference what benefits or services they received.
*Can not be transferred to another person; tax with your name on it
  a. “Ability-to-pay based on income” – wages & salary,
     or any other payments-will pay based on their total
     dollar amount. Ex: Federal income tax
   b. “Ability-to-pay based on wealth” – people with
      more assets (houses, stocks, bonds) would pay taxes
      based on the total value.
      Ex: Inheritance and estate taxes, property taxes,
      and capital gains.
7. Benefits-Received principle – [consumption tax or
user’s fee] – people who benefit bear its cost. The more
they use, the more they pay.
*Can be transferred to another person [relates to services received]
 Ex: gasoline taxes, tolls, cigarettes, alcohol
Yea! We don‟t have
to pay any federal
income or SS taxes.
                                We are paying about
                    7%          $1 trillion in taxes.
                  $179 B

                                      8. Three major sources
                                      of federal taxes(90%)
        37%                            a. Individual income
      $884 bil. 11%                       taxes
                                        b. Social Insurance
              $261 B
                                        c. Corporate income
                       45%                 taxes
 Deficit               $1,096
$248 bil.
   Federal Expenditures
       Pensions and Income Security
       National Defense
       Interest on Public Debt
                        Pensions &
Total Expenditures    Income Security
                             35%        National
 $2,654 Billion      All Other
Federal Tax Revenues
  Personal Income Tax
    •Marginal Tax Rate
    •Average Tax Rate

            Income Tax
      Federal Tax Revenues
        Personal Income Tax
        Payroll Tax
        Corporate Income Taxes
        Excise Taxes

Total Tax Revenues            Personal
  $2,407 billion            Income Tax
    Excise Taxes 4%
      All Other 4%               Taxes
  Corporate Income Tax 8%
Revenues of $2.407   2006      Expenditures of $2.654
                [Deficit of $248]

                                    Last Surplus
Individual Income Taxes – [50%] [$1 trillion] The U.S.
had no individual income tax until 1913. This is a
progressive tax on an individual’s total income based on
ability-to-pay.[10%, 15%, 28%, 33%, and 35%]
9. Dependents pay no tax up to $5,350.
In 1914, only workers who made over $3,000, paid 1%[$30 max].
Only 4% earned enough to file a tax return & only $28 million was
10. Social Security Taxes (FICA[7.65%]-Federal Insurance
Contribution Act) [6.2% of income up to $102,000]
It is proportional up to $102,000, then it becomes
regressive. [A person making $102,000 pays 2% SS
tax but a person making $204,000 pays only 3.1%.
Medicare tax – 1.45% on every dollar earned. This is
a proportional tax. A person making $50,000, $100,000,
or $500,000 would still pay 1.45% of his income.
11. Corporate Income Taxes – progressive federal
taxes levied on a business corporation’s profits.
Corporate Federal Tax Rate
Under $50,000                      15%

$50,001-$75,000                 25%

$75,001-$100,000                34%

$100,001-$335,000               39%

$335,001-$10,000,000            34%

$10,000,001-$15,000,000         35%

$15,000,001-$18,333,333         38%

$18,333,334 +                   35%
12. Excise tax – specialized sales tax on the production
or sale of particular products (not levied on the individual’s
income). Excise taxes are regressive because they take
a larger % from low income groups.
Excise taxes are levied on specific products like:
gasoline, liquor, telephone services, tires, legal
betting, and coal. In the early 90s, there was a
luxury excise tax on autos over $30,000, boats,
jewelry, and furs. This proved very unpopular so
it was dropped.
15. Estate tax – tax levied on the assets of a person
who dies and has assets in excess of $2.0 million dollars.
Estate taxes range from 18-50% of the value of the
estate which makes this tax a progressive one. This tax
is supposed to disappear in 2010 but reappear in 2011.
14 91%   91% on income over $200,000


Total Tax Revenue – Selected Nations
Percent of Total Output-2004
                    10           20           30            40          50
        Sweden                                                             50.7
       Denmark                                                            49.6
        Norway                                                       44.9
        Finland                                                      44.3
         France                                                      43.7
            Italy                                                    42.2
United Kingdom                                         36.1
       Germany                                        34.6
        Canada                                       33.0
       Australia                                   31.6
  United States                           25.4
          Japan                           25.3
    South Korea                           24.6
                         Source: Organization for Economic Cooperation and Development
 If you inherit $2 million dollars this
year, how much do you get to keep?
The Federal Estate Tax is disappearing.
An estate is exempt from federal estate taxes if it‟s below the
following thresholds. The Tax will disappear in 2010, only to
reappear in 2011. [tax of 55% on estates after the first million]

 2007 $2 M tax free
 2008 $2 M tax free
 2009 $3.5 M tax free
 2010 No estate tax
 2011 $1 M tax free

If you live in one of the gold states,
you might owe additional estate or
inheritance tax, even after the
federal G‟s death tax disappears.
15. Gift tax – tax placed on the transfer of certain gifts
of value, such as money ($11,000 or more) or other
personal property. The person who gives the gift pays
the gift tax. It also is progressive up to 50%.
The estate & gift taxes account for only 1.3% of revenues.

16. Customs duties (tariffs) – tax on imported goods.
Although they produced most of government revenues
prior to 1913, they produce very little revenue today.
During George Washington’s time, tariffs brought in
over 99% of the government’s revenue.
17. The three most important state and local taxes
are the sales tax(21%), property tax(18%), and the
state individual income tax(12%).

18. Sales tax – an indirect regressive tax levied on
most products. The sales tax is not levied on baby
clothing, food, and medicine.
The sales tax in PBC is 61/2 percent of every dollar.
Only 5 states, Alaska, Delaware, Montana, New Hampshire,
and Oregon – do not have a sales tax.

On average, a family of four, pays about $800 a year
on the sales tax.
      State Expenditures
      Public Welfare
      Health and Hospitals
      Highways [.20 a gallon]
      Public Safety
Health & Hospitals 8%
       Highways 8%               Welfare
                         All Other 25%
      Public Safety 5%    18%
     STATE AND LOCAL Revenues
         State Revenues
              Sales and Excise Tax
              Personal Income Tax
              Corporate Income Tax
              Licenses and Others
              Property Taxes & Other Taxes

                                            Sales &
                                    State Excise Taxes
                                   Personal   48%
                                  Income Tax

Property Taxes & Other Taxes 5%

            Licenses & Others 6%                    Corporate Income Tax 7%
        STATE AND LOCAL Revenues
                Local Revenues
              Property Taxes
              Sales and Excise Taxes
              Personal & Corporate Income Taxes

                                         Property Taxes
                                       Sales &

Personal & Corporate Income Taxes 6%                   All Other 4%
19. Property Tax – tax on assets (mainly a tax on land
and buildings). These taxes are also on furniture, autos,
farm animals, stocks, bonds, and bank accounts. They
finance education, police and fire protection. This tax
is a regressive one because if two people own separate
$100,000 homes, they both pay the same tax.

State individual income tax – taxed by either the
“graduated” or “flat-rate” Texas is one of 7 states with
no state individual income tax.

20. Americans pay about 29 cents of every dollar in taxes.
Tax breaks cost $400 billion in lost revenue each year.

21. The Office of Management and Budget (OMB)
devises the yearly budget for the president. It is about
$2.9 trillion for 2007.
22. Tax cheating amounts to about $310 billion a year.
Who cheats the most? Self-employed people who are in
charge of their own taxes like gardeners, carpet layers,
who get paid in cash. Others are auto dealers, barbers,
telemarketers, restaurant owners, accountants, doctors,
and lawyers. Many overstate deductions.
Over 60% of corporations paid zero taxes from 1996-2000.
Men cheat more than women.
In 1987, the IRS began requiring taxpayers to report the
SSN of all dependents. The next year 7 million children
vanished(9%). People were listing their dogs, cats and
birds as dependents. Only about 20% of the disappearing
dependents represented children who had been claimed
by both parents after a divorce.
Informers on tax cheaters can get you 1% of what
they collect or 10% if you provide paperwork.
23. Guns   [defense]   or Butter   [social programs]
24. Budget Deficit [    G > T]

25. Budget Surplus [ T > G]
26. Causes of budget deficits include:
     1.) national emergencies
     2.) providing national defense
     3.) stabilizing the economy
     4.) promotion of economic well-being of citizens.

27. National Debt - total amount of money G owes.
28. Budget deficit – debt during one fiscal year [$162 bil.]
    The debt totals $9.3 trillion. The interest on the debt
    will cost $243 billion or 10 cents of each dollar.
    Most of the Public Debt is held internally.
                                                          $9.4 tril.

Reasons for Debt              ($162 bil.)   Stock
1.   Lack of political will
2.   Tax cuts                           ($9.4 trillion)
3.   Recessions (transfers)
4.   Wartime financing

Attention Deficit
Disorder [ADD]
Congressmen have
trouble focusing
attention on the deficit.

              3 3,        Per Capita

   9, 4
                               1 4 0,

The Debt is increasing by $1 million per minute.

$1.58 billion per day is being added to the debt.
1.Annually Balanced Budget
2.Cyclically Balanced Budget
3.Functional Finance
[A. Annually Balanced; B. Cyclically Balanced; C. Functional Finance]

                     “Earth Orbits Sun” “G” Economy
Annually Balanced Budget – each time the earth orbits the sun we
should balance the budget.
This would put the G in an economic straitjacket as we couldn‟t fight
recessions with deficit spending. This would be like pouring water on
a drowning man. We used to worship at the alter of a balanced
budget prior to the Great Depression. 49 states require this.
Balancing the budget during a recession would not be counter-cyclical,
but pro-cyclical. Increasing taxes during a recession would worsen the
recession. Running a surplus during boom times and giving the
money back would be inflationary.
                                         “Raise taxes”

                                                        Tax        Raise
                                                        Cuts       Taxes
               “Tax cut”                                 “Balanced”
“Deficit Spending”
Cyclically Balanced Budget – run deficits during recessions &
surpluses during expansions so the budget is balanced not each year
but over the course of the business cycle. Economic wisdom tells us we
should have deficits in lean years and surpluses in fat years. There is
nothing “sacred about 12 months as an accounting period.”
The government could conduct counter-cyclical fiscal policy and balance
its budget over a period of years. The basic problem of this philosophy is
that fluctuations are not usually symmetrical enough to ensure that the
surplus will offset the deficit.

  “Balance the economy, not the budget.”
Functional Finance – balance the economy not the budget.
The annual or cyclically balanced budget is of secondary importance. The
important thing is to provide for non-inflationary, FE & ensure the economy
produces its potential GDP. If there are chronic deficits or surpluses, so be it.
Deficits are minor problems, compared to inflation or recessions.
$9.4 trillion is enough to:
-Give every 18-year-old a 4-year
 college education for the next 57 years.

-A stack of $1,000 bills 4 inches high is a million.
 $1 trillion would be a stack of $1,000 bills 252.5 mil.
 high. $9.4 trillion would be 2,348 miles high.

-A $1 bill is 6 inches long. If $9.4 trillion bills were
 laid end to end, they would form a chain 700 million
 miles long, enough to stretch from the surface of
 the earth to the surface of the sun and back –5 times.
$9.4 Tril.
[adjusted for inflation in 2000 dollars]
                                           $9.4 Tril.

 Except for WWII, the deficit
 stayed pretty constant for
 about 40 years until 1983
                                                   1990 - 2010
                             $800                       Projected
                                                        $162 in 2007
Budget Deficits or Surpluses, Billions

                                                1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
                                                                        Source: Economic Report of the President, 2001
                                                     1992 - 2012
                                                     Actual        Projected      ($162 in 2007)
Budget Deficit (-) or Surplus, Billions








                                                 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

                                                                                    Source: Congressional Budget Office

2008   9400.0   13,800.0   243.0   68%   1.8%   33,000
  2008 Federal Budget Proposal-$2.9 Tril.
Agriculture           90.9 Interest [$243]
Commerce               6.7
Defense              624.6
Education, job train. 62.6
Energy, Environment 21.6
Health/Human SVC 699.0
Homeland Security     34.6
Housing/Urban Dev.    36.2
Interior              10.1
Justice, Law enforce 23.3
Labor                 50.4
NASA                  17.3
SEC & Exchange Com.    8.5   Corp Engineers     4.8
State                 37.4   Social Security 655.5
Transportation        67.3   Legislative Branch 4.8
Treasury             525.5    Judiciary         6.7
Veteran’s Affairs     84.4   Other agencies 148.7
Federal Spending in 2007, by Function
    Publicly Held Debt:
International Comparisons
                        As a Percentage of GDP - 2005
                    0   20         40           60           80         100
            Italy                                                           101.3
        Belgium                                                  86.3
          Japan                                                80.9
       Germany                                  58.8
         France                          46.5
  United States                                      66.7
       Hungary                    39.6
    Netherlands                  39.3
United Kingdom                   39.1
          Spain              28.7
        Canada              26.4
         Poland         17.0
                             Source: Organization for Economic Cooperation and Development
              [This is held both privately and publicly]
   U.S. Banks & Financial   Other, Including
                            State & Local Governments   Federal Reserve
  Debt held outside the                  49%                        U.S.
Federal Gov and Fed [49%]
                                          8% 9%
Foreigners hold $1.9 Trillion
Japan-$582 B, China-$500 B,
Britain-$266 B, OPEC-$126 B,
S. Korea-$46 B, H. Kong–$56 B,                     42%
Taiwan-$53 B, Singapore-$24 B,    25%
Thailand-$13 B, & India-$13 B.
World Total: $2,247                       8%
       Foreign Ownership
                              U.S. Individuals     Debt held by the Fed
                                                   & Gov. Agencies [51%]
             Economic Issues From The Debt

Abe Lincoln, with the Debt at $1 billion in 1864, said, “Men can
readily perceive that they cannot be much
oppressed by a debt which they owe themselves.”

More Income Disparity [the debt is transferred from
  all taxpayers to the bond holders [the rich], so more income disparity]
Incentives           – larger taxes dampen incentives to bear
  risk, to innovate, to invest, or just to work.

*Children will not inherit as large of a “national factory”
     Two Ways To Balance The Federal Budget
29. Increasing government revenues
  a. Increase taxes
  b. tax cheating cost the government over $310 billion
     Decrease in government expenditures[2.5 tr. in 2005]
  c. Government must stop waste and fraud
    1.) a check of 4 states (including Tx) turned up 26,000
        dead people getting food stamps, costing $1.5 billion a yr.
    2.) Thousands of prisoners get welfare. 60,000 inmates
        were getting $500 million in fraudulent benefits.
        12,000 inmates were receiving illegal food stamps.
        On “Dateline” a report said that $53 M was caught
        as prisoners were filling out W-2 forms, as if they
        had jobs, trying to get refunds. $10 M got thru.
Federal employees each year charge millions of dollars for such
  d. There is as much as $80 billion in waste & fraud.
things as internet dating, tailor-made suits, lingerie, lavish
     There is $4.3 billion in improper unemployment checks
dinners to their government credit cards. Last year, for purchases
     There is $70 billion fraud [out of $400 B] in Medicare.
over $2,500, about half were improperly received.
     The DOD is the King of Fraud. FEMA was fleeced for $2 billion.
From 1 Trillion to 9.3 Trillion in 28 Years .


         $9.4 Trillion         $33,000 each

Will today‟s children bear the burden of debt?

Tax rate (percent)


                               Tax revenue (dollars)

Tax rate (percent)



                               Tax revenue (dollars)

Tax rate (percent)



                               Tax revenue (dollars)


               M                   M
Tax rate (%)


               0   Tax revenue (dollars)
                                            Tax $

Ben Stein’s part in this
movie as a boring econ
prof was voted one of the
50 most famous scenes
in American film.
                                                    0% Tax Rate   100%

  Ben Stein [from “Ferris Bueler‟s Day Off”] graduated from
  Columbia University in 1966 with a degree in economics
  and from Yale Law School in 1970 as valedictorian. He was
  a speech writer for Nixon. He has written 16 books, including
  his latest humor book, “How To Ruin Your Life”.
Ben Stein boring his students about
Supply-side econ & the Laffer curve

 Right click “Open Hyperlink”.
        Click on video.
        Reaganomics and Budget Deficits

    In honor of
Reagan‟s 1st 4 years
  the democrats
 wanted this new
  $1 Trillion bill.
A Word From Arnold
             Learn economics.

            Don‟t be “economic
            girlie men.”
       Parents are now getting questions
       like this from their children.

Supply-side        Voodoo      Doodoo     Trickle-down   Girlie Men
Economics         Economics   Economics    Economics     Economics

              Dad, Do we believe in Supply-side,
              Voodoo, Doodoo, Trickle-down or
              Girlie Men economics?
        Economic Implications of the Debt: False Issues
       [The “G” doesn’t have to pay the entire debt off because it never “dies.”]
       [The “G” will live forever so it will keep “rolling it over in perpetuity”]
                   Whew! $33,000 each.                 I‟m not paying no

              Going Bankrupt?
The “no” answer entails three points.
1. Refinancing – as portions of the debt fall
   due each month, the G does not cut G or
   raise T to retire the maturing bonds.
   It refinances the debt by selling new bonds
   and uses the proceeds to pay off holders of the maturing bonds.
2. Taxation – if bankruptcy were imminent the G could always raise taxes.
3. Creating Money – bankruptcy could be avoided by printing the money (inflationary).
                                Shifting Burdens
  Does every new born get slapped on the backside, then told he owes $33,000?
Not quite. About 82% of the debt is owed to ourselves. Thus the public debt is a
a public credit. It is a liability to the taxpayer but an asset to the people (bondholders).
  Therefore, retiring the debt would amount to a large transfer payment from U.S.
citizens to U.S. citizens. The repayment would entail no decrease in the economy’s
wealth or standard of living. So the babies who inherit $33,000 worth of debt will
inherit almost that same amount.
                                                                      [Incr G           incr I.R.   Decr Ig]
                            Loanable Funds

                     Real I.R.
                AS                D1 D2                              8%

                                                Real interest rate
      AD1 AD2                                                        6%
        G         10%
                                                                     4%   Crowding
 2%                6%                                                     Out Effect
            IG                                                       2%

        YR Y*                          F1 F2
                                 Quantity of LF
                                                                          0    5   10  15 20 25
                                                                              Investment (billions of
                 In this case, it would be 100% “crowding out”.

                        G can finance a deficit by:
                        1. Borrowing - this raises interest
                           rates in the LFM and “crowds out” investment.
 Friedman               2. Money Creation - no “crowding out”
                           so is more expansionary than borrowing.
 Just follow the
“monetary rule.”
                                                    But … if the economy is operating
          AS 16                                 DI2 well below its potential, the increased
                                         DI1        G could result in more jobs, more
                                    14              positive profit expectations, and a
  G                                                 “crowding in” of Ig.

  YR Y*
           Real interest rate (%)





                                           5     10   15    20   25    30    35   40
                                               Investment (billions of dollars)
“Crowding In” – potential for G spending to stimulate
private investment in an otherwise sluggish economy.
“Crowding Out” represents argument for passive fiscal policy.
“Crowding In” would be an argument for active fiscal policy.
   If the economy is operating well below its potential, the additional
fiscal stimulus provided by deficit spending could encourage firms to
invest more. A G deficit could stimulate a weak economy, increasing
AD & putting a “sunny face on business expectations.” As business
expectations grow more favorable, firms could become more willing
to invest. [thus, “crowding in” of investment]
   If you have ever approached a crowded restaurant, you may not
have wanted to put up with the hassle of a long wait and were thus
“crowded out.” Similarly, large G deficits may drive up interest rates
and crowd out some investment.
   As Yoga Berra would say, “No one
  On the other hand, did you ever pass up a restaurant because the place
 goes dead-it had more. It’s too crowded.”
seemedthere anyfew customers. Perhaps you wondered why so few
   Yoga also said, With just come to a fork
people chose to eat there. “If youa few more customers, you might have
been willing to “crowd in.” Businesses may be reluctant to invest in a lifeless
 in the road, take it.”
economy. Economic stimulus could encourage them to “crowd in.”
•Pay Down the Public Debt
•Reduce Taxes
•Increase Government
•Bolster the Social Security
 Trust Fund
•Combinations of Policies
      Crowding-out            effect in an Open Economy
      [Xn are crowded-out, decreasing AD]

                             3. Decline in
                             domestic inv.
                                                                7. U.S.
                             (crowding-out)                     Exports
1. Federal   2. High real                     6. Increased      decrease
Government   U.S. interest                     international
                                              value of dollar              deficits
 deficits       rates                                            8. U.S.
                             4. Increased
                             foreign demand
                             for U.S. bonds

                              5. Increased               9. Decr in Xn decr AD
                              U.S. external
[30. Attempt to balance the budget which failed]
          [declared unconstitutional]
1. We could have a constitutional amendment to balance
   the budget. However, this would be pro-cyclical and
   destabilize the economy.
2. 30. Gramm-Rudman-Hollings Act – balance the
   budget by 1991(revised to 96). The Supreme Court
   later ruled it unconstitutional.
3. Tax Increases – Perot wanted to raise gasoline taxes
   50 cents a gallon.
4. Privatization – U.S. government could sell its assets.
   Britain sold $25 billion of government assets in the 80s.
5. Line-item veto – the President could veto particular
   portions. Supreme Court declared this unconstitutional.
   This would get rid of “pork-barrel” legislation.
6. Term Limits for congressmen and senators.
  The term "pork barrel" stems
back to the early 1800s when the
  popular meat was packed that
   way, and hungry farm hands
reached in for slabs of salt pork.
    In 1879, it was adopted as
 political slang to mean goodies
 for the local district paid for by
      the taxpayers at large.
$107,000 to study the sex life of
the Japanese quail.
$1.2 million to study the breeding
habits of the woodchuck.
$150,000 to study the Hatfield-
McCoy feud.
$84,000 to find out why people
fall in love.
$1 million to study why people
don't ride bikes to work.
$19 million to examine gas emissions
from cow flatulence.
$144,000 to see if pigeons follow human
economic laws.
Funds to study the cause of rudeness on
tennis courts and examine smiling patterns in
bowling alleys.
$219,000 to teach college students how to
watch television.
$2 million to construct an ancient Hawaiian
$20 million for a demonstration
project to build wooden bridges.
$160,000 to study if you can hex
an opponent by drawing an X on
his chest.
$800,000 for a restroom on Mt.
$100,000 to study how to avoid
falling spacecraft.
$16,000 study of the the
komungo, a Korean instrument.
$1 million to preserve a sewer in
Trenton, NJ, as a historic
$6,000 for a document on
Worcestershire sauce.
$10,000 to study the effect of
naval communications on a bull's
$100,000 to research soybean-
based ink.
$1 million for a Seafood
Consumer Center.
$57,000 spent by the Executive
Branch for gold-embossed playing
cards on Air Force Two.

  from previous pages:
      $ 45,980,000
                 Pork in Alaska

• In the latest $388 spending bill for 2005, there
  is $16 billion in pork barrel legislation, quite a
  bit going to Alaska.
• $950,000 for a recreation center and $150,000
  for a botanical garden in Anchorage.
• $300,000 for a senior center in Fairbanks.
• $900,000 for an aquarium in Ketchikan.
• $500,000 for a quarry in Nome, Alaska.
• Ted Stevens who is chairman of the
  Appropriations Committee was responsible for
  most of this pork to Alaska.

   This is called “bringing home the bacon”.
The Federal budget is like a Christmas tree.
Every congressman tries to hang on an ornament or two.

It takes 5 minutes to get to this Alaskan island
by ferry but the federal government is going to
spend $223 million to build a bridge to it.
            Other Pork Barrel Legislation for 2005
A selected list of hometown and special-interest projects in the $388 billion government
spending package:
· Alabama: $4 million for the International Fertilizer Development Center in Muscle Shoals.
· Alaska: $443,000 to develop salmon-fortified baby food.
· Arizona: $2.5 million for Lone Pine Dam Road.
· California: $150,000 for the Girl Scouts Golden Valley Council bridge project.
· Florida: $1 million for the Palm Coast Trail System in Flagler County.
· Kentucky: $2.3 million for an animal waste management research laboratory in Bowling
· Hawaii: $4 million for mitigation of congestion in Kapolei City.
· Illinois: $1.4 million for an Interstate-55 sound barrier in Darien.
· Massachusetts: $1.2 million for Cape Cod Seashore Eastham/Dennis Bike Trail Repair.
· Mississippi: $750,000 for the Mississippi Museum of Natural Science.
  Missouri: $50,000 to control wild hogs in Missouri
· Montana: $1.5 million for a ''fuels-in-schools'' biomass project.
· North Carolina: $1 million for Garden Parkway in Gaston and Mecklenburg counties.
  North Dakota: $335,000 to protect North Dakota‟s sunflowers from blackbirds.
· Ohio: $750,000 for the city of Circleville's sewer construction project; $350,000 for music
education programs at the Rock and Roll Hall of Fame in Cleveland.
· Oregon: $6.28 million to Oregon State University for wood utilization research and $688,000
for a barley gene-mapping project.
· Pennsylvania: $250,000 to promote tourism in the Allegheny National Forest area.
· Tennessee: $2 million for the Fiery Gizzard Trail.
· Vermont: $500,000 for a wood products program.
· Virginia: $500,000 for the Amherst County River Walk Trail; $200,000 for a Vermont Civil War
Monument in Virginia.
· Washington: $1 million for the Enumclaw welcome center; $1 million for the Norwegian
American Foundation.
· Wisconsin: $3.2 million for the Chequamego-Nicolet National Forest ''Wisconsin Wild
There is also $1 million for a “Wild American Shrimp Initiative” so we might call this
  our, “No shrimp left behind initiative.”
“If you had a well-paying position that comes with
all kinds of perks and opportunities, would you
vote to fire yourself? Is there another position in
which you vote to set your own salary?
Maybe 6 years for representatives and 12 for senators, max.

Currently, politicians take our money and convert it
into pork projects to get themselves re-elected. They
must treat other people’s money the way they treat
their own.

Also, we need to elect politicians who we can tell how
much of our money we will let them spend instead of
letting them tell us how much they will let us keep.

  Giving money and power to government is like
  giving beer and car keys to teenage boys.
                                P.J. O‟Rourke

            $82,000   $93,000                                $42,000

               $42,000 $44,000                  $46,000



  $34,000              $11,000
Texas Tax Revenue [mainly regressive]
31. Texas gets most          Oil   production 2%
 of its revenue from
 the sales tax.

                          Sales Tax (R)

                       Texas gets most of
                       its revenue from
                       the sales tax.
 % of income of a family of 4 in state/local taxes (TX)
    18% 17.1%
    16%                                              Excise Tax
         2.7                                         Sales Tax
    12%       10.7%                                  Property Tax
    10%  6.8   1.5  8.4%
     8%                              7.4%
     6%        5.0                     0.9
     4% 7.6
                    4.0              3.5      2.9          3.1%
     2%        4.2                                          1.5
                     3.3              3.0     2.9     2.5   1.5
         $10,812   $23,100 $35,300   $51,400 $80,400 $180,000 $945,500
                           Average Annual Income
        $1,812     2,472 2,965 3,804 5,470 9,180 29,311

32. By relying on regressive sales, property, & excise taxes, Texas is
    taxing its poor more than five times the rate it does the rich.
    Texas has one of the most regressive tax systems.
    Texas does not have a state income tax.
33. The largest percentage of state & local taxes supports education.
34. Direct taxes - levied directly on individuals
    and paid directly to the government.
    Ex: Federal income tax and Medicare tax

34. Indirect taxes – levied on certain products
    rather than directly on individuals (sales and
    excise taxes). The government gets the tax
The Seven States With No Income Tax
          *They tend to have more regressive tax systems.
We no longer have to hit our      Now we tell them, “You
newborn to get their first cry.
                                  owe $33,000.” (as their
                                  share of the National Debt)

                                  We get the same result –
                                  their first cry; no more
                                  of that “Take that.”
                                             The Debt prevents
                                             me from having to
                                             do this.

This is the way we used to get
the first cry out of a baby.
Goodbye Hassle, Hello Tassel.

These are the best years of your life!!!!!
   And Who In The Class of 2008 Is Most
   Likely To Be Incarcerated In 2018?
                                                   And what famous person
                                                   will he more than likely
                                                   share a cell with?

                                 June 10, 2010
                                 Chief of Police
                                  Dallas, TX

        PANCHO (Jared) VILLA

Also $1,000 reward for arrest of Brad Benjamin,
Matt Kantor, Colin Theall, and Maia Hommes.

          Still in BL bondage.
“Let me do the praying
this time. Thanks for
bringing me to Timmy‟s
house and not Michael

             The End
Answers:              Quiz 5.C 6.C
           1.C 2.B 3.C 4.C – Taxes 7.C 8.A 9.C 10.B
A. Progressive Tax      B. Proportional Tax         C. Regressive Tax
1. Leah [income of $32,000] and Laura [income] of $50,000] both pay a 6.25%
   motor vehicle sales tax on the purchase of their separate $65,000 vipers.
2. Brad [ income of $27,000] and Michelle [income of $50,000] both pay a 2% state
    income tax on their entire income.
3. Anna [income of $60,000] and Candice [income of $35,000] both purchase $100
   worth of lottery tickets. [so both paid the same amount of $100]
4. Kayla [income of $25,000] and Justin [income of $40,000] both pay car
   property taxes of $100 dollars because they have the same make of car.
5. Jacob [income of $40,000] and Maia [income of $30,000] each pay a $2,000
 property tax on their separate $100,000 appraised houses. [Both paying same amount]
6. Jared [ income of $41,000] and Brad [income of $61,000] smoke 3 packs of
   Marlboros a day and both pay a tax of $1.41 a pack.
7. Bryan [income of $59,000] and the “Kat” [income of $30,000] both purchase
   plasma TVs for $4,000 and both pay a sales tax of 6.25%.
8. After Kelsey finished Bishop Lynch [took 6 years], he got a raise at the Hong Kong
   Buffet, which moved her from the 10% tax bracket to the 15% tax bracket.
9. John [income of $500,000] & Becca [income of $100,000] both pay 20 cents a
   gallon gasoline tax for 15 gallons they put into their Corvettes. [same amount]
10. Elisa [income of $12,000] and Andres [income of $70,000] both pay the
   1.45% medicare tax on their salaries.
Name 1. ____________________ Proportional                             TAXES WORD SCRAMBLE
Name 2._____________________ 1._______________________________        Excise tax
*Write the bold face type.       3._______________________________   50 cent tax on
Flat rate tax on income          4._______________________________     the toll road
Flat rate tax on a product       Regressive                          Estate tax
Arkansas state income tax        1._______________________________
                                                                     Lottery ticket
  of 7% on all income groups
                                 3._______________________________   High income
Takes same % from all Y groups   4._______________________________     groups pay more
10% Federal income tax           Progressive                         Federal income tax of
 on all income groups            1._______________________________     10%, 15%, 25%, 28%, 35%
Corporate income tax
                                 2._______________________________   Low income groups pay more
Medicare tax of 1.45%            4._______________________________   Ability-to-pay principle
                                 5._______________________________    (make higher income groups higher %)
 based on income
Benefits go to survivors         1._______________________________   Consumption tax
 and disabled                    3._______________________________
Most of benefits go to           4._______________________________   Takes 6.2% of every dollar
 retired persons                 5._______________________________
The more u use (buy) of the      Benefits-Received                   User’s Fee
 product, the more u pay         1._______________________________
                                 2._______________________________   Can be transferred to another
“Direct” tax [federal income]    3._______________________________
                                 4._______________________________   Personal income tax
Can be based on income or        5._______________________________
  wealth [estate taxes]          Social Security Tax
                                                                     The wealthy pay more
Becomes regressive for           2._______________________________
 incomes over $102,000           3._______________________________
                                                                     Cigarettes, alcohol, & gas tax
Proportional tax on              5._______________________________
  incomes up to $102,000         Bonus: Who is the orphan above?     Cannot be transferred to another
Name 1. __Key_______________ Proportional                           TAX WORD                          SCRAMBLE
                             1. Flat rate tax on income
Name 2._____________________ 2. Takes same % from all income grps   Excise tax
*Write the bold face type. 3. 10% federal tax on all income groups 50 cent tax on
Flat rate tax on income      4. Medicare tax of 1.45%                the toll road
                                  5. Arkansas state income tax of 7%
Flat rate tax on a product Regressive                                               Estate tax
Arkansas state income tax 1. Flat rate tax on a product                             Lottery ticket
  of 7% on all income groups 2. Lottery ticket
                                  3. Excise tax                                     High income
Takes same % from all Y groups 4. 50 cent tax on toll road                            groups pay more
                              5. Low income groups pay more
10% Federal income tax                                                              Federal income tax of
 on all income groups         1. Estate tax                                           10%, 15%, 25%, 28%, 35%
Corporate income tax
                              2. Corporate income tax                               Low income groups pay more
                              3. High income groups pay more
Medicare tax of 1.45%         4. Federal income tax                                 Ability-to-pay principle
                              5. Ability-to-pay principle                            (make higher income groups higher %)
  based on income
Benefits go to survivors      1. Direct tax                                         Consumption tax
                              2. Based on income or wealth
  and disabled                3. Personal income tax
Most of benefits go to        4. Wealth pay more
                                                                                    Takes 6.2% of every dollar
  retired persons             5. Cannot be transferred
The more u use (buy) of the Benefits-Received                                       User’s Fee
  product, the more u pay     1. More u use, the more u pay
                              2. Consumption tax                                    Can be transferred to another
“Direct” tax [federal income] 3. User‟s fee
                              4. Can be transferred                                 Personal income tax
Can be based on income or 5. Cigarettes, alcohol, & gas tax
  wealth [estate taxes]       Social Security Tax
                                                                                    The wealthy pay more
                                  1. Benefits to survivors/disabled
Becomes regressive for            2. Most of benefits go to retired persons
incomes over $102,000             3. 6.2% of every dollar
                                                                                    Cigarettes, alcohol, & gas tax
                                  4.Proportional tax on inc up to $102,00
Proportional tax on               5. Becomes regressive for incomes over $102,000
  incomes up to $102,000 Bonus: Who is the orphan above?                            Cannot be transferred to another

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