Unit IV: Fiscal Policy
Chapters 9 and 10
Chapter 9: Sources of Government Revenue
I. Economics of Taxation (p. 223)
A. Economic Impact of Taxes
1. Resource Allocation
a. what does a tax at the factory level do to the cost of production?
b. what does it do to the price?
c. what is the consumer response?
2. Behavior Adjustment
b. sin tax
3. Productivity and Growth – what do taxes affect?
4. The Incidence of a Tax – what is it?
B. Other Criteria for Taxes
b. what are the two definitions of fair?
a. a tax that is NOT simple
b. a tax that is simple
a. a tax that is efficient
b. a tax that is NOT efficient
C. Two Principles of Taxation
1. benefit principle – example
2. ability to pay principle – example
D. Types of Taxes
1. proportional tax – define
2. progressive tax – define
3. regressive tax – define
II. The Federal Tax System (p. 231)
A. Individual Income Tax (also called the Personal Income Tax)
1. when began?
2. which amendment?
3. how much of the federal gov’t revenue is derived from this tax?
4. what is payroll withholding?
5. how do the self-employed pay taxes?
6. a progressive tax
a. what is the lowest rate?
b. what is the highest rate?
7. indexing – what purpose does indexing serve?
B. FICA Taxes
1. what does the acronym mean?
2. on whom is it applied?
3. what two programs are funded by this tax?
4. what is the combined rate of these two taxes?
C. Corporate Income Tax
1. what does it tax?
2. what is the top rate?
D. Excise Taxes
E. Estate and Gift Taxes
1. on what is the estate tax applied?
2. what is the exemption?
3. who pays the gift tax?
4. what is the purpose of the gift tax?
F. Customs Duties – what does it tax?
G. What is the purpose of user fees?
III. State and Local Tax Systems (p. 238)
A. List the four highest sources of revenue for states
B. List the three highest sources of revenue for local governments
IV. Current Tax Issues (p. 244)
A. Tax Reform
1. Tax Reform in 1981 – what was the highest tax bracket before 1981?
2. What is the Alternative Minimum Tax?
3. What is a capital gains tax?
B. The Value-Added Tax
1. what does it tax?
2. where is it used?
C. The Flat Tax
Chapter 10: Government Spending
I. The Economics of Government Spending (p. 255)
A. Government Spending in Perspective
1. what is the public sector?
2. what are the reasons public sector spending has grown?
B. Two Kinds of Spending
1. goods and services – examples
2. transfer payments – examples
C. Impact of Government Spending
1. Affecting Resource Allocation – example
2. Redistributing Income – example
3. Competing with the Private Sector – example
II. Federal Government Expenditures (p. 260)
A. Establishing the Federal Budget – when is the federal government’s fiscal year?
1. Executive Formulation – who prepares the budget?
2. Action by the House
a. what is the budget to Congress?
b. what is an appropriations bill
B. Major Spending Categories (Use Figures 10.3 and 10.4)
1. How much did the government spend in 2004?
2. What was the deficit in 2004?
3. On what did the federal government spend most its money?
4. What has happened to Social Security since 1980?
5. Why is it odd that National Defense has fallen to #2 since 1990?
6. Net interest on debt has fallen from ______ in 1990 to ______ in 2004.
7. What category has more than doubled since 1990?
III. State and Local Government Expenditures (p. 267)
A. What are the four largest categories for states? (Use Figure 10.5)
B. What is the largest category for local governments?
IV. Deficits, Surpluses, and the National Debt (p. 272)
A. From the Deficit to the Debt
1. Deficits Add to the Debt
a. how does the government borrow money?
b. what is a deficit?
c. what is the debt?
d. how big is the debt?
2. Public vs. Private Debt
a. to whom are we in debt?
b. what are the three differences between public and private debt?
3. Impact of the National Debt – what is the crowding-out effect?
B. Taming the Deficit
1. All legislative efforts have failed
2. line-item veto
b. what happened to it?
3. List the three reasons deficits still occur (p. 278, second column)