Government Spends, Collects, and Owes
Section 1: Growth in the Size of Government
Prior to the Great Depression, the Government (Federal, State, and Local) employed 3 million people nationwide.
Today the Government employs over 20 million people
As the number of government functions increases, so does the number of workers the government needs to get the job done
Why Has Government Grown?
Government services were necessary during the Great Depression and WWII
After WWII, we as a nation became very wealthy, but people saw a need for government services to close the gap between rich and poor
Today, government spending accounts for about 1/3 of the GDP
The True Size of Government Impossible to know because private
businesses are often taxed or forced to pay for public goods for their employees, so that is more money being spent on services, but not shown in the budget
The Growth of Government- Good or Bad? Depends on who you ask….
Section 2: The Functions of Government Providing Public Goods Redistributing Income Regulating Economic Activity Ensuring Economic Stability
Providing Public Goods Public Goods- goods/ services the
government provides to its citizens Merit Goods- a good/ service
deemed socially desirable by government leaders
Demerit Goods-goods/ services deemed socially undesirable by government leaders government regulates these goods through taxes, licensing, and prohibition
Redistributing Income Income redistribution-Government activity
that takes income from some people through taxation and uses it to help citizens in need through transfer payments
Social Insurance Programs- Govt. programs that pay benefits to retired and disabled worker, their families, and the unemployed
Public-Assistance Programs- Govt. programs that make payments to citizens based on need
Social Insurance Programs- Govt. programs that pay benefits to retired and disabled workers, their families, and the unemployed. In order to be eligible, you must have paid into the system.
Public-Assistance Programs- Govt. program s that make payments to citizens based on need. Anyone is eligible, regardless of whether or not they paid into the system.
Regulating Economic Activity Regulatory Functions of Government
Protecting ConsumersSupervising Labor and Management
relationsPromoting CompetitionRegulating Negative By-Products of the
Production Process, also called negative externalities
Ensuring Economic Stability Government attempts to shield its
citizens from the side effects of fluctuations in the business cycle
Exs: Monetary and Fiscal Policy
Critics of Government Involvement Many say that merit goods should be
provided by private citizens who have a large amount of disposable income
Many also disagree with income redistribution programs because they say that government assistance discourages personal initiative and destroys the incentive to find work
Section 3: The Federal Budget and the National Debt Government must spend huge sums of
money to carry out all of its functions An increase in spending in one category
means a decrease in spending in another category
The Budget-Making Process
Five Largest Expenditures of the Federal Government Income Security, Social Security, and
Medicare National Defense Interest on the National Debt Health Other (national parks, museums, etc)
Five Largest Expenditures of State and Local Governments Education Other (state parks, sewers, and
libraries) Public Welfare Police and Fire Health and Hospitals
Deficit Spending and the National Debt Deficit spending, also called deficit
financing, is a government policy of spending more money than it is able to bring in through revenue
Most of the time, the government does not stick to its budget deficit spending budget deficit national debt
http://www.brillig.com/debt_clock/
Section 4: Taxation
Principles of TaxationBenefits Received PrincipleAbility to Pay Principle
Benefits Received Principle
System of taxation in which those who use a particular government service support it with taxes in proportion to the benefit they receive; those who don’t use the service don’t pay the taxEx: gasoline tax to repair highwaysProblem: the elderly and the poor need the
most services, but are the least able to pay taxes
Ability to Pay Principle
Principle of taxation in which those with higher incomes pay more taxes than those with lower incomes, regardless of the services they useEx: Property tax is used to support the local
school system. Everyone pays, whether or not they have school age children
Forms of Taxation
Proportional Tax Progressive Tax Regressive Tax
Proportional Tax
Tax that takes the same percentage of all incomes; as income rises so does the taxes that are to be paidExs: Property tax; Customs duties
Progressive Tax
Tax that takes a larger percentage of higher incomes than lower incomes; justified on the basis of the ability to pay principleExs: Personal Income at the federal level;
Estate; Gift
Regressive Tax
Tax that takes a larger percentage of lower incomes than of higher incomesExs: Excise and Sales taxesArguable b/c people with lower incomes
spend a larger percent of their income on sales purchases, alcohol, tobacco, and gasoline