Lecture Notes for Chapter 14 and 15
Chapter 14-Taxes and Government Spending
As citizens of the United States we authorize the G____________________, through our
elected O__________________and through the C____________________to raise money
in the form of T__________________. A T__________is a required
P__________________to a local, state or national government. Taxes give the
government the F__________________it needs to operate. The C________________
specifically limits certain kinds of T______________.
First, the P__________________of a tax must be for the “Common
D______________________ and general W_______________________.”
A tax cannot bring in M_____________for individual I_______________.
F_________________taxes must be the same in every S____________________.
Congress cannot tax church S_______________ because that would violate the freedom
of R_______________and separation of C________________and S_______________.
Taxes are not charged on E__________________goods leaving the country, and taxes
must be imposed on the states according to their P_____________________.
Types of Taxes:
Property tax: Tax on the V_____________of homes. This is the basis for how public
S_______________are funded.
Corporate tax: Based on the V____________________of a company’s
P_______________.
Proportional tax: A T________where the P_______________of income paid in taxes is
the S____________for all I_____________levels. ( Rich and P_______________pay the
same.)
Progressive tax: A t___________where the P____________of income paid in taxes
increases as I_______________ increases. (This is our federal income tax system in the
US) Example: A person who earns $12,000 would be taxed at 20%, but if he makes
$60,000 his tax rate I_____________to 60%.
Regressive tax: A tax where the P_____________of income paid in taxes decreases as
I___________________increases. Example: Sales tax is considered a
R_________________tax because H_____________income households spend a
L______________proportion of their income in sales tax than low income households.
Withholding: A method of taking out T_____________from an individual’s paycheck
B______________he or she gets it. This is also called P_______ as you G_________
taxation. The G_________________believes that it is E_________________for us to pay
taxes in every P_____________than to make a large payment at the end of the
Y______________.
A tax R_____________is the form used to file I________________ taxes. Our
T_____________income is our G___________income minus any E_________________
and deductions. An E_________________ is a fixed amount based on ourselves, our
S______________, and any D__________________. A deduction is a variable amount
that can be S________________from taxes owed. For example:
M_____________expenses, charitable D____________, work-related
E___________________.
FICA: Federal I________________ Contribution Act. This funds Social
S_______________ and M___________________.
Social Security: Insurance for the E___________ and R_____________ as well as
survivors and those with D___________________.
Medicare: A N__________________health C______________program that helps pay
for H____________coverage for those 65 years and older and also for people with
certain D_____________________.
Medicaid: I__________________program for L_______ income families, those with
D__________________, and E_____________people in N________________homes.
Other Types of taxes:
Tariff: Tax imposed on I_____________goods. Tariffs are often added into the
C________of the good when we B_____________it.
Excise tax: T___________placed on the S________or production of a good. Examples:
There are excise taxes on G___________________, alcoholic B______________,
telephone services, cable T___________ and motor O____________.
Estate tax: Placed on the total value of P________________ or money of someone who
has D____________. It is paid out of the person’s E______________before the heirs can
receive their S______________. An estate can include P_______________, jewelry,
furniture, paintings, cars, and life insurance.
Gift tax: A tax on M_____________or property that a L____________person gives to
someone. This was imposed to keep people from avoiding estate taxes.
State Taxes:
We are taxed on our I_______________, P_________________, and goods and
S________________. State taxes help fund public safety, E_____________________,
highways, transportation, welfare, arts, recreation, and S______________ of public
officials.
Chapter 15-Fiscal Policy
Fiscal Policy refers to the F_________________government’s use of T___________and
spending to keep the E_____________stable. The fiscal year is a _______month time
period used for B____________ and record keeping. The F__________government’s
F___________ year is October 1st to September 30th.
The Federal B_________________is a written document that tells the amount of
M____________the government E____________to receive that year and H_________it
will be S_______________. A budget surplus occurs when the R___________exceeds
S___________________. A budget D_____________is when the government
S___________more than it T____________in. The national D___________is all of the
money the F__________government owes to all bond holders. Every year there is a
D_____________and the government B_______________from investors. These
I____________are people who have B______________Treasury B_____________, bills,
or other notes. What is the difference between deficit and debt? The D_____________is
the amount of money the government owes and the D_____________is the amount of
money the G_______________owes minus any revenue.
Expansionary Policy: Any P_____________that the G________________uses to
encourage economic G_________. This happens when taxes are L__________and the
government S____________more money. A contractionary policy R____________
economic growth. This happens when tax rates are H___________ and government
spending is L________________. (This is one reason people say the economy is better
during a war. The government spends more on defense, more people have jobs, and taxes
are generally lower.)
To control fiscal policy the government uses a powerful tool called the multiplier effect.
The idea is that for every O________ dollar spent; this creates M_______than
O________dollar of economic activity. So in other words the effects of the fiscal policy
are M__________________. Example: To prevent a recession the government spends
an extra 700 billion dollars to stimulate the economy and hope that increases GDP and
production of goods and S_______________ by another 700 billion.