C H A P T E R 16
Financing Government
C H A P T E R 16
Financing Government
SECTION 1
Taxes
SECTION 2
Nontax Revenues and Borrowing
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Chapter 16
SECTION 1
Taxes
•How and why does the Constitution give
Congress the power to tax?
•What are the most significant federal taxes
collected today?
•Why does the Federal Government impose
taxes for nonrevenue purposes?
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Chapter 16 Section
1
The Power To Tax
•Article I, Section 8, Clause 1 of
the Constitution grants
Congress the power to tax.
•The Sixteenth Amendment gives Congress the power to levy
an income tax.
Limits on the Power to Tax
•The power to tax is also limited through the Constitution. According
to the Constitution:
•1. Taxes must be used for public purposes only (fixing roads).
•2. Federal taxes must be the same in every State (liquor tax).
•3. The government may not tax exports (apples to China).
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Chapter 16, Section 1
Current Federal Taxes
•The Income Tax
•The income tax is the largest source of federal revenue ($$)
today. The tax is also a progressive tax, that is, the higher
the income and the ability to pay, the higher the tax rate
(Michael Jordan pays more than Mr. Underhill).
•Individual Income Tax
•Corporation Income Tax
•Individual income taxes
•Each corporation must pay a
regularly provide the largest
source of federal revenue.
tax on its net income, that is, on
the earnings above the costs of
doing business.
• The tax is levied on each
person’s taxable income.
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Chapter 16, Section 1
Social Insurance Taxes – What they use
our income taxes for…
•There are three main types of social
insurance taxes levied:
OASDI
• The Old-Age, Survivors, and Disability program is the basic Social Security
program.
Medicare
• Medicare is health insurance for the elderly and part of the Social Security
program.
Unemployment Compensation
• The unemployment compensation program pays benefits to jobless workers
and is also part of the overall Social Security program.
People lining up for
unemployment
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Other Types of Taxes
Excise Taxes
• An excise tax is a tax laid on the manufacture, sale, or
consumption of goods and/or the performance of services.
Custom Duties
• A custom duty is a tax laid on goods brought into the U.S.
from abroad (.
Estate and Gift Taxes
• An estate tax is a levy imposed on the assets (estate) of one
who dies. A gift tax is one imposed on the making of a gift by
a living person (you pay taxes if you win the lotto).
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The Federal Government’s Income
Federal revenue comes from several different sources:
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Chapter 16, Section 1
Taxing for Nonrevenue Purposes
•Besides taxing for
revenue purposes, the
Federal Government
sometimes taxes for the
purpose of regulating and
even discouraging some
activity that Congress
thinks is harmful or
dangerous to the public
(gas guzzling vehicles,
hunting migratory birds).
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•The Supreme Court has
upheld Congress’s taxing
for nonrevenue
purposes.
•However, the Supreme
Court can still rule a tax
unlawful if it finds that the
tax was imposed for
improper reasons.
Chapter 16, Section 1
Section 1 Review
1. Most of the Federal Government’s income comes from
(a) custom duties.
(b) licenses.
(c) estate taxes.
(d) income taxes.
2. OASDI, Medicare, and unemployment compensation program taxes
are all types of
(a) social insurance taxes.
(b) progressive taxes.
(c) nonrevenue taxes.
(d) freedom taxes.
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Chapter 16, Section 1
SECTION 2
Nontax Revenues and Borrowing
•What are the nontax sources of government
revenues?
•How does the Federal Government borrow
money?
•What are the causes and effects of the public
debt?
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Chapter 16, Section
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Nontax Revenues and Borrowing
Nontax Revenues
• Nontax revenues come from a variety of sources, including
canal tolls; fees for passports, copyrights, and patents; interest
earned; and selling collector stamps.
Borrowing
• Congress has the power “[t]o borrow Money on the credit of
the United States.” (Article I, Section 8, Clause 2).
• A deficit is the shortfall between income and spending.
• A surplus is more income than spending.
• Congress must authorize all federal borrowing.
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Chapter 16, Section
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The Public Debt
•The public debt is the government’s total outstanding
indebtedness. It includes all of the money borrowed and not yet
repaid, plus the interest.
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Chapter 16, Section
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Causes and Effects of the Public Debt
Causes:
Effects:
•Deficit financing – spending more $ •Increased revenue needed to pay
than you take in (Wars, Depression)
off the debt
•Failure to repay the debt over time
•Interest accruing on the existing
•Fears of financial obligations for
tomorrow’s taxpayers
debt
Borrowing $ to
pay for WWII is
one reason for
deficit financing
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Chapter 16, Section
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