TAXATION

I. Background

  1. colonists protested taxes of British king
  2. because of tax troubles with the king, the colonists did not allow their new govt. to collect taxes

    3. 1. the federal govt. could request, but not demand, money under the Articles of Confederation

  3. Constitution

1. "the power to lay and collect taxes" with certain restrictions

a. taxes apply evenly to everyone

b. govt. cannot tax interstate trade

II. Guidelines to taxation (Adam Smith)

  1. Taxes should be…..
    1. based on ability to pay
    2. clear and straightforward
    3. collected in the most convenient way possible
    4. collected efficiently

III. Types of Taxes

  1. Income taxes
    1. not mentioned in Constitution
    2. allowed under the 16th Amendment (1913)
    3. 2 types of income tax

    a. personal

    b. corporate

  2. Property taxes
    1. main source of revenue for local governments
    2. usually fund education
  3. Sales taxes
    1. administered by state governments
    2. tax on a wide range of goods
  4. Excise taxes
    1. administered by state governments
    2. tax on selected goods
    3. at one time were known as "sin taxes"
  5. Inheritance tax (Estate tax, "Death tax")
    1. exemption for estates under $600,000
    2. designed to encourage people to put money into economy rather than hoard it

 

The Budget Process

Terms

1. Budget: plan for managing and spending money

2. Expenditures: items on which the govt. spends money

3. Deficit: more spent than collected

4. National Debt: total amount the govt. owes

Preparing the Budget

1. Office of Management and Budget (OMB)

  1. Director of OMB asks federal departments and agencies to submit their budget requests

2. Director takes the request to the President, who adds his/her priorities

  1. OMB staff works out the details
  2. President approves the draft

3. Budget is submitted to Congress for approval

a. Congress rarely passes the original version of the budget

Budget Deficits

~ government must borrow money to make up for its deficits.

4 Basic Ways the Government Borrows Money

    1. sell savings bonds to people
    2. sell large bonds to banks, including Federal Reserve
    3. sell large bonds to businesses
    4. sell bonds to large government trust funds
    1. Social Security system can purchase bonds with its surplus (transfer of funds)

Goals of Federal Budget

1. Price stability – control inflation

2. Full employment – 4-6% unemployment rate

3. Economic growth – 3% per year

4. Economic opportunity – eliminate discrimination

5. Economic freedom – promote competition and fair business practices

6. Economic security – protect citizens from adverse events (safety net)

 Return to ELP Assignment Page