Macro Chapter 15
Terms in this set (23)
Is a plan for both spending and raising funds for the government.
Two sides to a budget
1. The sources of funds
2. The uses of funds
The act of spending or disbursing money.
Are payments made to groups or individuals when no good or service is received in return.
The government transfers funds from one group in the country to another.
These payments make up a large and growing share of government outlays.
are the part of the government budget that includes both spending and transfer payments.
3 groups of Government outlays
1. Mandatory outlays (59%)
2. Discretionary spending (34%)
3. Interest payments (7%)
Sometimes called entitlement programs, comprise government spending that is determined by ongoing government programs like social security and Medicare.
These programs are mandatory because existing laws mandate government spending for them.
comprise spending that can be altered when the government is setting its annual budget.
Ex. monies for bridges and roads, payments to government workers and defense spending.
Payments made to current owners of US treasury bonds.
Such payments are not easy to alter, given a certain level of debt, so they are also essentially mandatory payments.
is a government-administered retirement funding program which requires workers to contribute a portion of their earnings into the social security trust fund with the promise that they'll receive these back upon retirement.
The goal is to guarantee that no US worker retires with no retirement income.
is a mandated federal program that funds health care for people age 65 and older.
The goal was to provide medical insurance for all retired workers.
The law requires current workers to pay Medicare taxes with the promise of receiving insurance upon retirement.
3 Proposed solutions to social security and medicare funding problems
1. Increasing the retirement age from 67 to 70
2. Adjusting the benefits computation to the CPI
3. Means-testing for Medicare and social security benefits.
3 Reasons of increased government spending since 2001
1. Increased spending on social security and medicare.
2. Defense spending after 9/11
3. Government responses to the great recession
Individual income tax and social insurance tax, accounting for 80% of all federal tax revenue.
These taxes are deducted from worker's paychecks, so they are called payroll taxes.
Fluctuate with business cycles
Progressive income tax system
People with higher incomes pay a larger percentage of their income in taxes than people with lower incomes do.
Marginal tax rate
is the tax rate paid on an individual's next dollar of income.
Average Tax rate
is the total tax paid divided by the amount of taxable income.
It is lower than Marginal tax rate which is generally the case in a progressive tax system and is due to the face that the marginal tax rate applies to the last few dollars taxed, not to all income.
How are taxes distributed?
In a progressive tax system, the wealthier citizens pay more taxes than poor citizens.
The wealthiest 20% of all households paid 69% of all federal taxes. The poorest 40% paid just 4% of federal taxes.
Occurs when government outlays exceed revenue.
When it is in deficit, the government must borrow funds to pay for the difference between outlays and revenue.
Occurs when government revenue exceeds outlays.
Deficits vs. Debt
A deficit is a shortfall in revenue for a particular year's budget. A debt it the total of all accumulated and unpaid budget deficits.
involves strict budget regulations aimed at debt reduction.
What are the major reasons why the national debt increased between 2001 and 2010?
Outlay side: Government spending increased due to higher costs for social security and medicare, additional defense spending, and government responses to the great recession.
Revenue side: Tax receipts declined sharply during and after the great recession.
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