Government Spends, Collects, and Owes. Section 1: Growth in the Size of Government Prior to the Great Depression, the Government (Federal, State, and.

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