Government Involvement, Taxes and National Debt

1. Government Involvement, Taxesand National Debt

2. Before I forget… • Your last test will be this Friday or potentially Monday. We will see how things go. I am aiming for Friday. • Your Final has two parts. It will be on May 22nd and May 23rd. • 9 Weeks Bonus. • May be turned in May 19-21nd , May 27th.

3. Government Involvement What are… • Public Goods and Demerit Goods? -419 • Social Insurance Programs? – 420 • Public Assistance Programs? - 421

4. Why We Need Taxes • We use taxes to pay for these programs as well as our military and Government functions. • The more programs people ask for, the more we must pay in taxes. (Socialism vs. Capitalism?) • Taxes always come from local, state or federal government. Individual businesses do not tax customers.

5. A Quick Review • Who is the current chair of the Fed? • How many Federal Reserve District Banks are there? • How long do you serve on the board of Gov? • What kind of money do we use in the U.S.?

6. Justification for Taxes • Benefits Received Principle • Pay based on the benefits you get from the gov’t. • Welfare, Medicaid, etc. • Ability-to-Pay Principle • Pay regardless of the benefits you use. The more you have, the more you should contribute. • Which do you think is more fair? Why?

7. Types of Taxes • Proportional Tax- Everyone pays the same %. (ex. 10%) • Progressive Tax – Themore you make, the more you pay. • Regressive Tax – The less you make the more you pay.

8. Types of Taxes • Which tax is justified by the ability-to-pay principle? • Progressive • Which is justified by the benefits received principle? • Regressive • Which tax will likely bring in the most revenue? • Progressive

9. Types of Taxes What types of taxes are you familiar with? Now check out page 432

10. Classifying Taxes

11. Summary of Taxes • Gift taxes are expensive! • Why is sales tax regressive? • -fast food, demerit goods etc. • This is debatable to some economists.

12. Answers To Yesterday’s Questions • What foods can be taxed? • Can you sell a car for a dollar? • Property can be sold for a dollar, but with our car example from yesterday there is a minimum tax that must be paid based on the market value of the car. The BMV will not let you use a value less than a predetermined amount ($500 in our example) because they will not let you avoid transfer and Registration taxes which are based on fair market value.

13. Answers to Yesterday’s Questions • When did the IRS begin? • It began in 1862 during the Civil war as the Bureau of Internal Revenue. Income taxes were in place for ten years, repealed, reinstated in 1894, and repelled again a year later. • The 16th amendment was ratified in 1913 by the required ¾ majority of states which permanently put in place the income tax and we first saw the tax form 1040. The first tax was 1% on income above $3,000 and a surtax of 6% on income above $500,000 • The name was changed to the IRS in the 1953

14. Gift Tax • An individual can give $14,000 a year per person without paying a gift tax. • Example. If there are 3 kids in your family, your mom could gift 14,000 to each child and your dad could also gift 14,000 without paying gift taxes. • Help paying for medical bills or school is always excluded from the gift tax. • In your lifetime you may gift up to 5.34 million without paying the gift tax. • Charitable donations are also excluded from the gift tax, rather you get a deduction on taxes.

15. Externalities • What are externalities? • An Unintended affect on a third party. Can be positive or negative. • Ex. Mandatory insurance (Obamacare), Noise pollution, minimum wage raise. • Ex. Vaccines (flu shot), You education, up keep on your home/car • Do you see any positive or negative externalities at play with taxes? • -Who hurts if the wealthy are taxed more?

16. Taxes Vs. Spending • Check out page 426 • Review: Which type of tax brings in the most money? • Where does the government spend most of its money?

17. QUIZ

18. Quiz – Answer 5 of the questions below. • Give me an example of a demerit good. • Using this type of tax everyone pays the same percentage. • This type of tax brings in the most money. • The income tax is classified as what type of tax and is justified by what principle. • Give me an example of a positive externality. • This Federal tax form was introduced in 1913 and is still used today.

19. Budgeting • Balanced Budget  Spending=income(taxes) • Budget Deficit  Spending> income (taxes) • This brings us to deficit financing. • Based on what you know about budgeting….is this a good idea? • What are the alternatives?

20. National Debt • Taxes(income) – Spending = budget deficit • Budget deficit – budget surplus = National Debt • What is our national debt – over $17 trillion!

21. International Monetary Fund • Based in Washington D.C. • 188 Member Countries – Managing Director Christine Lagarde • It promotes international monetary cooperation and exchange rate stability. • Facilitates a balanced growth of international trade • Provides resources to help members in balance of payments difficulties or to assist with poverty reduction. 

22. Economic Development • It is the quality measure of progress in an economy. It affects the infrastructure(Roads, technology, water system, transportation. Etc.) and organization of a society. • NGO- Non Government Organization • It usually involves new technology, a transition from agriculture-based economics to manufacturing -based economics. • It results in an improvement in the standard of living for citizens of a community. Economic Development – IMF, WB

23. Economic Development • Local - Remember small business incubators? • Camber of Commerce, Mayor? • State – Indiana Economic Development Corp. • Super bowl? I69? • National – Economic Development Admin. • International – World Bank • The goal is sustainable development – • Is long term changes that help economies grow and improve. It is not about a short term or quick fix.