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Fiscal Policy Why exactly did we almost pay $125 million for a bridge?

Fiscal Policy Why exactly did we almost pay $125 million for a bridge?. The spending policies and practices of the federal and state governments that influence or moderate the economy. Revenue Collection and Federal Budgeting Process. Personal Income Taxes. Corporate Income Taxes.

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Fiscal Policy Why exactly did we almost pay $125 million for a bridge?

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  1. Fiscal PolicyWhy exactly did we almost pay $125 million for a bridge? The spending policies and practices of the federal and state governments that influence or moderate the economy.

  2. Revenue Collection and Federal Budgeting Process Personal Income Taxes Corporate Income Taxes Excise Taxes Payroll Taxes Internal Revenue Service U.S. Treasury (to be spent according to law)

  3. Fiscal Policy Where the revenue comes from: • Income taxes ■ FICA taxes – dedicated • Corporate income taxes ■Other

  4. What Happens to America’s Earnings?

  5. What Happens to America’s Earnings? • Withholding Taxes – taxes that an employer automatically deducts from an employees paycheck. Based on a W-4 form that employee fills out before starting the job. • FICA – Federal Insurance Contributions Act which is the law that provides for Social Security, Medicare and unemployment insurance. Employer matches the employees contribution dollar for dollar. Also known as Payroll Tax • StateandMunicipalTaxes are income taxes paid to local governments and usually are between 4-5% of income. • InsurancePayments are often deducted from employees paycheck based on prior agreement.

  6. Tax Brackets 2005Demonstrate Progressive Tax (aka Graduated Tax)

  7. Fiscal Policy Where the revenue is spent: • ENTITLEMENTS – mandatory expenditures on social/public welfare programs • Interest on the national debt – payments to those who lent US $ through purchase of treasury bonds • Defense spending • DISCRETIONARYSPENDING – all other programs the government funds. Congress can/does alter the amount spent from year to year • Theoretically if increase spending in one program should cut spending in another program

  8. Pros Incentive to innovate If you expand supply, then jobs will be created which in turns stimulates demand. Cons No guarantee suppliers will use $ to increase supply. Less consumer protection. Outsourcing of jobs. Little safety net for the poor. Supply Side Fiscal PolicyMinimal government intervention in the market and business so producers have a greater incentive to produce. Lower taxes and streamlined minimal regulationsWhen the economy is slowing down monetary policy should be primary tool to handle the problem.

  9. EXPANSIONARY POLICY (falling GDP) To grow GDP – lower taxes, reduce regulations, increase gov’t discretionary spending Should expand $ in the economy and stimulate production and consumption CONTRACTIONARY POLICY (rising inflation + rising GDP) To prevent possible recession lower gov’t spending, raise taxes Should take $ out of circulation and cool down consumption. Demand Side Fiscal PolicyGovernment should intervene in the economy as necessary to stimulate or cool down demand.John Maynard Keyennes

  10. PROS Faith in government is increased. Greater consumer protection. Safety net for the poor. CONS Gov’t is inefficient Too much taxation can strangle innovation and production May encourage outsourcing. Rarely do spending cuts actually occur. Rarely do tax increases occur. Demand Side Fiscal Policy

  11. Deficit vs. Debt • Deficit - the amount the government spends in one year over the amount it collects in revenue during that year. • Up to 2009 the deficit had been $300 to $400 billion dollars annually for 10+ years. • In 2009 it ballooned to $1.3 trillion due to response to Great Recession. • To pay for the deficit the government borrows money through the sale of bonds or from it’s own accounts. • Borrowed money is not revenue because the government will eventually have to repay the lender.

  12. Deficit vs. Debt • National debt- the total amount of money that the federal government has borrowed • Each year the deficit is added to the overall debt • The national debt is composed of two parts. • Public debt, is the amount the government borrows from private investors • Intragovernmental debt - government borrows it from itself, from special savings accounts established by law and supported by taxes (for example, the Social Security Trust Fund).

  13. Deficit vs. Debt • Unfunded liabilities are benefits that the government has promised to pay in the future, without knowing in advance exactly where the money to pay those benefits will come from. • Social Security & Medicare are both unfunded liabilities.

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