UNIT 3 SSEMA 3: FISCAL POLICY & TAXES

1. UNIT 3 SSEMA 3: FISCAL POLICY & TAXES Macroeconomics SSEMA3: Fiscal PolicySSEMA3: Explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. a. Define fiscal policy. b. Explain the effect on the economy of the government’s taxing and spending decisions in promoting price stability, full employment, and economic growth. c. Explain how government budget deficits or surpluses impact national debt. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

2. Tax Quotes • Benjamin Franklin said, "The only things certain in life are death and taxes." • "The hardest thing in the world to understand is the income tax." -- attributed to Albert Einstein • "Give to Caesar what is Caesar's, and to God what is God's.“ Jesus • "People who complain about taxes can be divided into two classes: men and women." – Unknown The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

3. Taxes and Government SpendingWhat are Taxes? • Tax – a required payment to a local, state, or national government The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

4. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

5. Tax Structures • Proportional Tax – % of income taxes remains the same for all income levels (Flat tax) • Progressive Tax – % of income paid in taxes increases as income increases (Federal Income Tax) • Regressive Tax - % of income paid in taxes decreases as income increases (Sales Tax) The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

6. 10% flat tax = $1,000 • 10% of income • 10% flat tax = $15,000 • 10% of income As income goes up, the percent of income taxed stays the same Proportional • 25% income tax = $37,500 • 25% of income • 10% income tax = $1,000 • 10% of income The more you make, the more they take. Progressive • 6% State Sales Tax • $5,000 in consumer goods = $300 • .03 or 3% of income • 6% State Sales Tax • $5,000 in consumer goods = $300 • .002 or .2 % of income The more you make the less the tax affects you. Regressive The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

7. Who Bears the Burden? • Who bears the burden of each? • Proportional – everyone pays the same percentage • Everyone bears the burden • Progressive – “more you make, more they take” • Rich bear the burden. • Regressive – more you make, less they take • Poor bear the burden The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

8. Regressive Tax • A regressive tax is a tax where low income earners bear the burden. • Social Security tax is an example. • 6.2% on wages up to a maximum wage of $118,500. • Person A makes $30,000 • $30,000*.062 = $1,860 in taxes • $1,860/$30,000 = 6.2%of wages. • Person B makes $200,000 • $118,500*.062 = $7,347 in taxes • $7,347/$200,000 = 3.67%of wages. • Person C makes $500,000 • $118,500*.062 = $7,347 in taxes • $7,347/$500,000 = 1.47%of wages. • Since the higher income earners pay the smallest percentage of their income in tax, it is a regressive tax. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

9. Individual Income Taxes $934.00 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

10. Individual Income Taxes • Tax Withholding – taxes are taken out of your pay before you receive it; ensures payment to the government The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

11. Stossel Taxes http://www.youtube.com/watch?v=_yad01iOvI4&list=PL6C78E46B824BFF89&index=3&feature=plpp_video The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

12. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

13. Tax Rates Explained • https://www.youtube.com/watch?v=2RU6kHupY50 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

14. Obama Videos • Income Inequality • Joe the Plumber • You Didn’t Build That The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

15. As income goes up, % of tax goes down Sales Low income • What is a regressive tax? • What is an example of a regressive tax in the real world? • Based on the above table, if each person paid $1,000 worth of taxes, who is paying the highest percentage rate of taxes? • Based on the above table, if each person paid $1,000 worth of taxes, who is paying the lowest percentage rate of taxes? • Therefore, who is bearing the burden of the regressive taxes in our economy? • Cory works at a fast-food restaurant. He makes $10,000 a year. How much would he take home after paying $1,000 regressive income tax? • What percentage of his income would be paid in taxes? • How much would his boss, who makes $25,000, take home? • What percentage of his boss’s income would be paid in taxes? • Who is paying more, percentage-wise in taxes? High income Low income $9,000 10% $24,000 4% Cory The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

16. Suppose the state of Georgia mandates a fee for driver’s licenses of $25. Fill in the below table based on 2 people with different incomes. .5% .05% • Who is bearing the burden of this tax? • What alternative could the state use to make this tax system fairer? Low income Charge high income earners a higher amount of tax for the driver’s licenses The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

17. Income x percent of income paid in tax = amount of taxExample: $15,000 x .10 (10%) = $1,500 500 1,000 2,500 5,000 10,000 100,000 • What is a proportional tax? • How do a proportional tax and a progressive tax differ? The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

18. Sales Taxes in a market economy • With the money Erin earned baby-sitting, she bought a book priced at $5.95. She paid a tax of $.36 on the book. What type of tax did she pay? • Mr. Presutti paid taxes on his salary of $65,000. What type of tax did he pay? • Jonah paid $3,000 at the end of the year on his home. What type of tax did he pay? Income Property The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

19. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

20. Who Fixes the Economy? The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

21. Monetary and Fiscal Policy Making to Affect the Macroeconomy Monetary Policy Fiscal Policy The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

22. Federal Government • How does the Federal Government fix problems? • Fiscal Policy • What are the Federal Government’s tools of fiscal policy? • Taxation • Government Spending The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

23. Fiscal Policy and The Federal Budget • Fiscal Policy – Government spending/tax policies that influence the economy. • The goal is to create policies that will stabilize the economy • Main players : • Congress • The President The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

24. How Fiscal Policy Influences the Economy • Expansionary Fiscal Policy (grow the economy) • Government spends more • Taxes Less; gives consumers/firms more money to spend The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

25. How Fiscal Policy Influences the Economy • Contractionary Fiscal Policy (slow the economy) • Government spends less • Higher tax-rates will give consumers/firms less money The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

26. Border Wall • http://www.youtube.com/watch?v=9WA-ZJFmpZ0&list=PL6C78E46B824BFF89&index=24 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

27. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

28. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

29. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

30. Budget Deficits and the National Debt • Balanced budget – money going into the U.S. Treasury is the same amount of money going out • Revenue = Spending • The last balanced budget occurred in 1997 under President Bill Clinton The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

31. Balancing the Budget • Budget Surplus – occurs when the government takes in more than it spends • Revenue > Spending • Budget Deficit – occurs when the government spends more than it takes in • Revenue < Spending The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

32. Dealing with a Budget Deficit • Reduce Spending – cut spending on government programs • Increase Taxes • Borrow money – government borrows money • China owns 1 trillion dollars of US debt The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

33. The National Debt • National debt – the total amount of money the federal government owes overall • Combination of all borrowing over time • Budget deficit – the amount of money the government owes to bondholders in one fiscal year The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

34. http://www.usdebtclock.org/ The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

35. IOUSA • http://www.youtube.com/watch?v=lcb0hMPG5S0&list=PL6C78E46B824BFF89 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

36. Government Video • http://www.youtube.com/watch?v=rG1DUn8mMwk&list=PL6C78E46B824BFF89&index=1&feature=plpp_video The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

37. China Video • http://www.youtube.com/watch?v=rG1DUn8mMwk&list=PL6C78E46B824BFF89&index=1&feature=plpp_video The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

38. Bumper sticker and Political Cartoon Assignment Be Aggressive Go Progressive! • Design 2 bumper stickers • Choose one tax system that you support and one that you do not support. • Create a slogan and make sure to include one of the following terms in your slogan. • Progressive • Proportional • Regressive • Draw a political cartoon that relates to Government Spending • Your theme must include 1 on of the following: • Expansionary fiscal policy, the government should spend more money. • Contractionary fiscal policy, the government should cut back on spending. • National Debt – total amount of money earned • Budget Deficit – overspending in one fiscal year Don’t Be Emotional, Be Proportional The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

39. Lower taxes = Increased spending = Rise in GDP Expansionary • Higher taxes = Decrease spending = Fall in GDP Contractionary Expansionary • Higher spending = Increase GDP • Decreased Spending and Increased Taxes = Fall in GDP Contractionary The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

40. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

41. Model of aggregate demand & aggregate supply Price Level (CPI) Aggregate supply (Land, Labor, Capital, Entrepreneurship) • Model used to explain the macroeconomy • Aggregate - sum of all supply and demand in an economy • Two axes: • Economy's total output (stuff we produce) • Average Price Levels(CPI) PLE Aggregate demand (CIGNX) Y Quantity of Output The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

42. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

43. Aggregate Demand Curve Price Level (CPI) • Aggregate-demand curve • Sum of C+I+G+NX (real GDP) at each price level • Downward sloping • Low price levels increase the quantity of goods and services, vice versa Aggregate demand (AD) Quantity of Output The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

44. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

45. The Aggregate Supply Curve • AS curve – total quantity of goods and services firms can produce and sell at any given price level • What shifts the curve? • Changes in Land, Labor, Capital The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

46. What Shifts the Aggregate Demand Curve? A C B Price Level C Quantity of Output A C C The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

47. What Shifts the Aggregate Supply Curve? A C B Price Level A Quantity of Output A C C C C The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

48. The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

49. Aggregate Demand or Supply? The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.

50. Aggregate Demand or Supply? Buying (CIGNX) = AD Factor of Production = AS AS AS AD AD AD AS AS AS AD AD The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.