Government Finances: Fiscal Policy, Taxing and Spending Fiscal Policy Government Budget Federal Government Revenue Federal Government Expenditures

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1 Government Finances: Fiscal Policy, Taxing and Spending Fiscal Policy Government Budget Federal Government Revenue Federal Government Expenditures State Government Local Government

2 Fiscal Policy Fiscal Policy: government policy toward taxing & spending. Federal Budget Prepared annually by the President Approved by Congress Budget Year October 1 September 30 Government Spending Mandatory Spending: does not need annual approval. Discretionary Spending: needs annual approval. Prince John- -taxes- (disney's robin hood).mp4 Types of Taxation Progressive Tax: tax that takes a larger percentage from the wealthy (ability to pay principle) Regressive Tax: tax that takes a larger percentage from lower incomes (benefits received principal) Proportional (flat) Tax: tax that takes the same percentage from all incomes.

3 GOVERNMENT BUDGET Government Revenue: $ that government has to operate.taxes, fines, user fees, etc Government Expenditures: $ the government must spend on programs it operates Balanced Budget: Revenue = Expenditures Budget Surplus: Revenue > Expenditures Budget Deficit: Revenue < Expenditures National Debt: Accumulation of Budget Deficits

4 Federal Government Expenditure WSJ - Facts about federal budget.mp4

5 Federal Government Revenue Federal Taxes Income Tax: #1 source of government revenue. Progressive tax on individual earning. Payroll Tax: 2 nd largest source of income Corporate Income Tax: up to 39% of profits. OTHER FEDERAL TAXES Excise Tax Estate Tax Luxury Tax Social Security Tax

6 Federal Government Revenue

7 State Government Intergovernmental Revenue: $ paid from one level of government to another. States get it from the federal government. Sales Tax: Paid by retail stores to the state government. (passed onto consumers) Income Tax: taken from workers paychecks. Excise Tax: Alcohol (ABC Stores), tobacco, & gasoline.

8 REVENUE Local Government Intergovernmental Revenue: paid by the state government to local governments. Property Tax: paid on land, houses, automobiles, etc EXPENDITURES Education Police & Fire Protection Water Supply Sewage & Sanitation

9 FEDERAL INCOME TAX TABLE TAX RATE SINGLE MARRIED 10% $0-$8,025 $0-$16,050 15% $8,025-$32,550 $16,050-$65,100 25% $32,550-$78,850 $65,100-$131,450 28% $78,850-$164,550 $131,450-$200,300 33% $164,550-$357,700 $200,300-$357,700 35% Over $357,700 Over $357,700 A Look at Income Taxes (Visual Budget - Sneak Preview).mp4

10 Mr. Cramer Check Where did my $$ go?!?!

11 COMPETITION & REGULATORY AGENCIES Types of Competition Mergers Government Regulation Anti-Trust Legislation Federal Regulatory Agencies

12 TYPES OF COMPETITION Perfect Competition: a large number of companies all producing essentially the same product. No company has any control over price. Imperfect Competition: a situation in which a company has enough control over the market to influence price. Types of Imperfect Competition Monopoly: a market in which a single seller dominates the market. Monopolistic Competition: many companies compete in an open market to sell products that are similar, but not identical. (restaurants/clothing) Oligopoly: a market dominated by a few large, profitable firms. (70-80% of the output) (airlines/automobiles)

13 Mergers: when two businesses come together to form one business. Types of Mergers Horizontal Merger: when two businesses who are competing come together (American Airlines and U.S. Airways) Vertical Merger: when two businesses that are in different steps of an operation come together (synergy: Facebook and Instagram) Conglomerate Merger: when two businesses that are in unrelated markets come together. Takeover: when one business buys more than ½ the stock of another business on the open market.

14 GOVERNMENT REGULATION Regulation Process by which the government passes laws, and the executive branch enforces policies designed to oversee business activity. Important during the industrial revolution Regulation includes making the workplace safer, keeping the marketplace competitive, overseeing the stock market, and protecting the environment. Deregulation Process by which the government becomes less involved in controlling business activity Some politicians feel that regulation tends to hinder economic growth.

15 Anti-Trust Legislation Anti-trust: legislation designed to break up existing monopolies and prevent the formation of new monopolies to increase competition in the marketplace. US Anti-trust.mp4 Examples Sherman Antitrust Act (1890): legislation outlawed agreements and conspiracies that restrain interstate or foreign trade. Federal Trade Commission Act (1914): created the Federal Trade Commission (FTC) gave power to bring cases against private businesses engaged in unfair trade practices. Clayton Act (1914): restricted the practice of selling goods to different buyers at different prices. Hart-Scott-Rodino Anti-Trust Improvement Act (1976): outlawed mergers which substantially lessen competition.

16 FEDERAL REGULATORY AGENCIES Environmental Protection Agency (EPA): Agency was created to reduce pollution, and enforce federal environmental laws and policies. Federal Communications Commission (FCC): Agency regulates radio, television, phone, telegraph, and satellite industries. Food & Drug Administration (FDA): Agency was created to monitor the safety and health of all foods and drugs. Federal Trade Commission (FTC): Agency was created to monitor business practices. FTC is in charge of stopping monopolies from forming, and maintaining a competitive marketplace.

17 FEDERAL REGULATORY AGENCIES Interstate Commerce Commission (ICC): Agency was created to monitor all surface transportation (ground). Nuclear Regulatory Commission (NRC): Licenses and regulates civilian uses of nuclear energy in order to protect public health and safety, as well as the environment. Occupational Safety & Health Administration (OSHA): This agency was created to oversee workplace safety. The agency does periodic checks of businesses to ensure the safety of workers. Securities & Exchange Commission (SEC): This agency monitors the stock market. The agency enforces policies to provide fair trade practices in the various stock exchanges.

18 MONETARY POLICY Money & Banking Federal Reserve

19 Money & Banking Money Fiat/Legal Tender: money that has value because a government fiat, or order, has established it as acceptable for payment of debts. Medium of Exchange: use of money in exchange for goods or services (cash) Measure of Value: use of money as a yardstick for comparing the values of goods and services in relation to one another (how we get prices) Store of Value: use of money to store purchasing power for later use (worth)

20 Money & Banking Banking Loans: money that is given with the idea that it will be paid in return. Interest Rate: amount of money the borrower must pay for the use of someone else s money. Expressed in a percentage. Prime Rate: rate of Interest banks charge on loans to their best business customers. Collateral: something of value that a borrower lets the lender claim if a loan is not repaid. Credit Unions: depository institution owned & operated by its members to provide savings accounts & low interest loans to its members. Savings & Loans: depository institution that, like a commercial bank, accepts deposits & lends money.

21 FEDERAL RESERVE Federal Reserve (FED): created by Congress in 1913 to provide for a safer and more flexible banking and monetary system. FED 12 Districts each served by one bank, divided into territories. FED decisions do not have to be ratified by President or Congress. Appointments to the Board of Governors President appoints Congress approves FED reports to Congress on its policies. Purpose of the FED: control nation s money supply. Tight Monetary Policy: makes credit expensive and in short supply in an effort to slow the economy. (inflation) Loose Monetary Policy: makes credit inexpensive & abundant, to increase money in circulation. (recession) Goal of the FED: balance the need to create long-term growth in the economy more jobs, consumer goods, continuing higher standard of living need to avoid inflation (higher prices). What Is The Federal Reserve-.mp4

22 FEDERAL RESERVE

23 FEDERAL RESERVE Tools of the Federal Reserve Discount Rate: the amount of interest that commercial banks pay the FED for borrowed funds. Banks in turn set their lending rates for companies, individuals, home mortgages, and auto loans. Reserve Requirement: the amount of money banks must hold as security for loans. The higher the requirement, the less money banks have to loan. (expressed in a %) Buying & Selling Government Securities: bonds and loans the government has received from private individuals and banks.