4/9/13 Flashcards
After Great Depression, new perception of gov role
New Deal Regulations
Social Security Act
Full Employment Act of 1946
Fed Gov Role
Before 1913 tariffs were primary source of revenue.
1913, income tax constitutional amendment.
New Deal Regulations
Unregulated economy pre1929 seemed to run amuck
Social Security Act
Tax assessed starting 1937, benefits paid starting 1942
Full Employment Act of 1946
Congress gives itself responsibility for ensuring high employment.
Big difference between Bill and Act.
But an awareness that full employment may not be best in crisis.
Gov outlays
G + TR
G = gov spending for goods and services
TR = transfer payments, i.e. social security, Medicare, grants
Transfer payments, entitlement vs means tested
Entitlement = no testing
Means tested = i.e. unemployment help
Gov receipts
TA = tax revenues
Budget deficit
G + TR > TA
Budget surplus
TA > G + TR
Gov debt
Cumulative total, since 1790 of annual budget deficit minus surplus.
Automatic stabilizers
Recession automatically makes TA decrease and TR increase.
Annual borrowing
G + TR - TA
Full employment (or structural) deficit
What deficit would be if economy was at full employment.
Eliminates effect of automatic stabilizers.
Cyclical deficit
Additional deficit due to divergence from full employment.
Measures effect of automatic stabilizers.
Actual deficit
= Full employment deficit + cyclical deficit
Austerity plan (how to eliminate a deficit)
A contractionary fiscal policy (cut spending or raise taxes).
Effect: decrease GDP and employment.
Goal: decrease debt to GDP ratio
Social security
Established 1936.
“Old age” insurance payments.
Medicare
Medicare: old people
Medicaid: poor people
Obamacare dramatically improved solvency of Medicare.
Old age dependency ratio
Is increasing.
Pop age 65+)/(pop age 16-64
Social security scenario with no change
Cash flow deficits.
Trust fund assets until 2030.
After that, tax income would pay about 75% of scheduled benefits through 2083.
To make gov fully solvent, gov could…
Raise tax rate,
Raise cap on earnings tax,
Lower rate of income of social security.
