Chapter 12 Concepts and Terms Flashcards
When the state spends more than it receives in taxes in one year, it runs a…
deficit
the total amount the state owes
federal debt; the way that the state spends more than it taxes is by selling government bonds to individuals, companies, and to other governments. So the federal debt is also the total amount of government bonds outstanding.
the portion of the debt that the US government owes to others, not to itself—is the relevant amount that the state owes
net public debt
The government always has a spending plan, before they pass an actual budget. Suppose the government spent $3,700 billion in 2013 and plans to spend $3,950 billion in 2015. If a politician proposes that they change plans, and only spend $3,800 billion in 2015, they don’t say, “We propose to spend $100 billion more than last year.” They say, “We propose cutting spending by $150 billion,” comparing the new spending to the spending plan, not to the previous spending.
Government’s plan is always a 10 year plan for spending, taxes, de cits and debt. When politicians really mean that they are going to cut their planned spending by $150 billion, as above, they typically say, “We will cut the debt by $1,500 billion,” citing the amount for the entire 10 years. Also, they may, instead say, “We will cut the de cit by $1,500 billion,” though the de cit is a yearly number.
the chief forecaster of how new taxes and spending will affect the budget
Congressional Budget Of ce (CBO)
scoring which assumes that individuals will not change their behavior if taxation or spending changes
static scoring
scoring that looks at the effects of past changes on behavior to forecast the effects of new legislation
Dynamic scoring
US government spending was about 1-2% of GDP
This increased greatly during the Civil War and WWI, but fell after the wars.
Currently we spend
• 60% on transfers such as Social Security, Medicare, Medicaid, Unemployment Insurance and other welfare programs,
• 20% on national defense,
• 5% on interest on the debt, and
• 15% on everything else, such as roads, education, prisons, judicial system, department of energy,
agriculture, environmental protection, NASA, etc.
so they all add up to 100% of the budget at all times
proportional tax
one in which the tax rate is the same at all income levels
progressive tax
one in which the tax rate rises as income rises; income tax
regressive tax
one in which the tax rate rises as income falls
