Chapter 17 Flashcards
What are 4 reasons the government taxes and spends money?
- Raise revenues to pay for public goods
- Correct other market failures
- Redistribute income to address fairness issues
- Finance operations of government
What three sources of income account for more than 90% of the government’s revenue?
- Individual income tax
- Social Security and Medicare taxes
- Corporate income tax
What is the single largest source of revenue for the federal government?
The individual income tax
What are two ways the government can address equity issues?
- Transfer payments
2. The tax structure
What is the marginal tax rate?
the tax rate paid on an additional dollar of income
What is the average tax rate?
the total tax payment divided by total income
What is an excise tax?
Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline
What determines the incentive to work additional hours?
The marginal tax rate
What is the Alternative Minimum Tax?
A separate income tax code to prevent the rich from not paying income taxes. The original goal was to make sure that it would not be possible for anyone to avoid all income tax
What is interest income?
eg. interest from a savings account
What are dividends?
Regular income payments from corporate earning
What are capital gains?
Asset price appreciation
How is interest income taxed?
The same as ordinary income
What is carried interest?
income flowing to the general partner of a private investment fund
What is the FICA tax?
Federal Insurance Contributions Act tax
What does the FICA tax do?
It funds Social Security benefits
How is medicare financed?
Partly out of general revenues and partly out of special payroll taxes
What is the corporate income tax rate?
35%
What is a flat tax?
a tax that has a constant tax rate
What is progressive tax?
a tax that has a higher tax rate on people with higher incomes
What is a regressive tax?
has higher taxes on people with lower incomes
Almost two thirds of the US federal budget is spent on what 4 programs?
- Social Security
- Defense
- Medicare
- Medicaid
What is the largerst government program in the world?
Social Security
How are social security benefits defined?
They are defined by a complex formula depending on years worked, average earnings, marital status, the year you retire, and at what age.
What does medicare do?
It reimburses the elderly for many of their medical expenses
What does medicaid do?
It covers the poor and some disabled
Social Security and Medicare transfer wealth to who?
The elderly
What does the Earned Income Tax Credit(EITC) do?
pays poor people based on their earnings
What does unemployment insurance do?
makes payments to people who are out of work
What does the Temporary Assistance for Needy Families do?
makes payments to families with children
What is the national debt held by the public?
all federal debt held outside the US govt
