Midterm Flashcards
What is the difference between a confederation and a federation?
The difference between a confederation and a federation is to be found in where power resides. In a confederal system all sovereignty, authority, and responsible basically resides with the states or provinces. Thus, undervalued a confederal system like the Articles of Confederation, the states had practically all sovereignty. In contrast, federal states divide sovereignty or delegate sovereignty between different powers or different levels of government. Thus, the federal system created by the Constitutions delegates some powers exclusively to the federal government (e.g. Immigration and regulating interstate commerce) and some powers exclusively to the state governments (i.e. Whatever powers the Constitution does not reserve for the federal government and does not prohibit the states from exercising.)
What is the difference between a federal and a unitary system?
The difference between a federal system and a unitary system is that under unitary system the national government holds all the power, whereas under a federal system power (or sovereignty) is reserved to both the national government and sub-national governments. Example of Unitary system: UK. Example of federal system: US.
Constitutional arrangements for Federal and State governments
Federal governments have some exclusive powers (coining money, regulating interstate commerce, declaring war. State governments also have some exclusive powers (regulating intrastate commerce, conducting local elections, issuing licenses, education, directly taxing people (until the later amendment of this). There are also concurrent powers which state and federal governments share. These concurrent powers include setting up courts, making and enforcing laws, issuing debt, spending money).
Federal government under Articles of Confederation
Weak. Had no power to tax. No power to draft soldiers or regulate interstate or international commerce. No court system. Any ammendment required unanimous consent
What is the difference between monetary policy and fiscal policy?
Fiscal policy involves the use of taxation and government spending to influence aggregate demand in the economy. Monetary policy involves the use of interest rates, reserve requirements, etc. to influence the money supply in the economy.
The role of the President in Fiscal Policy and Monetary Policy
In Fiscal Policy: the President can informally propose legislation related to taxing and spending. the president can veto legislation with regard to taxing and spending. The president can sign legislation related to taxing and spending (if passed by both houses of Congress) into law. The president executes fiscal policy.
In Monetary policy: The President nominates the members of the Federal Reserve Board, who are confirmed by the Senate. Outside of this and applying political pressure upon the Federal Reserve, the President does not have much of a role in Monetary Policy.
The role of Congress in Fiscal Policy and Monetary Policy
Congress legislates Fiscal Policy. In order to become law, Fiscal Policies must first be introduced in Congress (tax policy must be introduced in the House) and must be passed by Congress.
Congress has relatively little power over monetary policy. That said, it is the power of the Senate to confirm members of the Federal Reserve Board. Likewise, Congress can require members of the Federal Reserve board to testify.
Reason for Government
“Makes the markets”, safeguard private property, rule of law, courts to adjudicate, legal tender w/ stable value, and stabilize the economy
Two types of government services or goods or policies
Direct: gov provides good or service itself (ie nat parks or postal service)
Indirect: government provides good or service or implements policy indirectly through things like grants to incentivize certain behaviors, tax expenditures, regulation,
Definition of Tax expenditures
Tax expenditures are reductions in a taxpayer’s tax liability that are the result of special exemptions and exclusions from taxation deductions, credits, deferrals of tax liability, or preferential tax rates… often aimed at policy goals similar to those of federal spending
What are the 6 types of tax expenditures?
Exclusions. Exemptions. Deductions. Credits. Deferrals. Preferential tax rates.
Exclusion
Excludes income that would otherwise constitute part of a taxpayer’s gross income (e.g. Employees don’t have to pay income taxes on health insurance benefits)
Exemption
Reduces the gross income for taxpayers because of their status or circumstances. E.g. Taxpayers with children who are college-aged college students may reduce their tax liability
Deduction
Reduces gross income due to expenses taxpayers incur. E.g. Deduct mortgage interest off of home or deduct some state and local taxes
Tax credit
Reduces tax liability dollar-for-dollar. Some are refundable. I.e, if you owe $500 in taxes and you have a $499 tax credit. You only have to pay $1 in taxes. Example of tax credit is the Child tax credit.
Preferential tax rate
Reduces tax rates on some forms of income (i.e. Capital gains is taxed at a lower rate than regular income)
Deferral
Delays recognition of income or accelerates some deductions otherwise attributable to future years (ex: defer paying tax on interest of certain US bonds until the bonds are redeemed)
Purpose of taxation
Raise money to fund government and/or to discourage activity
Broadbased taxes
Income tax, property tax, sales tax
Formula for calculating tax liability
Income - exemptions - exclusions - deductions= taxable income - tax credits
Problems with Tax Expenditures
The cost a lot (in terms of foregone revenue). There is relatively little oversight in terms of how effective or ineffective they are.
What kind of tax expenditure is the reduction in liability for income from s/l bonds?
Exclusion. Income from sl bonds is excluded.
Definition of excise taxes
Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline.
Reasons states use excise taxes
- Consumption taxes are economically efficient … avoid economic distortions
- Income tax revenue is very volatile (consumption taxes are less cyclical, states cant borrow like feds)
- Sales taxes let you collect from no residents
- Sales and property taxes let you collect from no residents (makes tax dodging harder)
- Easy to pass