Fiscal Policy Review

What is fiscal policy?

Government decisions on spending and taxation that are intended to improve/maintain the economy

Who creates fiscal policy ?

Congress and the President through the federal government (LAWS)

What is a Federal Budget?

A written document that indicates the amount of money the government expects to receive (tax revenue) for a certain year

How much the government can spend that year

FIscal Year

12 months (October 1st - September 30th) when the government makes a new budget

What happens if a Federal Budget is not created?

Services may be delayed or reduced, leading to potential government shutdowns.

Expansionary: during a recession, the gov…

R: decrease taxes (which lets them keep their money)

D: increase spending (as the gov spends → wealth is distributed)

Contractionary: during excessive inflation, the gov…

increases taxes (to reduce disposable income)

decreases spending on programs

What are taxes?

required payments to local, state, and national government that pay for schools, defence, police

What gives Congress the power to tax?

Taxing and Spending Clause (Article 1, Section 8, Clause 1)

16th amendment

allows the government to collect taxes on income, from any source, without regard to state population

Limits on the power to tax

1. purpose must be for the “common defense and general warfare”

2. Federal taxes must be the same in every state

3. The government cannot tax exports

What are the three form of taxes

1. Progressive Tax

2. Regressive Tax

3. Proportional Tax

Progressive Tax

The more income you earn, the more taxes you pay

pro: the rich can afford

con: wealthy people are penalized for success

Regressive Tax (sales tax)

Takes a higher percentage of income from the poor than the rich

pro: same product

con: affects people differently

Proportional Tax (flat tax)

Regardless of income, you pay the same percentage

Social Security

A monthly check given to 65+ to help them pay bills and get out of the work force which gives opportunities to the young

Medicare

health insurance for people over 65 and with certain disabilities

Medicaid

health insurance given to people whose income is lower than a certain amount

Unemployment Taxes

Compensation provided to workers laid off through no fault of their own and are actively looking for work

Excise Tax

tax on the sale or production of a good “luxary”

Ex: Cigs, Alcohol, Gas

Estate Tax

tax on the total value of estate “after death”

Gift Tax

tax on gifts over $10,000

Import Taxes (tarrifs)

taxes on goods entering the U.S

→ increasing helps American companies

Mandatory Spending

Social Welfare programs are entitled to people who meet certain requirements

Social Welfare Programs

REQUIRE A LAW and are funded by Congress

ex: Medicare, Food Stamps, Social Security

Discretionary Spending

Spending category where government can choose how to fund

ex: defense, education, research, environment

Balanced Budget

When the government collects the same in revenue (taxes) as it does spend

Budget Surplus

When the government takes in more than it spends

Budget Deficit

When the government spends more than it takes in

Deficit

Not enough money in a fiscal year

Debt

deficits added together throughout the years