The Government Budget

Progressive Taxes

Taxes with a higher tax rate on individuals with higher incomes, using marginal tax rates where higher rates apply only to income above certain thresholds.

Flat Taxes

Taxes with a constant tax rate where everyone pays the same portion of their income, simpler than progressive taxes but shift some tax burden away from the wealthiest.

Regressive Taxes

Taxes with a lower tax rate on individuals with higher incomes, such as sales tax, where low-income households pay a higher percentage of their income compared to high-income households.

Income Tax

A tax on income, including capital gains and interest, paid directly by individuals, forming a progressive tax system in the U.S.

Payroll Taxes

Taxes on income paid directly and indirectly by individuals, funding Social Security and Medicare programs, with direct deductions from paychecks and indirect contributions from employers.

Corporate Taxes

Taxes paid by companies on profits, previously progressive but now a flat 21% rate, allowing deductions and incentives for investments and employee stock compensation.

Mandatory Spending

Government spending required by law, including entitlements like Social Security, Medicare, welfare, and food stamps.

Discretionary Spending

Government spending decided by explicit budget allocations, covering defense, nondefense, and transfers like NASA funding, veterans' healthcare, and research at NIH.

Deficit

When government spending exceeds revenue for a year, leading to borrowing through government bonds and contributing to the total debt.

Laffer Curve

Illustrates the trade-off between income tax rates and tax revenue, suggesting that at 0% and 100% tax rates, the government collects no revenue, with an uncertain peak for maximizing revenue and unknown curve shape and flatness.