UNIT 4: Government Spending, Federal Budget, National Debt, Taxes

1. What federal programs take constitute the largest part of the federal budget

About 80% of the budget is spent on Social Security, Medicare, Medicaid, Defense, and
interest on debt

Why have budget deficits become common since the late 1960s in the United States

The programs where the government spends the most money are politically popular
and there is usually little support for tax increases

When governments face revenue shortfalls, why do they run budget deficits instead of
raising taxes or cutting spending

Raising taxes is usually not popular politically. Spending cuts are often unwise politically
because they upset those who benefit from a particular government program or government
agency. The costs of deficits are largely indirect.

How did the U.S. government run surpuses in 1998, 1998, and 2000 after years of
deficits

There were tax increases in 1990 and 1993. We were able to cut defense spending after the fall
of the Soviet Union. Growth in domestic spending was limited. Also the late 1990s economy
was very strong, boosting revenues

Why have we had consistent budget deficits after 2000

After September 11 th , we increased surveillance and intervened militarily in Iraq and Afganistan.
That was costly. Economic growth was somewhat weak after 2000. Also as the population has
aged, Social Security, Medicare, and Medicaid have become more costly

Where does the federal government get most of its money from?

49 percent comes from income tax revenues and 35 percent comes from payroll taxes revenues

What is the difference between income taxes and payroll taxes

The income tax is progressive, meaning the more one earns, the higher percentage one pays in
taxes. Payroll taxes are flat. People pay the same rate, regardless of how much they earn.
Payroll taxes are also earmarked for specific programs like Social Security and Medicare

Why are some economists skeptical that more government spending can improve
economic growth

Government spending can come from more taxation, which would reduce the
purchasing power of those who are taxed. Government spending can also come from
borrowing and higher deficits. If people feel they are going to pay higher taxes in the
future, they may spend less today

What is the difference between the deficit and the debt

The deficit is an annual figure. It looks at how much expenditures exceeded revenues for
one year. The debt looks at how much money the country owes in total (The sum total
of all the defiits)

Who bears the burden of a corporate income tax

Consumers do in the form of higher prices. Investors do in the form of lower returns on
investments