Chapter 16 – Taxes, Deficits, and the National Debt

Twenty question-and-answer flashcards reviewing key concepts on taxes, deficits, and the national debt for Chapter 16.

Which tax brings in the greatest share of state and local government tax revenue?

The property tax.

What is meant by a tax base?

The item or activity to which a tax rate is applied.

What is the difference between federal government spending and tax revenue in a single year called?

The budget deficit (or surplus if revenue exceeds spending).

How does a regressive tax affect income groups?

It takes a larger percentage of income from low-income people than from high-income people.

How do excise taxes differ from general sales taxes?

They are sales-type taxes but apply only to specific goods and services, such as gasoline or cigarettes.

What would a constitutional amendment requiring a balanced federal budget likely do, according to most economists?

Limit the government’s fiscal policy options, be difficult to implement, and risk destabilizing the economy.

Who supported the Tax Cuts and Jobs Act of 2017?

President Trump, most Republicans, and majorities in both the House and the Senate.

Give an example of a regressive tax used in the United States.

Sales taxes, Social Security payroll taxes, and property taxes are all generally regressive.

Why do conservatives often favor tax cuts?

They want income left in the private sector, believe lower taxes raise work incentives, and hope to encourage personal saving.

Roughly what portion of the U.S. national debt is held by foreign investors?

About 27 percent.

If the government collects $100 billion in taxes but spends $80 billion, what results?

A budget surplus of $20 billion.

Which single tax yields the largest share of federal revenue?

The federal personal income tax.

What macroeconomic effects typically follow a tax cut?

Higher GDP, increased employment, and, in the short run, upward pressure on the price level.

Borrowing-financed increases in government spending are expected to do what?

Expand the economy, push interest rates up, and cause some crowding out of private investment.

What are government securities?

Debt instruments such as U.S. Treasury bills, notes, and bonds.

True or False: "The national debt will eventually bankrupt the nation."

False — while large debt has costs, the nation is not automatically driven into bankruptcy.

True or False: "The standard deduction lets taxpayers subtract a fixed amount from taxable income if they do not itemize other deductions."

True.

True or False: "Government borrowing can redistribute income from low-income to high-income groups."

True — interest on the debt is paid to bondholders, who tend to be wealthier.

True or False: "Property taxes are used primarily to finance local public schools."

True.

True or False: "Janet Yellen served as Federal Reserve Chair under President Trump and is Treasury Secretary under President Biden."

True.