Government Involvement in the Economy and Functions of Government

Three Levels of Taxation:

2. Federal Taxes

   • Collected by the national government to fund programs and services at the federal level. Examples include income tax, corporate tax, and payroll tax.

3. State Taxes

   • Collected by individual state governments for state-funded services such as education, transportation, and public safety. Common forms include income tax, sales tax, and property tax.

4. Local Taxes

   • Collected by local governments (cities, counties) to fund local services such as public schools, local law enforcement, and infrastructure development. Examples include property tax, local service taxes, and user fees.

Common Taxes:

• Income Tax

  • Tax on individual earnings that can vary based on income levels and filing status. Key for federal and state revenue.

• Sales Tax

  • A consumption tax imposed on the sale of goods and services. Rates differ by state and locality, with exempt goods typically including groceries and medical supplies.

• Property Tax

  • Tax based on the value of owned property, predominantly real estate. Local governments primarily use it to fund public services like education and public safety.

Government Involvement in the Economy

Historical Context:

• 1929: Approximately 3 million government workers, reflecting a minimal role of government in the economy.

• Today: Approximately 20 million government workers, indicating a significant expansion of government functions and services.

Implications:

• Increased government spending necessitates higher taxes, creating a cycle of funding government programs through taxation.

• The government serves as the #1 employer in the economy, impacting job markets and economic stability as it hires a diverse workforce across various sectors.

• As the #1 consumer, government purchasing decisions affect economic trends and shifts in market demand.

Functions of Government

2. Protect Consumers:

   • Example: Food and Drug Administration (FDA)

   • Role: Ensure safety and quality of food and medicines through rigorous testing and regulations.

   • Issues addressed include contamination, spoiled food, and harmful drugs that could pose risks to public health.

3. Promote Competition:

   • Role: Regulate monopolies and prevent anti-competitive practices to ensure fair market competition, fostering innovation and consumer choice.

   • Oversight includes mergers and acquisitions that threaten to reduce competition.

4. Supervise Labor and Management Relations:

   • Example: Labor Laws include regulations on:

     • Child Labor

     • Restrictions on the employment of minors to protect their rights and development.

     • Maximum Working Hours (8-hour workday)

     • Legislation that ensures fair working conditions and prevents exploitation of labor.

     • Workplace Safety Standards

     • Regulations to maintain safe working environments and reduce occupational hazards.

5. Regulate Negative By-Products of Production:

   • Issues addressed include environmental concerns such as:

     • Pollution produced by manufacturing processes that adversely affect public health and the environment.

     • Disposal of Nuclear Waste which requires stringent regulations to mitigate risks associated with radioactive materials.

Total Federal Spending (2015)

Total Spending: $3.9 trillion

Breakdown of Spending:

• Interest on Debt: $251 billion (6.3%)

• Veterans Benefits: $161 billion (4.1%)

• Food & Agriculture: $130 billion (3.3%)

• Transportation: $103 billion (2.6%)

• Housing & Community: $102 billion (2.6%)

• Education: $80.9 billion (2.0%)

• Energy & Environment: $44.5 billion (1.1%)

• Science: $29.3 billion (0.7%)

• International Affairs: $27.2 billion (0.7%)

• Government: $2.7 billion (0.1%)

• Military Spending: $648 billion (16.3%)

• Social Security, Unemployment & Labor: $1.33 trillion (33.6%)

• Medicare & Health: $1.05 trillion (26.6%)

Source: OMB National Priorities Project