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the 2011 budget was 2.3 trillion dollars and the 2018 budget was a estimated 3.654 trillion dollars. one takeaway that i had was that the united states needs to be more cautious with their money and stop with all of these deficit's.

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2018

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2011

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the projected deficit for the 2019 fiscal year is on a track to exceed 1 trillion dollars.

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The us had a deficit in 2018.

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taxes have many purposes like balancing out the economy as well as funding government operations. taxes balance out the economy and make financial statuses equal out due to the salary and income you have. taxes can also regulate the growth of the economy, increase taxes if economy is growing to fast, lower taxes if economy isn't growing fast enough. taxes are used to fund many things such as teachers, police, fire department, etc.

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Financing the US Government

Taxes are the primary source of government revenue.

Learning Objectives

Identify the basis for taxation.

Key Takeaways

Key Points

Taxes can be used to stabilize the economy.

The implementation of taxes can promote social equity; for example the use of progressive income taxes.

There are many types of taxes that can be legislated to derive revenue for government operations.

Key Terms

balanced budget: A (usually government) budget in which income and expenditure are equal over a set period of time.

fiscal policy: Government policy that attempts to influence the direction of the economy through changes in government spending or taxes.

Financing of Government Expenditures

Taxation is the central part of modern public finance. The importance of taxation arises from the fact that it is by far the most significant source of government revenue and is therefore the primary means of financing government expenditures.

Due to the pervasive nature of taxation, taxes can be used as an instrument of attaining certain social objectives. For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata. The income derived in this manner is then used to transfer income to lower income groups, thereby, reducing inequalities related to income and wealth.

Taxation is also used as part of fiscal policy to stabilize the economy. Increasing taxes can reduce consumption and lead to economic slowing when the economy may be growing too quickly. Alternatively, decreasing taxes can be a mechanism to promote economic growth by increasing the funds available for consumption and investment spending. It is important to note that when the government spends more than the tax revenue it collects, the government is operating at a deficit and will have to borrow funds to finance operations until taxes can be increased to return the government spending to a balanced budget.

Types of Taxes

The US government imposes a number of different types of taxes in order to finance its operations. The following is a list of taxes in common use by governmental authorities:

Excise tax: tax levied on production for sale, or sale, of a certain good.

Sales tax: tax on business transactions, especially the sale of goods and services.

Corporate income tax: tax on a company's profits.

Income tax: tax on an individual's wages or salary.

Capital gains tax: tax on increases in the value of owned assets.

Financing State and Local Government

Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.

Learning Objectives

Give an example of federal, state, and local taxes

Key Takeaways

Key Points

State and local governments collect taxes from residents to support corresponding state and local government activities. Examples of these services include maintenance of public parks and provision of a police force.

Property tax is an example of a local tax. It is imposed on the value of real estate.

Sales tax may be imposed by both a state and local government. It is charged at the point of sale of the good or service.

Income tax may be imposed by the federal, state, or local government. Tax rates vary by location, and often by income level.

Key Terms

sales tax: A local or state tax imposed as a percentage of the selling price of goods or services payable by the customer. The tax is not recognized as the seller's earnings; the seller only collects the tax and transmits the same to local or state authorities.

property tax: An (usually) ad valorem tax charged on the basis of the fair market value of property.

income tax: A tax levied on earned and unearned income, net of allowed deductions.

Taxes are important to federal, state, and local governments. They are the primary source of revenue for the corresponding level of government and fund the activities of the governmental entity. For example, on a local level, taxes fund the provision of common services, such as police or fire department, and the maintenance of common areas, such as public parks. On a state level, taxes fund the school systems, including state universities. On a federal level, taxes are used to fund government activities such as the provision of welfare and transfer payments to redistribute income.

Example of a Federal, State, and Local Tax

Income taxes are taxes imposed on the net income of individuals and corporations by the federal, most state, and some local governments. State and local income tax rates vary widely by jurisdiction and many are graduated, or increase progressively as income levels increase. State taxes are generally treated as a deductible expense for federal tax computation.

Example of a State Tax

Sales taxes are imposed by most states on the retail sale price of many goods and some services. Sales tax rates also vary widely among jurisdictions, from 0% to 16%, and may vary within a jurisdiction based on the particular goods or services taxed. Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.

Example of a Local Tax

Property taxes are imposed by most local governments and many special purpose authorities based on the fair market value of property. Property tax is generally imposed only on real estate, though some jurisdictions tax some forms of business property. Property tax rules and rates vary widely.

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Taxes are the primary source of government revenue. Identify the basis for taxation. Key Points Taxes can be used to stabilize the economy. The implementation of taxes can promote social equity; for example the use of progressive income taxes. There are many types of taxes that can be legislated to derive revenue for government operations.

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Many people think that federal tax has increased substantially over the years, but this isn't true, federal tax has stayed within the 17-20% mark for the past 50+ years. taxing is one of the governments main sources of revenue and there are numerous types of taxes that the government collects such as payroll taxes, federal tax receipts and individual income tax.

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Figure 16.5 also shows the patterns of taxation for the main categories of taxes levied by the federal government: personal income taxes, payroll taxes, corporate income taxes, and excise taxes. When most people think of taxes levied by the federal government, the first tax that comes to mind is the individual income tax that is due every year on April 15 (or the first business day after). The personal income tax is the largest single source of federal government revenue, but it still represents less than half of federal tax revenue.

The second largest source of federal revenue is the payroll tax, which provides funds for Social Security and Medicare. Payroll taxes have increased steadily over time. Together, the personal income tax and the payroll tax accounted for about 84% of federal tax revenues in 2012. Although personal income tax revenues account for more total revenue than the payroll tax, nearly three-quarters of households pay more in payroll taxes than in income taxes.

The income tax is a progressive tax, which means that the tax rates increase as a household's income increases. Taxes also vary with marital status, family size, and other factors. The marginal tax rates (the tax that must be paid on all yearly income) for a single taxpayer range from 10% to 35%, depending on income, as the following feature explains.

HOW DOES THE MARGINAL RATE WORK?

Suppose that a single taxpayer's income is $35,000 per year. Also suppose that income from $0 to $9,075 is taxed at 10%, income from $9,075 to $36,900 is taxed at 15%, and, finally, income from $36,900 and beyond is taxed at 25%. Since this person earns $35,000, their marginal tax rate is 15%.

The key fact here is that the federal income tax is designed so that tax rates increase as income increases, up to a certain level. The payroll taxes that support Social Security and Medicare are designed in a different way. First, the payroll taxes for Social Security are imposed at a rate of 12.4% up to a certain wage limit, set at $117,900 in 2014. Medicare, on the other hand, pays for elderly healthcare, and is fixed at 2.9%, with no upper ceiling.

In both cases, the employer and the employee split the payroll taxes. An employee only sees 6.2% deducted from his paycheck for Social Security, and 1.45% from Medicare. However, as economists are quick to point out, the employer's half of the taxes are probably passed along to the employees in the form of lower wages, so in reality, the worker pays all of the payroll taxes.

The Medicare payroll tax is also called a proportional tax; that is, a flat percentage of all wages earned. The Social Security payroll tax is proportional up to the wage limit, but above that level it becomes a regressive tax, meaning that people with higher incomes pay a smaller share of their income in tax.

The third-largest source of federal tax revenue, as shown in Figure 16.5 is the corporate income tax. The common name for corporate income is "profits." Over time, corporate income tax receipts have declined as a share of GDP, from about 4% in the 1960s to an average of 1% to 2% of GDP in the first decade of the 2000s.

The federal government has a few other, smaller sources of revenue. It imposes an excise tax-that is, a tax on a particular good-on gasoline, tobacco, and alcohol. As a share of GDP, the amount collected by these taxes has stayed nearly constant over time, from about 2% of GDP in the 1960s to roughly 3% by 2012, according to the nonpartisan Congressional Budget Office. The government also imposes an estate and gift tax on people who pass large amounts of assets to the next generation-either after death or during life in the form of gifts. These estate and gift taxes collected about 0.2% of GDP in the first decade of the 2000s. By a quirk of legislation, the estate and gift tax was repealed in 2010, but reinstated in 2011. Other federal taxes, which are also relatively small in magnitude, include tariffs collected on imported goods and charges for inspections of goods entering the country.

Self Check: The Federal Budget

Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

You'll have more success on the Self Check if you've completed the three Readings in this section.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

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Figure 16.5 also shows the patterns of taxation for the main categories of taxes levied by the federal government: personal income taxes, payroll taxes, corporate income taxes, and excise taxes. When most people think of taxes levied by the federal government, the first tax that comes to mind is the individual income tax that is due every year on April 15 (or the first business day after).