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UVA ECON 2020 - 10-1-2012Handout

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Federal BudgetFederal BudgetFiscal PolicyElias YannopoulosOctober 1, 2012Elias Yannopoulos Fiscal PolicyFederal BudgetFederal BudgetFederal Budget - Government’s plan for outlays and revenuesOutlays - Spending and transfer paymentsRevenues - money from taxesDiscretionary vs Mandatory outlaysDiscretionary outlays - can be adjusted year to yearMandatory outlays - predetermined expenses based on existinglawsEx: Social Security, MedicareElias Yannopoulos Fiscal PolicyFederal BudgetTaxesTaxes are where the government generates its revenue to payfor the outlaysThere are several different types of taxes, the largest two arepersonal income and social securityProgressive Income Tax - tax rates rise with incomeMarginal Tax Rate - tax rate of the next dollar of incomeAverage Tax rate - total tax bill as a portion of incomeElias Yannopoulos Fiscal PolicyFederal BudgetUS TaxesUS Marginal Tax Rates10% on taxable income from $0 to $8,70015% on taxable income over $8,700 to $35,35025% on taxable income over $35,350 to $85,65028% on taxable income over $85,650 to $178,65033% on taxable income over $178,650 to $388,35035% on taxable income over $388,350Elias Yannopoulos Fiscal PolicyFederal BudgetExampleEx: $50,000 of taxable income10% × $8,700 = $870+ 15% × ($35350 - $870) =15% × $26650 = $3997.50+ 25% × ($50000 - $35350) = 25% × $14850 = $3662.50Total tax bill = $8530Marginal tax rate = 25%Average tax rate =$8530$50000× 100 = 17.06%Elias Yannopoulos Fiscal


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UVA ECON 2020 - 10-1-2012Handout

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