ECO2030 1nd Edition Lecture 28 Outline of Last Lecture I Cost benefit Analysis Outline of Current Lecture II The Tax System III Calculating the marginal tax rate system IV What government spends revenue on Current Lecture Chapter 12 The Tax System know the big ideas of all charts in this chapter Government should stay away from private goods but should play a role in public goods as well as goods that have externalities If they do this then government can improve our well being Governments revenue increased As a percent of total income As the economy s income has grown economy has grown Also the governments revenue from taxation has grown substantially As a country becomes richer government takes a larger share of income tax Governments have a hard time taxing people with no money as is the case in many poor countries Tax chart over time as a of GDP as you can see the revenue of government has increased over time and federal government makes up the majority of tax revenue chart from PPT These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Countries tax as a percent of GDP US does not have a large tax burden compared to the rest of the developed world because try not to have large tax burden focus more on efficiency Sweden France England germany and many other European countries have much higher tax revenues Europe tries to balance equity and efficiency germany is quite good at it Federal government s receipts ways they get revenue Individual income tax based on total income marginal tax rate Payroll taxes a tax on wages Social insurance taxes these pay for social security and medicare Corporate income tax a tax which is based on profit Most of Government revenue from income and social insurance taxes The federal income tax rate Marginal tax rate system Table 3 Understand how to calculate this eg if Alfred makes 70 000 how much tax does he pay Calculate percent tax for each bracket then add them up Example 0 10 000 10 10 000 30 000 20 30 000 100 000 30 Total 1000 4000 12000 15 000 10 of 10 000 1000 20 of 30 000 10 000 4000 30 of 70 000 30 000 12 000 The federal government s spending social security 19 transfer payments to the elderly we pay the elderly people now and the younger generation will pay for us National defense 19 Income security 15 transfer payments to poor needy families Temporary assistance for needy families TANF Food stamps SNAP unemployment compensation Medicare a health plan for the elderly Other health spending includes Medicaid a health program for the poor medical research spending and Net interest on federal deficits Budget deficits and surpluses are an annual amount not cumulative Budget deficit Excess of government spending over governments receipts Financed or borrowed from the public Budget Surplus Excess of government receipts over government spending Could use the excess recipts to reduce the cummulative outstanding depts The fiscal challenge ahead In 2009 the federal budget deficit was 1 413 billion 8 times greater than in 2007 Long term projection governments will spend a lot more than they will take in as tax revenue taxes will stay constant but spending will increase This is due to the politics of the system Representatives do not get praised for raising taxes but do for spending the pending economic disaster growing amount of retired people people living longer not sustainable
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