Ch, 16: Financing Government ( Magruder's American Government)

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fiscal policy

Back 1

the various means the government uses to raise and spend money

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income tax

Back 2

first levied in 1861to help finance the Civil War, it was upheld by the Supreme Court in Springer v. United States, but a later levy was declared unconstitutional in Pollock v. Farmers' Loan and Trust Co; such a tax on earnings was legalized by the 16th Amendment in 1913; it is the largest source of federal revenue today

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progressive tax

Back 3

a type of tax proportionate to income

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tax return

Back 4

a declaration of one's taxable income and of the exemptions and deductions claimed; filed with the Internal Revenue Service

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Internal Revenue Service (IRS)

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the executive agency with collects taxes and checks tax returns

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3 major social welfare programs

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Social Security, Medicare, and the unemployment compensation program

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payroll tax

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a tax imposed on nearly all employers and their employees, and on self-employed persons-the amounts owed by employees withheld from their paychecks

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regressive tax

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a tax levied at a flat rate, without regard to the taxpayer's income or ability to pay

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excise tax

Back 9

a tax laid on the manufacture, sale or consumption of goods and/or the performance of services

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estate tax

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a levy imposed on the assets of one who dies

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gift tax

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a tax on a gift by a living person

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custom duty

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a tax laid on goods brought into the United States from abroad, also known as tariffs, import duties, or imports

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nonrevenue purposes

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taxes may be used for these; for example, a tax credit or tax deduction may be used to encourage behavior, while a tax may be applied or increased to discourage a behavior

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license

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the federal government's regulation of narcotics is based on the taxing power; federal law hold that only those who hold a valid one of these may legally manufacture, sell or otherwise deal in those drugs, and licensing is a form of taxation

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interest

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a charge for borrowed money, generally a percentage of the amount borrowed

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deficit

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the yearly shortfall between revenue (income) and spending (expenditure)

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surplus

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more income than spending

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demand-side economics

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the theory that the higher employment that results from government borrowing will produce higher tax revenues

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supply-side economics

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the assumption that tax cuts increase the supply of money in private hands and stimulate the economy

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public debt

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all of the money borrowed by the government and not yet repaid, plus the accrued interest on that money; also called the national debt or federal debt

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entitlements

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benefits that federal law says must be paid to all those who meet the eligibility requirements, e.g., Medicare, food stamps, and veterans' pension

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controllable (or discretionary) spending

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an amount decided upon by Congress and the President to determine how much will be spent each year on many individual government expenditures, including environment protection programs, aid to education, and so on

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uncontrollable (or nondiscretionary) spending

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spending that Congress and the President have no power to change directly

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Office of Management and Budget (OMB)

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the president's budget-making agency; each federal agency prepares detailed estimates of its spending needs for the year and submits its spending plans to the OMB; the Budget Director compiles the President's budget

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Congressional Budget Office

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nonpartisan staff agency created by Congress in 1974 in order to supply an independent check of the information provided by the president's budget agency (OMB)

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continuing resolution

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a measure that allows agencies to continue working based on the previous year's appropriations

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gross domestic product

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the total amount of goods and services produced in a country each year

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inflation

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a general increase in prices throughout the economy

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disinflation

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a slow down in the rate of inflation

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deflation

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a general decrease in prices

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recession

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an absence of economic growth (two consecutive quarters - 6 months - of negative growth in GDP)

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monetary policy

Back 32

a process through which the government can influence the nation's economy through changes in the money supply and the availability of credit; handled by the Federal Reserve Board

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open market operations

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the processes by which the Federal Reserve buys or sells government securities (bonds) from and to the nation's banks in order to alter the money supply

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reserve requirement

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the amount of money the Federal Reserve determines banks must keep in reserve with one of the Federal Reserve Banks

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discount rate

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the rate of interest a bank must pay when it borrows money from a Federal Reserve Bank