Flashcards in Chapter 12 Deck (62):
When the state spends more than it receives in taxes in 1 year.
Total amount the state owes
How does the state spend more than it taxes?
By selling government bonds to individuals, companies, and to other governments.
What is the federal debt a total amount of?
Government bonds outstanding
Net Public Debt
Portion of the debt that the US government owes to others, not to itself, is relevant amount that the state owes
Does the government always have a spending plan before they pass an actual budget?
How long is the governments plan for spending, taxes, deficits, and debt?
Congressional Budge Office (CBO)
Chief forecaster of how new taxes and spending will affect the budget
CBO uses static scoring, which is?
Assuming that individuals will not change their behavior if taxation or spending changes.
Looks at the effects of past changes on behavior to forecast the effects of new legislation
Historically, when investment tax rates fall, investment tax revenue dollars often do what?
Rise dramatically, as the Gaffer Curve might predict
How much was spending in 2007?
A little above $2.5 trillion
Taxes rose by ____ between '07 and '14.
$430 billion per year
Spending rose by how much between '07 and '14?
About $920 billion per year
How much does the US currently spend per day?
WWII gave the US a huge increase in what?
Net public debt
After WWII GDP increased quicker than the New Public Debt, so the ratio fell.
Since GDP increased during a time, the ____ shrank.
Why did the size of the debt compared to the economy shrink in '08?
Due to falling GDP and the $152 billion stimulus of '08.
Currently, the net public debt as a % of GDP is about the same as in?
In the years since '08, the ratio increased quickly due to?
1. $778 billion stimulus package of '09
2. Building part of the stimulus into the "baseline" so that it became regular yearly spending and refusing to pass another budget for years, to avoid debating the issue
3. Tow 8% increases in ordinary spending in '09
4. TARP funds that were spent and not repaid
5. Various increases in spending, such as increasing unemployment insurance from a 26 week program to a 99 week program and new healthcare
Historically, US government spending was how much of GDP?
The New Deal normalized the concept of socialized costs....
Spreading private costs to society in general, through taxation, with social security being the large social program from the era.
Kennedy proposed Medicare and Medicaid in the early 1960's and Lyndon Johnson did what?
Pushed them through congress
Now, 60% is spent on....
60% on transfers such as social security, medicare, medicaid, unemployment insurance and other welfare programs
Now, 20% is spent on....
Now, 5% is spent on....
Interest on the debt
Now, 15% is spent on...
Everything else, like roads, education, prison, etc.
Why is the interest component of spending low at the moment?
The Fed has expanded the money supply so greatly in recent times, lowering rates to 1% and less.
When inflation threatens and the Fed lowers the money supply, raising the rates toward 4%,
Interest component part of spending will rise drastically, causing a crisis.
Why was the New Deal put off for decades?
1. The baby boom after WWII and
2. The massive entry of women into the workforce
Today, how much if social security retirement benefits?
$1,200 per retiree
In 1950, 50 workers per retiree, averaging how much a person?
$24 per worker
Today, 3 workers per retiree, averaging ___ per worker?
In 15 years, there will be 2 workers per retiree, averaging ___ per worker.
$600. A 50% increase in payment
What is the first assumption of governmental accounting?
Benefits can be paid out of trust funds made up of government bonds (not of money)
What is the 2nd assumption of government accounting?
Politicians make cuts to future benefits early in every year, which would result in less future spending- even though those lawmakers restore the benefit cuts at the end of every year, before future cuts can be made.
What is the long term debt of the 3 programs estimated to be?
Except in times of war, where do revenues mainly come from?
When was the income tax amendment passed?
1913; and expanded nearly 80% of income during WWI, but only the very wealthy paid income taxes at first
Under the leadership of Andrew Mellon, Treasury Secretary to Harding and Coolidge, what happen to taxes?
The fell continuously though the 1920s. eventually down to 24%
What happened to taxes during the New Deal?
Tax rates tripled, then increased up to 90% during WWII and stayed there until Kennedy cut them to 70% in the mid-60s.
Under Reagan, taxes....
Top rate fell to 50% in '82, then to 28% in '88.
Clinton raised rates to?
Bush lowered rates to?
Obama raised taxes back to?
Assumes that people's behavior does not change when their incentives change
Tax revenues rose during WWII and stabilized at about ___ of GDP.
The fact that no matter how high rates go, tax revenues stay in the 17-18% range. It implies that we cannot balance our spending problems with tax increases, above a certain point.
How much is the US government currently spending?
25% of GDP, far above its taxes of 16% of GDP.
The tax rate is the same at all income levels
Tax rate rises as income rises
Tax rate rises as income falls
Since high income people pay a higher share of taxes than they have of income, the income tax is....
At low levels if income, the share of income exceeds...
The share of total federal taxes
At high levels of income, the share of taxes...
Exceeds the share of inceom
Top 20% pay tax rate of...
28.9%. The bottom 20% pay a rate of 1%
If a government wants to improve the economy, it should advocate reforms in...
Spending, taxes, or deficits.
With domestically finance government spending...
Resources are withdrawn from the economy immediately
With foreign financed government spending...
Resources are withdrawn immediately from the foregone economy, so that crowding out affects the domestic economy later, when the bonds are paid off.
With government spending financed by money creation...
In the long run there is no effect other than to create inflation and destabilize the economy as prices cease to reflect value.