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SPEA-V 161 Wk 3 Notes

by: Jessica

SPEA-V 161 Wk 3 Notes SPEA-V160

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1) Government Spending - Marcia Clemmit, “The Issues” (p. 599-606) and “Chronology” (p. 607), in: CQ Researcher on Government Spending (2013)
National and International Policy
Professor Christine Glaser
Class Notes
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This 5 page Class Notes was uploaded by Jessica on Saturday July 16, 2016. The Class Notes belongs to SPEA-V160 at Indiana University taught by Professor Christine Glaser in Summer 2016. Since its upload, it has received 7 views.


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Date Created: 07/16/16
Government Spending/ Taxes 01/26/2016 ▯ Total since 1985-2020:  Gov. spending has increased significantly  8 Trillion by 2020 ▯ % GDP since 1985  take annual spending/ GDP (Gross Domestic Product- what has been produced in the US in a year)  Gov. spending compared to % of GDP doesn’t appear to have increased significantly  Increased gov. expenditures in 2008-2010 due to Recession o Begins to slowly decrease as economy gets better ▯ Which is a more accurate representation and why? Total Spending or % GDP  When getting a loan banks look at credit and your income o Higher the income the more likely to get a loan and get a higher loan  GDP is essentially “income of the nation” o Increase in GDP causes increase in everyone’s ability to spend more (including the government)  Makes more sense to look at GDP ▯ % of GDP by level of Government:  red= federal  green= state  grey= local ▯ Tax Breaks are Larger than Discretionary Spending ▯ ▯ Federal Taxes:  Individual income: general federal funds used for anything  Social security and Medicare payroll deduction: from trust funds  Corporate income tax  Excise tax on gas, liquor, tobacco, telephones, air travel, etc.  Estate and gift taxes  Custom duties  Charges and fees ▯ State Taxes:  Sales tax  Inheritance and estate tax  Income tax (fairly low in Indiana)  Property tax ▯ Ideal Purpose/ principles of taxation:  Raises revenues for the gov. to perform assigned tasks  Taxation should be simple, efficient, fair  Should not inhibit econ growth o Income tax is a sign of developed countries ▯ Social Security taxes up to 2010  Proportional tax- up to max amount ($118,500 2016)  Social security: 12.4% on your first $118,500 of wages (6.2% employee, 6.2% employer)- additional earned wages above 118,500 are NOT taxed  Medicare: 2.9% of your wages  Total FICA: 15.3% max ▯ SS Taxes:  Fall mostly on lower income brackets  tax rate and max rate have increased since its inception in 1937  began with 2% (1937) and max wage was $3000  2008 15.3% and max wage was $102,000  increase because more people are using SS funds due to baby boomer generation and an increase in longevity of life ▯ Federal income tax:  16 amendment to the US Constitution from 1914  didn’t effect a lot of people to begin with because no one could pay the taxes  Today: no income taxes paid by nearly half of all US households (somewhat misleading) o How is this possible? o Only 49% owed money on their tax returns in 2009  Their money has already been taken out throughout the year  Income tax withholding  Social security taxes  Other state and local taxes o Income just too low o Earned income credit (under a certain income and have kids might have credit come back to you) o Credit vs. deduction:  Credit: a credit reduces the amount of taxable income  Deduction: gross income- deduction= taxable income o Possible exemptions/deductions under “Adjusted Gross Income” on IRS 1040 tax form:  Health savings account  Moving expenses  Self-employed moving expenses  Educator expenses  Student loan interest deduction  Tuition and fees  IRA (Retirement Fund) o Tax and Credits on 1040:  Education credit  Child tax credit  Residential energy credit (adding solar panels)  Exemptions and Deductions: reduce your taxable income  Credits: are deducted after you calculate taxes  What saves you more money as a tax payer? o Deductions are added to incentivize certain aspects such as education, home ownership, etc. o Deductions are also added because of interest groups  De facto- Purposes Pursued with taxation: o To stimulate the economy through tax breaks o Achieve societal goals through tax exemptions, deductions, credits, and preferential rates (home ownership, retirements savings, supporting families with children, promote investments retirement savings) Progressive Federal Income Tax Rates Today:  Broken up into brackets/ only taxes what is above a certain rate at o First $9,225 taxed at 10% o Up to 37,450 taxed at 15% o Up to 90,750 taxed at 255 o Up to 189,300 taxed at ▯ Alternative Minimum Tax:  People in highest income brackets were paying no or minimal income taxes due to loopholes and offshore accounts  Congress initiated AMT  tax figured with no loopholes  While only 19,000 were paying the AMT in 1970, millions are now  It was initiated as a millionaire’s tax when enacted in 1969  Tax payers have to do a second tax calculation without claiming deductions like those for state and local taxes  Whichever is higher (AMT or normal taxes), you have to pay highest  Flaw AMT is not adjusted for inflation o More people in middle class were expected to pay the AMT taxes  In 1986 law was changed to aim at a wholly different set of deductions, the ones that everyone gets, like the personal exemption, state and local taxes, the standard deduction, certain expenses like union dues and even some medical costs for seriously ill ▯ Corporate Income Tax:  Federal tax rates  Very little ▯ Dividends  Shareholders of corps are taxes separately upon distributions of shares  If your in tax bracket up to 10% you pay no taxes on dividends ▯ Capital Gains:  Bought a stock and sell it to make more money than what you put in  If you hold a stock or bond for more than a year, taxes are applied ▯ Is tax system SIMPLE?  No many rules, stipulations, tax code is thousands of pages, many loopholes and deductions, likely to get different responses for the same tax questions, there are jobs solely based on taxes ▯ Is the tax system FAIR?  Progressive tax fair?  Proportion tax fair?  Various sources of income are treated differently o Different tax rates o Tax exemptions, deductions, etc. ▯ List of countries by personal income tax rate:  US= 39.6  Euro Area= 42  France= 5  Doesn’t account for any deductions, exemptions, etc.  Doesn’t account for when these kick in  International Comparisons = Difficult ▯ ▯ ▯


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