Sources of Federal Revenue

1. Sources of Federal Revenue By: Alyssa Sargon and Chloe Grimes

2. Vocabulary • Budget: A policy document allocated burdens (taxes) and benefits (expenditures) • Expenditures: Federal spending of revenues • Revenues: Financial resources of the federal government • Deficit: An excess of federal expenditures over federal revenues

3. Sources of Federal Revenue • Income Tax: Shares of individual wages and corporate revenues collected by the government • 16th Amendment: explicitly permitted Congress to levy an income tax • The Internal Revenue Service (IRS) was established to collect taxes • Corporations and individuals pay income taxes • Generally progressive (meaning that those with a more taxable income do not only pay more taxes, but also pay at higher rates) • Much controversy arises about whether it should be a flat tax or progressive

4. Source of Federal Revenue (continued) • Social Insurance Taxes: • Employers and employees pay Social Security taxes • This money goes to the Social Security Trust Fund • This pays benefits to elderly, disabled, widowed, and unemployed citizens • Social Security taxes of revenue have grown faster than any other source of federal revenue

6. Source of Federal Revenue (continued) Judge Li • Borrowing: • Federal government may borrow money to make ends meet • The Treasury Department sells bonds • Borrowed money is for everyday expenses • Federal Debt: All the money borrowed by the federal government over the years and still outstanding. • Today it is more than 8 trillion • Large deficits make the American government dependent on foreign investors • The Federal government does not have a capital budget (a budget for expeditentures on items that will serve long term such as equipment, roads, and buildings)

7. National Debt

8. Taxes and Public Policy • Tax Loopholes: presumably a tax break or tax benefit • They only apply to a few people • Tax Expenditures: Revenue losses that result from special exemptions, exclusions, or deductions on federal tax law • One of the most obscure aspects of a generally obscure budgetary process • Benefits middle- and upper-income tax payers • Tax Reduction: An expense subtracted from adjusted gross income when calculating taxable income • Indexing taxes: government no longer received a larger share of income when inflation pushed incomes into higher brackets while tax rates stayed the same • Families with high incomes saved lots of money while poorer families saw little change in their tax burden • Tax Reform: changing the way people are taxed (i.e. President Reagan wanted to eliminate tax deductions and expenditures)

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