Chapter Twelve

The Citizen in Government

Paying for Government

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Raising Money

Government Spending• federal government spends trillions of dollars every year

• 2012 federal budget over $3 trillion • state and local governments can spend many billions of

dollars each year• 2012 Ohio budget over $200 billion – 3000 pages long

• the costs of government are paid with public funds• this money comes from the American people

• each year, the local, state, and federal governments spend huge amounts of money on many needed services• local governments

• provide their citizens with police officers, firefighters, and schools, paved streets, sewers, trash removal, parks, and playgrounds

• state governments• fund highways and state police, provide money for public schools

and unemployment benefits• federal government

• funds the country's defense, helps agriculture, business, and labor and serves U.S. residents in hundreds of other ways

The High Cost of Government• every year it costs more money to run the federal

government1. serves a larger population than ever before

• more than 310 million people2. the cost of living continues to rise - inflation

• today a dollar will not buy as much as in earlier years3. provides many more programs and services than in the past

• these programs and services are expensive• the largest cost is in benefit payments to people who are elderly,

disabled, or living in poverty – Social Security program

4. the number of people who receive government benefits has been growing and will continue to rise• baby boomers, increased lifespans, economic hardships

5. large amount of money spent on national defense• post 9/11 war on terror

6. increasing national debt• spends more money than it raises and is forced to borrow money

• must pay huge amounts of interest on this borrowed money

• taxes• compulsory (required) payments to the government by citizens

and businesses • main source of money for federal, state, and local governments

• government officials must decide which activities need funding, in order of their urgency and need• establishing priorities

• programs with highest priority get funded first• programs with a lower priority may not receive funds• in recent years there has been much debate over the country's

priorities• what government programs most need money• what programs will bring the greatest benefits to the most people• some people question the amount of taxes they pay• some think that the costs of government are too high• some believe the government should spend more on public services

• all citizens have the right to expect that the government will spend the taxpayers' money wisely

Establishing Priorities

• taxes serve two purposes1. raise revenue (money)

• pays the costs of government2. regulate (control) some activities

• taxes on imports (tariffs) discourage imports and encourage business activity in the United States

• high taxes on cigarettes and alcoholic beverages are partly intended to discourage their use

The Purpose of Taxes

• rules to raise necessary funds to run the government without creating too great a burden for taxpayers 1. ability to pay

• taxes are set at different rates to make it possible for citizens to pay• taxes on people's earnings are lower for those with low incomes and

higher for those with high incomes• people with very low incomes do not pay income taxes

2. equal application• taxes are applied at the same rate for similar taxable items

• local tax on property is the same for all property worth the same amount of money

• sales taxes and other taxes collected on the goods we buy are the same for everyone purchasing these goods

3. scheduled payments• taxes are paid on set schedules• governments collect taxes at times when it is easier for people to

pay them• taxpayers can request to pay any taxes that they still owe in

installments spread throughout the year• will be charged interest and penalty fees

Three Principles of Taxation

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Other Sources of Revenue• fees

• payments charged for various licenses or activities• state governments

• hunting licenses, marriage licenses, driver's licenses, license plates• federal government

• trademark registration, grazing rights on federal land, entrance to national parks

• fines• money charged as a penalty for breaking certain laws

• local governments• illegal parking, speeding, other traffic violations

• special services provided by government• paid for directly by those who use these services

• federal government• sells timber from national forest reserves• sells electricity from certain federal dam projects

• state governments• collect payments from drivers who use toll roads and bridges

• local governments• collect payments from parking meters installed along city streets

• budget surplus• governments raise more money than they need

• budget deficit• governments must borrow money to meet their expenses

• reasons for borrowing• large projects - bridges or schools - cost a lot to build

• state and local governments usually cannot pay for them in full out of the government's income for a single year

• must borrow from citizens the additional money needed• governments can borrow money by issuing bonds• local governments must run bond elections for voter approval

• bonds• certificates stating that the government has borrowed a certain

sum of money from the owner of the bonds• the government promises to repay the loan on a

certain date and to pay interest on the amount borrowed• allow governments to raise money for public projects while giving

investors an opportunity to make a profit

Government Borrowing