What are the three major categories of revenues for the federal government?
The different kinds of taxes imposed by the federal government allow it to raise trillions of dollars in tax revenues (Tax Policy Center, 2013). The trillion in dollar revenues raised by the federal government come from three major sources; individual income taxes, payroll taxes and corporate income taxes. Major sources of revenue accounts for 46 percent from individual income taxes, 34 percent from payroll taxes and 11 percent corporate income taxes (National Priorities, 2013a).
The three categories of revenues for the federal government are as follows;
- Individual Taxes
Individual taxes are the most prominent category of revenue for the federal government in fiscal years. The individual income taxes accounts for 46 percent of the total tax revenues. This makes the individual tax category the single largest source of federal revenue averaging 8 percent of the GDP. From 1950-2010, the individual taxes have remained a dominant source of revenue for the federal government. As the wages and salaries of the individuals working within an organization is far greater than the profit level of organizations, the individual taxes has remained the most dominant source of revenue since 1950.
(National Priorities, 2013a)
- Corporate Taxes
Corporations pay income taxes based on the level of profit earned. In addition, the organizations pay marginal taxes from 15 to 35 percent. This means that the tax is applicable on income over $18.3 million. With the passage of time, the share of the corporate taxes has gradually declined as corporations are continually exploiting the loopholes to avoid tax liability. The corporate taxes accounts for 9 percent of the total revenues of federal government (National Priorities, 2013a).
(National Priorities, 2013a)
- Payroll Taxes
Payroll taxes are designated as trust funds that are used for very specific purposes – to pay for Social Security and Medicare. As these taxes are deducted directly from the payroll (i.e. employee’s paycheck), it provides the government with continually increasing revenues. For instance, the social insurance tax was $900 (Bn) in the year 2008 and in the year 2012, the social insurance tax significantly increased to $1,032 (Bn). The payroll taxes accounts for 34 percent i.e. 2nd most lucrative percentage in federal government’s revenue.
(National Priorities, 2013a)
This signifies that with the rise in personal income, the payroll taxes would significantly increase as payroll taxes are deducted directly from the paycheck. In addition, the corporate taxes have also played a major role in providing the federal government with significant amount of revenues year over year .
What are the three major categories of expenditures for the federal government?
In the fiscal year 2012, the total government expenditure reached $3.6 trillion. The federal spending revealed 22.9 percent in terms of size of the US economy (i.e. nation’s GDP) (National Priorities, 2013b). Moreover, the federal government spending in the fiscal year 2014 would be around $3.8 trillion. All the spending are divided into three groups; Mandatory spending, discretionary spending and interest of debt (Center on Budget and Policy Priorities, 2013).
The three major areas or categories of expenditure for the federal government are equal to one-fifth of the budget. The major categories are as follows;
- Defense and International Security Assistance
In the fiscal year 2012, the federal government’s expenditure over the defense and international security assistance accounted for 19 percent of the budget (i.e. 689 billion). Moreover, the costs associated with the supporting of Afghanistan’s operations along with other related activities are also included in the budget as Overseas Contingency Operations which accounted for $127 billion in the fiscal year 2012 (National Priorities, 2013b).
- Social Security
Social security is the most dominant category of federal government’s expenditure. In the fiscal year 2012, the federal government paid $773 billion for the social security which accounted for almost 22 percent of the federal budget. With social security expenditure, the federal government was provided with an ability to provide variety of people with significant benefits in the year 2012 (National Priorities, 2013b).
- Medicare, Medicaid, and CHIP
Three prominent health insurance programs were taken into consideration by the federal government which accounted for 21 percent of the total expenditure. Nearly $732 billion was spent by the federal government for Medicare, Medicaid and Children’s Health Insurance Program (CHIP). Two-third of the amount; $472 billion was used by the Medicare to provide the 48 million people i.e. over the age of 65 or have disabilities with health coverage. On the other hand, Medicaid and CHIP was provided with the rest of one-third amount to provide 60 million people with health care facilities (National Priorities, 2013b).
The review of the categories of federal government expenditure revealed that the higher the budget allocated for the expenditure, the higher the economy of the country face deficits.
TWO COMMISSION RECOMMENDATIONS – AGREE
The two commission recommendations that would be positively taken into consideration are as follows;
- 6.5 percent National ‘Debt Reduction’ Sales Tax
- Social Security Payroll Tax
TWO COMMISSION RECOMMENDATIONS – STRONGLY DISAGREE
The recommendation provided by the commission would not be taken into consideration are as follows;
- Reduction in Individual and Corporate Tax Brackets
The recommendation to reduce the individual tax bracket from 6 to 2 is highly disagreeable. By reducing the number of tax brackets, the concept of equality and justice for all individuals in United States would be at stake. The reduction would imply that people that are earning $500,000 p.a. would be taxed the same as people earning $2,000,000 p.m. This would significantly damage the system from the core as the dissatisfaction level of the American people would significantly rise. On the other hand, the reduction in the corporate tax rate from 35 percent to 27 percent would significantly provide the businessmen with an opportunity to gain lucrative profit whereas the federal government would be provided with not much of anything to reduce the deficits.
- The Smithsonian Museum’s Entrance Fee
The Smithsonian Museum, which is currently free for all the visitors aims to charge $7.5 per person which is significantly greater than other museums and parks. Rather than charging such high entrance fee, the government should reduce the entrance fee per visitor to $2.5. This would significantly help to cover the 25 percent of the operating budget in the next 3-5 years.
RECOMMENDATIONS TO REDUCE UNEMPLOYMENT RATE
- Rather than laying-off workers from their work, the government should focus on reducing the number of work-hours. This will significantly help in the creation of additional job within US which will eventually help in the reduction of unemployment rate by 2 percent in the current and 3.5 percent in the following years (Baker, 2013).
- The firms operating within US should be provided with an opportunity to reduce worker’s hour by 20 percent which will eventually help in making up half of the lost wages (i.e. 10 percent). This implies that the worker would have to work in 20 percent fewer hours while getting 90 percent of the wage or salary.
- The government should frequently add jobs to reduce the unemployment rate within US. As a result, the federal government would witness boost in the reduction of unemployment rate along with significant growth in the US’s economy (Prial, 2013).
- the AD, AS equilibrium point
The point at which the downward sloping aggregate demand curve intersects the upward sloping aggregate supply curve, equilibrium point is formed. The equilibrium shows that intersection point of price level and the real GDP level.
- Reduction in spending and its Impact on AD?
The reduction in budget deficit through reduced spending would ultimately impact the aggregate supply curve to shift from AS1 to AS2. As a result, the aggregate supply would decrease and would negatively impact the aggregate to decline as well. For instance, if the price level was 10 and the real GDP was 5, the change would cause the price level to increase from 10-13 with reduction in the real GDP from 5-4.
- Reduction in debts through spending and its impact on AD and AS
The reduction in the spending on products and services to reduce the debts would negatively impact the aggregate demand curve. With such reductions, the demand curve would shift to the left side indicating decrease in aggregate demand curve. This eventually implies that the equilibrium point would significantly change to the reduction in the level of price level along with the real GDP. On the other hand, the Aggregate Supply curve would have no impact in short-term due to the change in Aggregate Demand curve.
- Cash for clunkers" car program and its impact on AD and AS
The cash for clunkers would significantly impact the aggregate demand curve along with the aggregate supply curve. The rebate provided by the federal government would significantly increase the level of price along with the real GDP level. With 10 percent change, the AD curve would shift towards the right side whereas; the change would cause the AS curve to shift to the right but the impact would be quite different on both the curves due to difference in the price level and the real GDP.
Baker, D. (2013). Reducing unemployment: Lessons from Germany. AlJazeera, Retrieved July 28, 2013 from http://www.aljazeera.com/indepth/opinion/2013/04/20134193422249557.html
Center on Budget and Policy Priorities. (2013). Policy Basics: Where Do Our Federal Tax Dollars Go?. Retrieved July 28, 2013 from http://www.cbpp.org/cms/?fa=view&id=1258
National Priorities. (2013a). Federal Budget 101: Where Does the Money Come From?. Retrieved July 28, 2013 from http://nationalpriorities.org/budget-basics/federal-budget-101/revenues/
Tax Policy Center. (2013). The Numbers: What are the federal government’s sources of revenue?. Retrieved July 28, 2013 from http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm
National Priorities. (2013b). Federal Budget 101: Where Does the Money Go?. Retrieved July 28, 2013 from http://nationalpriorities.org/en/budget-basics/federal-budget-101/spending/
Prial, D. (2013). U.S. Adds 165,000 Jobs, Unemployment Rate Dips. Fox Business, Retrieved July 28, 2013 from http://www.foxbusiness.com/economy/2013/05/02/us-adds-165000-jobs-unemployment-rate-dips/