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Unformatted text preview: THE GOVERNMENT SECTOR THE GROWING ECONOMIC ROLE OF GOVERNMENT The role of government has grown tremendously over the past six decades (60 years). Actually, most of that growth took place between 1933 and 1945 during the administration of Franklin Delano Roosevelt. The 2 major crisis of the period – The Great Depression and WW II. The role of government has grown since after these events. Americans made a vow never again will we leave ourselves vulnerable to a depression or a military attack by another nation. The Government exerts four basic economic influences: 1) It spends over $2 Trillion each year. 2) Collect almost $2 trillion in taxes 3) Redistributed hundreds of billions of dollars back to the poor 4) Regulates the economy e.g. education, Medicare, etc. What does the government do with all our money? 1) Spent some on goods and services e.g. highways, police protection, defense 2) Some redistributed to the poor, to retirees and to holders of government bonds GOVERNMENT SPENDING Spending: The federal government spent over $1.5 trillion each year. Where did the money go? Direct benefit payments e.g. social security benefit, medical, food stamps, public assistance and veterans’ benefits. During the last 25 years, federal transfer payments have gone through the roof. How long 1) Continued expenditures on the Great Society programs of the 1960s. Particularly Medicare, Medicaid and Food Stamps. 2) The economy which sustained relatively full employment through the 1960s, has not been growing rapidly enough during the last 20 years to provide jobs for several unemployed people 3) In 1955 there were relatively few people collecting full Social Security benefits. The next big-ticket item is defense expenditures, budgeted in fiscal 2003 at roughly $300 billion. This comes to more than $100 for each person in America. President Ronald Reagan had long been an advocate of a strong national defense; he managed to oversee Congress to nearly double military spending between 1981 and 1986. One of the fastest growing federal expenditure is interest on the national defense, more than triple during the 1980s. STATE AND LOCAL GOV’T EXPENDITURES Both state and local government spending has been rising rapidly since WWII, but it still just a little more than half the level of federal spending. Spending areas- education, health and welfare Another expenditure that has gone up enormously is police protection and homelessness. GOVERNMENT PURCHASES VS. TRANSFER PAYMENTS The federal, state and local government spend about 3 trillion a year. Nearly ½ is paid to individuals as transfer payment and the rest is government purchased. We represent these purchases by the letter G and they go into our GDP equation....
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- Spring '10
- Progressive Tax, Personal income tax