CHAPTER 5 - GOVERNMENT SPENDING AND TAXATION
Govt. Taxation and Gov spending are the most direct way that the Gov influences the
economy. We look at Gov spending and taxation in this chapter to get an idea about
the size and characteristics of Government.
See page 111. Government spending over time. Growth has been in Fed spending.
Breakdown in Federal spending.
Transfer Payments 36% (SS, unemployment, AFDC, general assistance, etc.)
Housing subsidies, Food stamps and Medicaid/Medicare 17%
Less than 10% on education, ag programs, energy
Net interest - 15%
Total spending $1.5T
State and Local Spending - $1T, page 113.
Education, Public Welfare, and General Admin - 71%
Distinguish between spending on:
Government purchases of goods and services (government buys military
equipment, employs FBI, ATF, Dept of AG, Dept of Commerce, etc.,
Smithsonian, FDA, Highways, Research, etc)
Transfer Payments - transferring money from one group of people to another
group who are not providing goods and services.
Four Measures of Size of Government (Federal, State and Local)
1. Government Purchase of Consumption and Investment Goods (19% of GDP)
2. Government Employment (17% of Labor Force)
3. Total Gov Exp, Including Transfer Pmts (32% of GDP)
4. Total Taxes and Other Revenues (31%) (Ignores deficit)
Defense spending and govt purchases has remained fairly constant as a % of GDP, see
p. 116. Growth has been in Transfer Payments.
Tax Freedom Day - May 6
Tax Spending Day - May 16
COGD - July 3, 1997 (total federal, state and local govt spending, federal regulatory
FINANCING GOVERNMENT SPENDING
Personal Income Taxes - Largest source of revenue at Fed level. Required a
Constitutional Amendment. 16th amendment to the Constitution.