e. Custom duties were once the major source of federal revenue, but with the move toward free trade, they now amount to less than 1 percent of it D. Taxing for Nonrevenue Purposes 1. Some taxes are designed to influence consumer behavior a. These taxes are levied against goods or activities deemed harmful or dangerous b. Many excise taxes (i.e. tobacco and alcohol) are based on this theory 2. Requiring the purchase of a license is an example of this taxing power 3. Recently these taxes have been intended more and more to encourage conservation 4. The Supreme Court upheld taxation for non-revenue purposes in Veazie Bank v. Fenno (1869) II. Nontax Revenue and Borrowing A. Nontax Revenues 1. The government accumulates about $30 billion each year from nontax sources 2. Much nontax revenue comes from interest paid to the Federal Reserve 3. The government collects fees for passports, copyrights, patents, trademarks, etc. 4. The government also collects usage fees (tolls, admissions fees, etc.) 5. The government sells or leases land and mineral rights 6. The US Mint makes a small profit (seigniorage) of about $2 billion on the production of coins 7. The Postal Service sells several hundred million dollars worth of stamps to collectors 8. Some people donate money to the government, especially when they die B. Borrowing 1. Congress borrows to cover the costs of short and long-term crises (i.e. wars, etc.) 2. The government borrows to finance large-scale projects that could not be paid out of current income (i.e. construction of infrastructure, etc.)
3. The government now routinely spends more than it collects each year and finances these deficits with greater borrowing 4. The government has only generated a surplus for four years since 1969 (only 11 since 1930), and there is no reason to believe that surpluses will be generated for the foreseeable future 5. The national debt (accumulated amounts of all past deficits) is approaching $9 trillion 6. The government borrows money by selling bonds – a commitment to repay the price of the bond plus interest at some future date 7. The government can borrow on better terms than private individuals a. The government can seize private assets to cover its obligations b. The interest earned on government bonds is not taxed C. The Public Debt 1. The public debt is the accumulated total indebtedness of the federal government 2. It is nearly impossible to visualize the sums needed to repay the national debt 3. It would take a stack of $1000 bills that was more than 500 miles high to pay it back 4. There is no Constitutional limit on the amount that may be borrowed, but Congress does impose a statutory limit 5. Congress routinely increases this limit whenever necessary 6. About one in ten dollars spent by the federal government goes to pay interest on the debt III. Spending and the Budget A. Federal Spending 1. Effects of Federal Spending a. Prior to the Great Depression, federal spending seldom had much of an impact on the national economy because it was relatively small b. Today, the government shifts trillions of dollars from certain areas of the economy into others, employs more people than any other organization, and is a huge component of GDP 2. Spending Priorities a. The federal government has mandated certain benefits be paid to those who meet the
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- Fall '17