Federal Government Spending 2001 Amount Amount Pe ercent Categor (billions) per Person of Spending Social security 433 $1519 23% National Defense 309 1,084 17 Income security 270 947 14 Net Interest 206 723 11 Medicare 217 761 12 Health 173 607 Other 256 898 14 otal $18646540100%
Federal Government Spending: 2001 Category Amount Amount Percent (billions) per Person of Spending Social Security $433 $1,519 23% National Defense 309 1,084 17 Income Security 270 947 14 Net Interest 206 723 11 Medicare 217 761 12 Health 173 607 9 Other 256 898 14 Total $1,864 $6,540 100%
Financial conditions of the Federal Budget o a budget deficit occurs when there is an excess of government spending over government receipts Government finances the deficit by borrowing from the public A budget surplus occurs when government receipts are greater than government spending a budget surplus may be used to reduce the government s outstanding debts
Financial Conditions of the Federal Budget • A budget deficit occurs when there is an excess of government spending over government receipts. • Government finances the deficit by borrowing from the public. • A budget surplus occurs when government receipts are greater than government spending. • A budget surplus may be used to reduce the government’s outstanding debts
Taxes and Efficiency o Policymakers have two objectives in designing a tax system Efficiency Equity o One tax system is more efficient than another if it raises the same amount of revenue at a smaller cost to taxpayers An efficient tax system is one that imposes the smallest deadweight losses and administrative burdens possible
Taxes and Efficiency • Policymakers have two objectives in designing a tax system: – Efficiency – Equity • One tax system is more efficient than another if it raises the same amount of revenue at a smaller cost to taxpayers. • An efficient tax system is one that imposes the smallest deadweight losses and administrative burdens possible
The Cost of Taxes to Taxpayers o The tax payment itself o Deadweight losses o Administrative burdens
The Cost of Taxes to Taxpayers • The tax payment itself • Deadweight losses • Administrative burdens
Deadweight Losses of Taxation Because taxes distort incentives, they entail deadweight losses The deadweight loss of a tax is the reduction of the economic well-being of taxpayers in excess of the amount of revenue raised by the government
Deadweight Losses of Taxation • Because taxes distort incentives, they entail deadweight losses. • The deadweight loss of a tax is the reduction of the economic well-being of taxpayers in excess of the amount of revenue raised by the government