Taxes and Spending
As American citizens, you are entitled to things. Sometimes, these things are even nice: witness the kids down at Indian Mound Middle School, who are goofing off (or, allegedly, studying) on iPads this year. Good for them. But those iPads were not donated out of the goodness of Apple's corporate heart. There's a reason that Apple's share price is astronomical, and it's not because of philanthropy. Somebody paid for those devices.
At any rate, in order to (attempt to) cover its expenditures, the government raises money (revenues) in the form of taxes. Chapter 9 of your textbook deals with all the various ways that the government (federal, state, and local) can (and will) tax you. Ben Franklin got it right. Also, watch the video at right and try to tell me that Schoolhouse Rock wasn't trying to co-opt a bunch of kids into thinking that taxes are awesome. |
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Unlike most local and state governments, though, the federal government has no requirement to balance its yearly budget. Indeed, the federal government has not done so in the current millennium. No one is perfect, I suppose. However, the lack of a balanced budget has ensured employment for several editorial cartoonists, as you can see in the assignment for this unit.
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And, sometimes, when the economy is crashing and all is going bad, the government attempts to step in and save the day, using tools available to them. We'll discuss this more in the next unit, but for now, what you should know is that there are two different kinds of economic policy: Classical economics, such as the kind espoused by Adam Smith, and Keynesian economics, which are modeled on the economic theories of John Maynard Keynes.
In short, classical economics suggests that the "invisible hand" of the free market will solve all of problems of the economy, and government should stay out of trying to fix the economy. This is also sometimes known as "laissez-faire," which translates from French to mean "hands off." Keynesian economics, by contrast, suggests that when the economy is doing poorly (such as in a recession), the government should step in and increase the money supply--usually by pumping money into the economy--to keep the economy working. Conversely, in times of great growth, Keynesian economics would suggest that the government should reduce their spending in the economy to prevent inflation. This whole policy is known as "counter-cyclical" monetary policy, because it runs counter to the economic cycle. Pretty neat, huh? And, if that's confusing, check out the PowerPoint. |