FINANCING GOVERNMENT

If you aren’t mad at the end of this lecture, you aren’t paying attention.

“UNITY”

What are BOTH sides (Liberals and Democrats) agreeing on in this cartoon?

Financing Government: Taxes

• Two primary ways money is obtained by government to “do government things”: Taxes and Borrowing Money
• Federal Income Tax
• Tax on money earned through work and investment.
• Largest source of federal revenue
• Progressive Tax- Higher income= higher tax rate because of ability to pay
• Current highest Federal Tax rate= 37 percent (down from 39.6 percent in 2019) for people making more than 626,350 dollars.

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Tax Loopholes

• Tax Loopholes
• Some people can afford to hire specialists to find loopholes in tax laws--->
• The rich often store or invest money without the government taxing it.
• 2 QUESTIONS:
• IS IT OK FOR RICH PEOPLE TO HAVE LOTS OF MONEY?
• WHAT DO RICH PEOPLE DO WITH THEIR MONEY?

Financing Government

• Corporation Income Tax—Corporations pay taxes on net income—BUT MANY LOOPHOLES—what does this mean? Do Corporations REALLY pay taxes?
• Social Security Tax
• 6.2% for employee and employer (12.4% total)
• Regressive Tax- a flat tax, everyone pays same percent
• Used for benefits when you retire, but this bucket of money is frequently accessed for other governmental spending issues.

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What about TARIFFS?

• Tariffs—Taxes placed on imported goods into the United States. Politicians often argue that this is bringing increased income from other countries into America.
• The reality is that a Tariff is seen by a company as an “INCREASE IN COST.”
• When a company’s costs to produce GO UP, they pass the extra costs on to the consumer in the form of higher prices.
• Companies DO NOT take a decrease in profits, they profit to stay open as a business.

COST OF BUSINESS EXAMPLE

Let’s say you run a Hamburger Stand.

Hamburger meat- $5.00 per pound

¼ pound burgers sell for $4.00.

Sell four hamburgers= $16.00 revenue.

But you have other costs- electricity, wages, buns,

After spending $12.00 buying hamburger and paying bills…

You PROFIT $1.00 per hamburger sold.

All of a sudden hamburger meat= $10.00 per pound.

If you still sell burgers for $4.00,

But you still have other costs- electricity, wages, buns,

Sell four hamburgers= $16.00 revenue.

After spending $18.00 buying hamburger and paying bills…

You LOSE $0.50 per hamburger sold.

You will HAVE to increase your prices to stay in business! By the way, you will have to do this no matter what increase in costs you have- WAGES, ELECTRICITY, CORPORATE TAXES, KETCHUP, BUNS, TARIFFS, etc.

$12.00/$18.00

$16.00

Financing Government

• Unemployment Tax: paid by employer
• Excise Taxes: placed on manufacturing, sale, and consumption of goods, such as gas and oil.
• Luxury taxes and “sin” taxes
• Tobacco, liquor, yachts, firearms, marijuana, airline tickets
• Why do we tax these items?

Financing Government

• Estate and gift taxes- collected on assets from someone who dies and taxes on gifts given to others.
• The top rate for Estate Taxes/Gift Taxes is 40 percent.
• This includes tax on VALUE of property, not just cash in the bank.
• Gift Taxes- Start after 15,000 dollar exclusion per year.

Stuff we haven't even mentioned yet...

• Sales Tax: Tax on the consumption of most non-food goods.
• State Tax: Similar to Federal Income Tax, but a usually a smaller percentage. (Some states do not have this, like WY.)
• Local Tax: City, County and Special Sales Taxes.
• Property Tax: Tax on CURRENT VALUE of owned property, usually used to support local services (schools). WHY?
• Miscellaneous Taxes: Car Licensing, Business Registration, Marriage Licenses, ID Cards, Fishing/Hunting Licenses, Pet Licenses, etc.

How hard do we have to work to pay all these taxes?

• Tax Freedom Day. On what day of the year does the average working American FINALLY make enough money to pay off ALL of their taxes for the year? (write this down! It’s a test question!)

Financing Government: Borrowing Money

• Public Debt: Government’s outstanding debt, all money borrowed + not repaid+ interest
• Current is $37.2 trillion and growing. (in 2020 it was 26.7 trillion)
• Current debt in the U.S. is greater than our GDP*.
• Growing by roughly $5.0 billion per day as of 2025

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*GDP: Total Value of ALL Goods and Services Produced in a country for a year.

Money Borrowed by the US Government over the last 25 years

• August 2025: $37,208,715,877,091
• August 2023 $32,731,119,261,246
• September 2020 $26,733,268,258,611
• October 2019 $22,830,072,528,092
• October, 2015 $18,419,103,886,098
• March 2013 $16,614,257,800,000
• JAN 19 2007 $10,626,877,048,913.08
• JAN 21, 2005 $7,614,468,360,651.30
• JAN 19 2001  $5,727,776,738,304.64

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Money Borrowed by the US Government over the last 25 years

5 Trillion

10 Trillion

22.3 Trillion

3 Trillion

2024=

35.2 Trillion

2025=

37.2 Trillion

Historical Debt in the US

What does $37.2 Trillion Dollars look like?

$100

$10,000

$1 million

$100 million

$1 Billion

$1 Trillion

$37.2 Trillion

HOW MUCH DO YOU OWE?

http://www.usdebtclock.org/

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Comparing Budgets

Financing Government: Debt Ceiling

• Debt ceiling: Total amount of money that government can borrow. This is set by Congress.
• Our current DEBT LIMIT in the U.S. is 41.1 Trillion Dollars. This Debt Limit often gets suspended so that we could continue to pay our bills as a country and it was increased from 36.6 Trillion dollars in the “Big, Beautiful Bill” in July.
• Deficit—shortfall of money coming in and money paid out. We are currently 1.1 trillion dollars SHORT in 2025.

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DEFICIT SPENDING EXPLAINED THROUGH POLITICAL CARTOONING.

The Cost of Borrowing Money

• There is a cost to borrow money, called INTEREST. If you borrow 100 dollars and pay back 110 dollars, you have been charged 10 percent INTEREST. Interest is usually calculated PER YEAR.
• Many loans (credit cards, student loans, federal debt) allow for INTEREST ONLY payments. What does this do to the amount financed?
• We are PAYING INTEREST ONLY ON OUR DEBT and have been since the 1980s!

The Debt Spiral

• When you only service the interest on a debt, the amount owed will increase. This is because the interest payments are not applied to the principal balance of the debt. Instead, they are added to the principal balance, which means that the borrower owes even more money.
• If you continue to only make the interest payments, the amount owed on the debt will continue to increase.
• Eventually, the amount owed on the debt could become so large that it is impossible to repay. This is called debt spiral.

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• DISCRETIONARY SPENDING (controllable/ OPTIONAL) Congress and President decides-
• Defense spending
• Farm subsidies, aid to education, environment, transportation, funding for research, the arts, science, etc.
• A good amount of government spending are grants to states and local governments

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Where does our money go?

Where does our money go?

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FIXED SPENDING (Uncontrollable/ MANDATORY)

• Interest on Debt,
• Entitlements— benefits that, by federal law, must be paid to eligible people (Social Security, Food Stamps, Medicare, Medicaid, Unemployment, etc.)

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Where does our money go?

Who do we owe?

The VERY latest information on who we owe our debt to, article from THE BALANCE website.

What about Socialist states?

In Denmark:

• Starting National Tax is 46%, top end (for those making over $80,000) is 68%.
• There is a national tax on all goods of 25%.
• There are consumption taxes on such items as gasoline and cars up to 200% (a 40,000 dollar car in America would cost about 95,000 dollars in Denmark.)

WHY?

CONSIDER THIS:

• The answer to the DEBT PROBLEM is a very difficult one, for one major reason- NOBODY WANTS TO DO WHAT NEEDS TO BE DONE!
• Here is the answer that nobody wants to listen to- 10 Myths Regarding the Debt (from 2017!)

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