Taxes are a sum of money demanded by the government in order to support federal spending, facilities, and other services.

What gives congress the power to enforce taxes is in Article 1 Section 8 where “The Congress shall have Power To lay and collect Taxes, Duties, imposts and excises, to pay the Debts and provide for the common defense and general welfare of the United States; but all Duties, imposts and excises shall be uniform throughout the United States.”

No Tax or Duty shall be laid on Articles exported from any State according to Article 1 Section 9

States have their own taxes and so can local level (Ex. the city).

Direct Taxes: direct taxes is a tax on land or buildings which has to be paid by the owner of the property . This stems from the three fifths compromise made by the framers . The states said that if slaves were to be counted in the population in the southern states then those states must pay for them. Therefore the direct tax must be supported by the person who is collecting the tax (levied)

Indirect taxes: taxes that can be collected by another person who is not directly being affected for payment an example of this is the tax on liquor the person who makes the liquor is paid by the person who buys it.

Progressive Tax: A tax that varies to what you make (based on your income).

Regressive Taxes: Money that is levied at a fix rate. It doesn’t matter whether the tax payer can pay it or not. Interestingly enough, regressive OASDI (The old age, survivor , and disability insurance programs) and Medicare taxes take more money out of paychecks of low and middle income workers than the progressive federal income tax.

Payroll Taxes: Money that employers are suppose to attain but are withheld from their paychecks.

Estate Tax:. Estate tax is a levy imposed on the assets of the estate or the one who dies congress used the estate tax in 1916 and used the gift tax in 1932 as a loophole  it allows people to avoid estate tax by giving money or property before death.  Anything a husband or wife leaves to the other is taxed only when the surviving spouse dies.  A gift tax is when one is imposed by making a gift of a living person

In 1913 the income tax was given to the 16th amendment Today it is the biggest source of funding for the government .

1918 was when it became one of the largest sources The income tax is flexible in which it can be adjusted to bring congress any amount of money that they

need . It also can be fixed so the ability to pay it is easy .

Custom DutiesCustoms duties: they are taxes brought on goods that are brought into the United States

from other countries other names are tariffs and import duties. Congress decides the rates and duties. 

What are taxes spent on?Controllable spending: the Congress and the President

decide each year how much money is to be used to help the Federal Government function.  For example, this would include civil service aids, national parks, and aid to education.

 Uncontrollable spending: spending that depends on the laws that created special programs.  Only a law change can change the amount allotted to each part.  The government cannot change the amount a received by certain programs without changing laws either!  Uncontrollable spending is over 60% of our budget.They can change eligibility.

Entitlements: Benefits that federal law says must be paid to all those who meet the eligibility requirements, e.g., Medicare, food stamps, and veterans’ pension.

One-fourth of the debt is from interests.The biggest is Social Security

How much money have we accumulated and spent?

Deficit: the yearly shortfall between revenue and spendingSurplus: more income than outcome

Making the Budget for Spending

What is the debt ceiling exactly?It's a legal cap set by Congress on the amount

of money the federal government can borrow. The ceiling applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare.

The first limit, established in 1917, was set at $11.5 billion, according to the Committee for a Responsible Federal Budget. By setting a limit, Congress gave the Treasury Department authority to borrow money as needed. Previously, Congress had to sign off every time the federal government issued debt.

How is the ceiling determined?They never admit it, but every time lawmakers vote to

hike spending or cut taxes and not pay for them, they're tacitly acknowledging that the debt ceiling will need to raised in the future.

So arguing over the debt ceiling after the fact is essentially arguing over whether to pay the bills the country has already incurred and which Congress has already approved.

How many times has the ceiling been raised? Since March 1962, debt ceiling increases have been enacted 76 times, according to the Congressional Research Service. Congress has voted to raise the ceiling 11 of those times since 2001.

Public debt: the outstanding indebtedness of the Federal Government.  It can include any unpaid debts and interest on the borrowed sums.

****There is not a limit on how much money the government can borrow!  The Congress has a ceiling, or limit, for the amount that can be borrowed, but the Congress tends to move it to borrow more when necessary.****

The last time the debt ceiling was raised was in August 2011. Without it, the country would have defaulted on its loans. Consequently, the economy and loans to the US would plummet.

Note also the U.S. debt ceiling, which currently stands at $16.394 trillion with current outstanding debt at $16.245 trillion, is going to have to be raised.

Current law implies automatic tax increases and spending cuts amounting to $700 billion in 2013—a tightening of around 4 ½ percent of GDP. If realized, this would push the country into a recession with large international spillovers

How is money borrowed?The Treasury Department issues securities to

investors after Congress allows federal borrowing.  Investors are usually individuals, banks, investment companies, and other financial businesses.  The securities are known as notes or bills for short-term borrowing and bonds for long-term borrowing.

The government promises to pay these back with interest by a certain date. Interest rates are lower for the government than the rates for other things.

People trust the government to pay back loans because it is the only one able to do so.

*People trust federal securities because they must be paid back and cannot be taxed by state or local governments.

Total Government Revenuein the United States

-5yr -1yr   Fiscal Year 2013   +1yr +4yr   Federal Direct Revenue     $2.9 trillion        State Direct Revenue     $1.6 trillion        Local Direct Reveue     $1.1 trillion        Total Revenue     $5.5 trillion     

Who we owe money to…

Projected and Recent US Federal Debt Numbers Federal Debt Debt held byPublic Debt held by Fed Res

FY 2013* $17.5 trillion $10.6 trillion $2.1 trillion

FY 2012* $16.4 trillion $9.7 trillion $1.9 trillion

FY 2011 $14.8 trillion $8.5 trillion $1.7 trillion

FY 2010 $13.5 trillion $8.2 trillion $0.8 trillion

FY 2009 $11.9 trillion $6.8 trillion $0.8 trillionFY 2008 $10.0 trillion $5.3 trillion $0.5 trillion

Why does the government borrow?

to meet costs of crisis situations like warspay for large-scale projects that are too

expensive to pay for with the current incomepay off budget deficits

Demand-side Economics/ Keynesian Economics: the government must borrow to support increased spending that will encourage employment and eventually higher tax revenues.

Supply-side Economics/ Reaganomics: tax cuts will increase supplies of money to private hands and stimulate the economy.

Ideologies:

Entitlement Cliff’ Threatens AmericaMuch has been said about the “fiscal cliff” coming at the

end of the year, when tax cuts are set to expire and automatic spending cuts begin, but that “pales in comparison” to the “entitlement cliff” looming for the country in coming years, a new report warns.

Entitlement spending is already so high that the cost of all entitlement programs plus interest on the debt is nearly equal to total federal revenue. That means virtually everything else the government does is being paid for with borrowed money, the report from the Institute for Policy Innovation discloses.

Entitlements include Social Security, Medicare, Medicaid, and means-tested welfare programs, plus veteran benefits, unemployment pay, disability pay, and more.

A number of these programs have grown substantially since President Obama took office. Medicaid has grown from 46.9 recipients to 56 million, disability beneficiaries have increased from 7.5 million to 8.8 million, and the food stamp program has grown from 32 million beneficiaries to 47 million.

All told, more than 120 million Americans receive entitlements of some kind, according to the Institute, a Texas-based think tank. Add to that an estimated 16 million new Medicaid beneficiaries resulting from Obamacare, and some 18 million people who enter the health insurance exchanges beginning in 2014.

The bottom line: For fiscal 2012, the federal government spent about $2.2 trillion of its $3.7 trillion budget on entitlement programs, while gross annual revenues stood at $2.6 trillion. Add interest on the federal debt of $220 billion to the entitlement payout, and that leaves less than $200 billion to pay for everything else, including defense, transportation, education, and homeland security. So the government makes up the shortfall by borrowing, or printing, money.

The problem will only get worse in coming years. Since 1980, Medicare and Medicaid have grown at more than 9 percent annually, and an estimated 77 million baby boomers are beginning to retire and collect Social Security.

At the same time, the pool of workers who pay for these programs is not growing. The Tax Policy Center reports that only 53 percent of households now pay both income and payroll taxes.

The Institute observes: “Attempting to collect enough money to sustain this level of entitlement spending will only result in a reduction in work effort, reduced employment opportunities, and more people moving onto entitlements.”

The Institute offers several steps necessary to deal with the growing entitlement problem. One way is to reform entitlements into real safety-net programs that help those most in need and don’t encourage continued reliance on welfare.

Another is to encourage economic growth by lowering personal and corporate income tax rates while eliminating loopholes, and lowering taxes on investment income.

Also, several programs could be transitioned into prefunded personal accounts.

The Institute’s conclusion: “Any solution that maintains the current defined-benefit structure — unless it is for a small number of the poorest Americans — is only postponing the inevitable financial day of reckoning.”