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government spending

Uploaded by Brent R Goodin on May 09, 2004

Financing the operations of the federal government is extraordinarily complex. Annual federal budgets climbed from $250 million a century ago to almost $65 billion in 1955; then, in less than 30 years, they grew tenfold, to nearly $650 billion in 1982. Government revenues have not matched expenditures since the early 1960’s, and deficit spending has become the ordinary way of doing business.
Almost 47 percent of the federal government’s revenue comes from personal income taxes, with another 12.5 percent coming from corporate income taxes. Other sources of federal revenue are excise taxes (4.5 percent), interest on deposits (2.25 percent), customs duties (1.5 percent), and estate and gift taxes (1.25 percent). Minor sources of income – from charges for passports to admissions fees to the Smithsonian Institute – amount to less than .2 percent of the federal government’s income. These sources account for nearly 70 percent of annual revenues, and constitute the general fund, which goes to pay the ordinary operating expenses, from welfare to new missiles.

The remaining 30 percent of federal income is designated for specific purposes, including Social Security payments, unemployment taxes, federal employees’ retirement funds, and other retirement and disability funds. These funds are held in trust to provide benefits for those who have paid into the systems. For example, Social Security payments are a major source of income for many retired persons.

The largest portion of expenditures goes to Social Security and related payments (34 percent). Next comes expenditures for the national defense (23 percent), followed by interest on the national debt (11 percent). Health programs account for 10 percent, and other government programs, from veterans’ benefits to agriculture, account for 17 percent. The budgets of Congress, the federal judiciary, and the White House and executive offices combined account for less than half of 1 percent.

As long as the government is able to levy sufficient taxes to meet expenditures, it can maintain a balanced budget and avoid a national debt. This is not always possible, however, because tax revenues as well as expenditures are not perfectly predictable. Unexpected unemployment can result in lower tax revenues and increased transfer payments. (Transfer payments are payments made by the government for which no goods or services...

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Uploaded by:   Brent R Goodin

Date:   05/09/2004

Category:   Business and Economics

Length:   6 pages (1,319 words)

Views:   1931

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