ECON103 Lecture Notes - Lecture 10: Tax Rate, Social Security Trust Fund
10 May 2018
School
Department
Course
Professor
Government Budget
●A government budget is a plan for spending and raising funds
●Current gov’t debt: $21 trillion
●Current gov’t deficit: $665 billion
○U.S. Federal Deficit Federal Debt=/
Outlays
●Gov’t Outlays = Gov’t Spending + Transfer Payments
○Transfer Payments: made to individuals without receiving anything in return (ex:
income assistance (welfare), social security)
●Total Outlays = Mandatory Outlays + Discretionary Outlays
○Mandatory (mandated by law): social security and medicare
○Discretionary (can be altered): defense, bridges/roads, infrastructure, gov’t wages
●The U.S. gov’t spends > $3 trillion each year
○Most of it is spent on mandatory outlays (around ⅔)
●Social Security: government-assisted funding program enacted in 1935
○Requires workers to contribute a portion of their income to the Social Security
Trust Fund
○Objective was to guarantee that workers retire with some retirement income
○1930’s→ 2% tax
■Few retirees receiving benefits; lots of workers paying in
○Today→ 12.4% tax
■Millions of baby boomers about to retire; fewer workers paying in
●Medicare: mandated health care program for those over 65 years old
○Requires current workers to pay medicare taxes (with promise of insurance upon
retirement)
○Objective was to ensure that all retired workers have some funding for their health
care
●Social Security and Medicare make up 40% of federal outlays
○People are living longer, many people who paid in are now drawing benefits, and
baby boomers are now retiring
●Recent increases in gov’t spending: defense spending
○From 2001→ 2010 increases from 16.5% to 19.1%
○Response to great recession in 2008 (spending more from 2007 to 2009)
Revenue
●Most comes from taxes
●Payroll taxes
○Income and social security combined for 83% of all federal tax revenue in 2017
○Other tax revenue sources→ excise, corporate, estate, custom taxes
●Progressive Income Tax System
