Government Spending and Taxation

GOVERNMENT SPENDING AND TAXATION 1

GOVERNMENT SPENDING AND TAXATION

GRANTHAM UNIVERSITY

EDWIN ESTRADA

GOVERNMENT SPENDING AND TAXATION 1

2. During the past five decades, there has been a shift in the composition of the federal budget toward more spending on economic transfers and health care and a smaller share for national defense. Does economics indicate that this change will help Americans achieve higher living standards? Discuss.

3. Because the structure of the personal income tax is progressive, a larger share of income is taxed at higher rates as real income increases. Therefore, economic growth automatically results in higher taxes unless offsetting legislative action is taken. Do you think this is an attractive feature of the current tax system? Why or why not?

Yes, I think that this is an attractive feature of the current tax system because it allows for citizens to give an amount of money that is proportional to economic abilities. Citizens that have more money contribute more, and less fortunate individuals only pay a small portion.

4. Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax rate in 1980? What is the top rate now? Are you in favor of or opposed to the lower marginal rates? Why?

In 1980, the top marginal personal income tax rate was 70% for families making more than $215,400 — about $587,000 in current dollars whereas the highest rate now is 39.6%. I am in favor of the lower marginal rates because it allows for more aggregate demand, which is people wanting to buy things that have more money to spend and give a smaller percentage to the government.

7. Can democracy survive if a majority of the citizenry pays little or nothing in taxes while benefiting directly from a higher level of government spending? Why or why not? Discuss

No democracy cannot survive if a majority of the...