Chapter 14: Government Revenue and Spending

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Where does the government get the right to tax?
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From the Constitution
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A _____________ is a mandatory payment to government.
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Tax
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What is the most important source of government revenue?
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Tax
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_____________ is government income from tax and non-tax sources.
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Revenue
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Borrowing and lotteries would be examples of _____________________.
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Non-tax sources
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_________________ states that people who benefit directly should pay taxes; amount paid = benefits received.
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Benefits-received principle
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________________ states that benefits received should not matter; amount taxed should depend on person’s ability to pay
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Ability-to-pay principle
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How can taxes be viewed as fairer?
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When they have fewer expectations, deductions, and exemptions
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Equity means ___________________.
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Fairness
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___________________ are exemptions or oversights in the tax law that allows some people and businesses to avoid paying taxes.
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Tax Loopholes
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What are the three criteria for taxation?
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1. Equity 2.Simplicity 3. Efficiency
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___________ is when people are taxed uniformly; people in the same situations pay the same amount.
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Equity
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_________________ is when it is easy for taxpayer to understand and government to collect.
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Simplicty
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_________________ is how well tax raises revenue with the least administrative cost.
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Efficiency
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True/ False: Tax should be easy to administer and reasonably successful at generating revenue.
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True
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True/ False: Tax should raise enough revenue to make it worth while.
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True
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Does individual income tax meet efficiency as well as people think it does?
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No
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A _____________ is when each type of wealth is subject to taxes.
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Tax Base
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What are the 4 most common tax bases?
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1. Individual Income 2. Corporate Income 3. Sales 4. Property
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________________ tax is based on an individual’s income from all sources.
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Individual Income
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Tax on wages, interest, dividends, and tips would be examples of _________________________.
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Individual Income tax
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________________ tax is based on a corporation’s profits.
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Corporation Income
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_____________ tax is a general tax levied on most consumer purchases based on the value of designated goods or services at the time of sale.
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Sales
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Sales tax is a percentage of ______________.
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sale price
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____________________ is a tax on the value of assets.
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Property Tax
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Tax on real estate and cars would be examples of ____________________.
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Property Tax
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___________________ is the final burden and impact of tax on a taxpayer.
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Incidence of Tax
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____________________ is a tax where all taxpayers pay the same percentage regardless of income.
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Proportional Tax
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__________________ is a tax where higher income earners pay higher percentage of income.
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Progressive Tax
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What kind of tax do we use in our current income tax structure?
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Progressive Tax
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___________________ is a tax where lower income earners pay higher percentage of income.
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Regressive Tax
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What 3 things do taxes affect?
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1. Resource Allocation 2. Productivity and Growth 3. Economic Behavior
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If demand remains the same, prices will ________.
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Increase
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What would a supplier do if she was unable to pass increased costs onto the consumer?
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She would shift production to another more profitable good or service
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When the cost of production rises, the supply curve shifts to the __________ and people buy ______.
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Left/ Less
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What affects the factors of production?
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Taxes
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How does productivity and growth affect taxes?
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By changing the incentive to save, invest, and work
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When taxes on interest and dividends are high, people save ______.
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Less
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Why do people favor lower taxes?
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Because productivity and growth suffer at some levels of taxes
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Why do some economists think high taxes reduce the incentive to work?
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Because a large percentage of one’s income would go to taxes
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What 2 things are a result of high taxes?
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Reduced incentive to work and promotion of underground economy
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___________ is the use of taxes to influence economic behavior.
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Tax Incentive
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Tax deductions would be an example of ________________________.
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Tax Incentives
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What do tax deductions on interest payments on home mortgages encourage?
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Home ownership
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_____________ high taxes designed to raise revenue and reduce consumption of a socially undesirable product such as liquor and tobacco.
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Sin Taxes
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True/ False: Demand for sin taxed items are relatively inelastic.
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True
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What makes sin taxed items more elastic?
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Steep tax increase
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The _______________allows Congress to levy an income tax and constitutes the majority of governmental revenue.
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16th Amendment of 1913
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List the 4 largest tax sources in order.
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1. Individual Income Tax 2.Social Security/Insurance Tax (FICA) 3. Corporate Income Tax 4. Excise tax
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_____________ is a payroll tax taken before worker gets paycheck.
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Withholding
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______________ collects money and administers taxation.
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Internal Revenue System (IRS)
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_______________ taxable portion of income.
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Taxable Income
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______________ are annual reports to IRS summarizing the total income, deductions, and taxes withheld by employers.
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Tax Returns
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What happens if too much tax is withheld?
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Taxpayer gets refund
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What happens if there is not enough tax withheld?
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Taxpayer pays rest
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____________ is a tax rate for an income span.
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Tax Bracket
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_____________________ requires an employer to automatically deduct or withhold income taxes from an employee’s paycheck and send it to IRS.
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Payroll Withholding System
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_______% of population lies below poverty line.
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15
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Name the 5 social classes.
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1. Wealthy 2. Upper-middle class 3. Lower-middle class 4. Middle class 5. Poverty
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____________ workers are paid by the hour and typically have lower levels of education.
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Blue collar
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The _________________ class is composed of lower-level white-collar workers who typically have college educations but not graduate degrees needed to reach high employment levels.
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Lower-middle
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The ____________ class workers have post-graduate degrees and work at high-level white-collar positions; paid $100,000.
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Upper-middle
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The _________ class makes more than $150,000 annually.
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Wealthy
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The wealthy class is known as the \”_____ percent\”
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5
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At the very top of the wealthy class is the \”___ percent\” who earn more than $250,000 a year.
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1
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What two programs are covered by FICA?
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Social Security and Medicare
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_____________ is a payroll tax that pays for Social Security and Medicare.
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Federal Insurance Contributions Act (FICA)
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What are the 2 types of payroll taxes?
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Social Security and Medicare
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_______________ aids senior citizens, orphans, and disabled.
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Social Security
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When was Social Security created?
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1960s by FDR during Great Depression
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How is Social Security benefit calculated?
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Uses highest earning over 35 years
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Social Security was _____% then Obama reduced it to ___%.
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6.2/ 4.2
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_____________ is the national health insurance for people over 65.
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Medicare
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Who created Medicare? When?
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Johnson/ 1960s
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Medicare is taxed at ________% with an increase of __% on earnings over $200,000 single or $250,000 married.
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1.45/ 0.9
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Who pays for Medicare?
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Both employees and employers
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________________ is a program that provides benefits for a certain amount of time to employees who lost their jobs through no fault of their own.
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Unemployment Compensation/ Taxes
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Unemployment taxes applies to first $ ___________ earned by an employee.
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7,000
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Who pays for unemployment compensation?
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Employers
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Who administers unemployment compensation?
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States
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Who funds unemployment compensation?
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Federal and State governements
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_______________ uses taxes to buy special issue bonds from US Treasury.
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Social Security Trust Fund
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What two factors determine social security monthly benefit?
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1. How much you earned over your working career 2. The age at which you choose to start receiving benfits
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________________ taxes are what a corporation pays on its profits.
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Corporate Income
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Why do corporations pay a separate tax?
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Because a corporation is a separate legal entity
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Excise taxes are also ___________ taxes.
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Regressive
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True/ False: Luxury and Recreational taxes are real taxes.
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True
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_____________ taxes are on property transferred to others after owner’s death.
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Estate
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___________ taxes are levied donations of money given by one living person to another; paid by the person who makes the gift.
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Gift
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Excise taxes are placed on good with ___________ demand.
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Inelastic
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____________ tax is a tax on the manufacture or sale of specific items.
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Excise
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Telephone services, gasoline, tires, legal betting, coal, and liquor would have ____________ taxes on them.
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Excise
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______________is a charge levied on goods brought in from other countries; tariff.
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Customs duty
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Who decides what will and how much will be taxed?
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Congress
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___________ is charged for the use of a good or service.
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User fee
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Parking, national parks, and the fee ranchers pay to let their herds graze on federal land would require a ________________.
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user fee
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______________ fees account for about 1% of federal revenue collections.
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Miscellanous
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What are the two categories that federal government funds go to?
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1. Mandatory Spending 2. Discretionary Spending
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_____________ is spending that is required by current laws.
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Mandatory Spending
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___________ is spending that the government must authorize each year.
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Discretionary Spending
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Funding Social Security and Medicare would be examples of ___________.
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Mandatory Spending
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Funding highway construction and maintaining national parks would be examples of ____________.
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Discretionary Spending
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________________ spending makes up over half of all federal spending.
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Mandatory Spending
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____________ are social welfare programs with specific requirements.
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Entitlements
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What is the largest amount of federal spending?
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Social Security
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_______________ provides medical insurance and additional old-age benefits under social security; includes coverage for some prescriptions.
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Medicare
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______________ is an insurance program for low-income people.
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Medicaid
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True/ False: Medicare and Medicaid were established at the same time.
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True
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True/ False: Other programs define eligibility requirements funds based on an estimate of how many people meet those requirements.
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True
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Food stamps, veteran’s benefits, homeland security, border protection, and enforcement of immigration on laws are examples of ________________.
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Discretionary Spending
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______________ uses over 1/3 of federal spending.
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Discretionary Spending
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_____________ includes salaries, weapons, military budgets, homeland security; takes up half of discretionary budget.
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National Defense
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List uses for discretionary spending.
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National Defense, Interstate Highway System, Transportation, Natural Resources, Environment, Parks, Pollution Clean Up, Education, Research, Justice Administration
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The ____________________ includes enforcement of FBI, CIA agencies and federal courts.
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Justice Administration
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______________ is the plan for spending revenue.
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Federal Budget
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_____________ 12 month period for which expenditures are planned; October 1- September 30
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Fiscal Year
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Who prepares the President’s budget?
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Office of Management and Budget (OMB)
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___________________ helps develop appropriations guidelines.
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Congressional Budget Office (CBO)
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Who votes on budget?
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Congress
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Who approves the budget?
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President
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What happens if there is not a budget by October 1?
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Can pass resolutions for day-to-day running
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________________ is when government buys goods and services that it needs to operate.
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Direct Spending
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____________________ is money distributed to individuals who do not provide anything in return.
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Transfer Payment
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Transfer payments are usually ___________ spending.
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Mandatory
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________________ is a transfer payment to state and local governments and regions.
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Grant-in-aid

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