• Transfer payments:
: payments made to groups or individuals when no good or service is received in return

• Government outlays:
the part of the government budget that includes both spending and transfer payments

• 3 groups of outlays:
- Mandatory
- discretionary
- Interest payments

o Mandatory outlays:
• Comprise government spending that is determined by on-going long-term obligations
• Examples: social security and Medicare
• Existing laws mandate government funding for them
• Not altered during the budget process
• Sometimes known as entitlement programs

o Discretionary outlays:
• Comprise spending that can be altered when the government is setting its annual budget
• Examples: bridge and road spending, payments to government workers and defence spending

o Interest payments:
• Payments made to current owners of US treasury bonds
• Not easy to alter
• Essentially mandatory payments

o Social security:
a government-administered retirement funding program

o Medicare:
: a mandated federal program that funds health care for retired persons

o 3 natural demographic reasons why Social security and Medicare take up more shares of the budget:
• People are living longer today than before: drawing more retirement benefits
• Those who paid into the programs for many years are now retired and drawing benefits: to be eligible for these programs, workers have to pay taxes out of their earnings while they work, when it started no one was eligible to take out so people just paying in
• In addition to a normal flow of retirees, the baby boomers are now retiring, thus over the next 15 to 20 years workers will retire in record numbers

• Excise taxes:
taxes levied on a particular good or commodity

2 largest Tax Sources:
are individual income taxes and social insurance

o Payroll taxes:
• Income tax:

Average tax rate =
Average tax rate = the total tax rate/amount of taxable income

Progressive income tax system:
people with higher income pay a larger portion of their income in taxes than people with lower income do

o Deficits:
• Budget Deficit: occurs when government outlays exceed revenue
• Budget surplus: occurs when revenue exceeds outlays (1998-2001)

o Deficit vs Debt:
• Deficit: shortfall in revenue for a particular year's budget
• Debt: the total of all accumulated and unpaid deficits

• Foreign ownership of US federal debt:
o US owns 70% of its debt
o Foreign investment important for supply of loanable funds market

Marginal tax rate:
the tax rate paid on an individual's next dollar of income

how much tax is paid
o 10% on income between $8,700 - 35,350
o 25% above 35,650

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