Chapter 2 Outline
A. Government Spending
1. Governments in the United States spend large amounts of money to providea vast array of government services.
a. The largest items at the federal level are retirement and disability insurance, defense, health, interest, and income security.
1. Health and net interest have been the fastest growing categoriesduring the last decade.
b. The largest items at the state and local level are education, health and welfare, and transportation.
B. Government Purchases
1. Government purchases accounted for 40 percent of government spending in1992.
a. The largest share of government purchases, 55 percent, was for the hiring of government employees.
C. Government Transfers
1. Government transfers account for 37 percent of all government spending.
2. A transfer payment is a payment made with no expectation of something inexchange.
3. The two types of transfer payments are cash and in-kind.
a. In-kind transfers are payments for the purchase of specific goods and services.
D. Taxes and Other Revenue
1. Government spending is financed by government revenues or borrowing.
2. The main sources of revenue for the federal government are individualincome taxes, social security taxes, and corporate income taxes.
3. State governments depend primarily on sales and excise taxes and the individual income tax.
4. Local governments depend primarily on the property tax.
5. Charges, fees for government-provided goods and services, are an important revenue source for all levels of government.
E. Government Borrowing
1. When government revenues fall short of government expenditures, there is adeficit and government must borrow.
2. Deficits are more likely for the federal government than for state governmentsas most state governments have constitutions requiring a balanced budget.
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