taxing and spending clause

Examples of taxing and spending clause in the following topics:

• Promoting the General Welfare

  • The General Welfare clause is a section of the Constitution-- as well as certain charters and statutes-- which provides that the governing body empowered by the document may enact laws to promote the general welfare of the people.
  • In some countries, the clause has been used as a basis for legislation promoting the health, safety, morals, and well-being of the people governed by the state.
  • The United States Constitution contains two references to "the General Welfare," one occurring in the Preamble and the other in the Taxing and Spending clause .
  • The Preamble of the United States Constitution states that the Union was established "to promote the general Welfare. " The Taxing and Spending Clause is the clause that gives the federal government of the United States its power of taxation.
  • General Welfare clause arises from two distinct disagreements: The first concerns whether the General Welfare clause grants an independent spending power or is a restriction upon the taxing power; the second disagreement pertains to what exactly is meant by the phrase "general welfare. "

• Fiscal Levers: Spending and Taxation

  • Spending and taxation are the two levers available to the government for setting fiscal policy.
  • The increase in spending and tax cuts will increase aggregate demand, but the extent of the increase depends on the spending and tax multipliers.
  • The government spending multiplier effect is evident when an incremental increase in spending leads to an rise in income and consumption.
  • The decrease in taxes has a similar effect on income and consumption as an increase in government spending.
  • This is because there is an inverse relationship between taxes and aggregate demand.

• Comparing Marginal and Average Tax Rates

  • Taxes can be evaluated based on an average impact or a marginal impact and can be categorized as progressive, regressive, or proportional.
  • An average tax rate is the ratio of the total amount of taxes paid, T, to the total tax base, P, (taxable income or spending), expressed as a percentage.
  • The marginal tax rate is sometimes defined as the tax rate that applies to the last (or next) unit of the tax base (taxable income or spending), it is in effect, the tax percentage on the highest dollar earned.
  • For example, if a company pays 5% tax on its first $100,000 earned, and 10% on the next $100,000, the marginal tax rate of earning the $101,000th dollar is 10%.
  • In terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income.

• Tax Rate

  • In a tax system, the tax rate describes the ratio at which a business or person is taxed .
  • An average tax rate is the ratio of the amount of taxes paid to the tax base (taxable income or spending).
  • A marginal tax rate is the tax rate that applies to the last dollar of the tax base (taxable income or spending) and is often applied to the change in one's tax obligation as income rises.
  • For an individual, this rate can be determined by increasing or decreasing the income earned or spent and calculating the change in taxes payable.
  • The popular press, Congressional Budget Office, and various think tanks have used the term to refer to varying measures of tax divided by varying measures of income, with little consistency in definition.

• The Supremacy Clause

  • Maryland (1819), the Supreme Court reviewed a tax levied by the state of Maryland on the federally incorporated Bank of the United States.
  • The Court found that if a state had the power to tax a federally incorporated institution, then the state effectively had the power to destroy the federal institution, thereby thwarting the intent and purpose of Congress.
  • Virginia (1821), the Supreme Court held that the Supremacy Clause and the judicial power granted in Article III give the Supreme Court power to review state court decisions involving issues arising under the Constitution and laws of the United States.
  • The Court relied on the Supremacy Clause to hold that the federal law controlled and could not be nullified by state statutes or officials.
  • Discuss how the Supremacy Clause shapes the relationship between federal and state law.

• What Taxes Do

  • Taxes are most readily understood from the perspective of income taxes or sales tax, although there are many other types of taxes levied on both individuals and firms.
  • Necessarily, taxes raise the price of purchasing the good or resource for firms and consumers.
  • In the United States, Congress has the power to tax as stated in The United States Constitution, Article 1, Section 8, Clause 1: "The Congress shall have the Power to lay and collect Taxes, Duties, Imposts, and Excises to pay the Debts and provide for the common Defense and general Welfare of the United States. " This power was reinforced in the Sixteenth Amendment to the Constitution: "The Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
  • Congress enacts these tax laws, and the IRS enforces them.
  • Governments use different kinds of taxes and vary the tax rates.

• Financing the US Government

  • Increasing taxes can reduce consumption and lead to economic slowing when the economy may be growing too quickly.
  • Alternatively, decreasing taxes can be a mechanism to promote economic growth by increasing the funds available for consumption and investment spending.
  • It is important to note that when the government spends more than the tax revenue it collects, the government is operating at a deficit and will have to borrow funds to finance operations until taxes can be increased to return the government spending to a balanced budget.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • Capital gains tax: tax on increases in the value of owned assets.

• Taxes

  • Taxes are the primary means for governments to raise funds for its programs and to pay off its debts.
  • Examples of an indirect tax include sales tax and VAT (value added tax).
  • Since high income earners spend a lower proportion of their income on goods and services in comparison to low income earners, the rich tend to pay proportionally less sales tax.
  • Ad Valorem (or Value Added) and Excise Taxes are types of indirect taxes.
  • Categorize types of taxes into ad valorem taxes and excise taxes

• How Fiscal Policy Relates to the AD-AS Model

  • It is helpful to keep in mind that aggregate demand for an economy is divided into four components: consumption, investment, government spending, and net exports.
  • A reduction in taxes will leave more disposable income and cause consumption and savings to increase, also shifting the aggregate demand curve to the right.
  • The extent of the shift in the AD curve due to government spending depends on the size of the spending multiplier, while the shift in the AD curve in response to tax cuts depends on the size of the tax multiplier.
  • If government spending exceeds tax revenues, expansionary policy will lead to a budget deficit.
  • If tax revenues exceed government spending, this type of policy will lead to a budget surplus.

• Introduction to Taxes and Legislation

  • Unfortunately, the cost of what's heavily taxed, what's minimally taxed, and what's not taxed sometimes doesn't square up.
  • For example, a chemical that sells for $20 per kilo may be subject to minimal taxes to encourage sales on an industrial scale, but what is the chemical's true cost when it makes its way into water, food supplies and human bodies?
  • (In a sustainability-based accounting system, health and medical damages resulting from improper disposal would be placed under disposal/future costs', which is one of the three major costs a business should strive to eliminate as depicted at the bottom of diagram A-2 on page 5 of the Introduction. ) Of course, raising money isn't the only function taxes perform.
  • Taxes also carry the potential to discourage the sale of the items or activities being taxed (which is why high taxes are often placed on alcohol and tobacco).
  • What effect does this have on consumer spending (the engine that drives a nation's economic growth)?