Gross Domestic Product (GDP) Is Term Paper

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The major revenue sources for government income are: the profits tax, the salaries tax and the property tax, which correspond to the three major classifications of taxes. The major expenditure sources are: transfer payments to persons, defense consumption and social security (BLS, 2007). For state governments, the revenue is generated by land and municipal taxes and the expenditure is generated by retirement and disability, other direct payments and grants. The 2 major tax philosophies are: the single and the progressive one. Sales taxes are designed to be proportional, but in fact they are also called regressive because people with low income usually spend a higher % of their income on taxable sales, than people with higher incomes.

If the government doubled or tripled the taxes, the first impact would be to slow down the economic expansion, because companies would have less money to invest and investment is important to grow. The 2nd effect would be for companies to have less incentive to pay taxes even if they had the money.

The national debt is the money owed by any government. Just like any debt is bears costs that are proportional to the borrowed amount. By refinancing the national debt, the government is raising money to pay the outstanding amounts of its debt. The more the governments borrow, the higher the outstanding debt is and if the outstanding amount is not paid the debt is growing from one year to another like a "snowball," which is why this phenomenon is often known as the snowball effect.

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A budget deficit refers to the situation in which a government spends more than it owns and the deficit is reflected in the national debt. When the government projects a high deficit, this means that the national debt will grow. Excise tax is the tax on goods produced within the country (e.g. tax upon manufacture, sale or for a business license or charter). It is easy for governments to collect excise of sales taxes because their collection is made when the sales/manufacturing takes place, whereas for personal income tax there's a delay. For local governments is difficult to raise local due to the frequent changes in the definition of the main tax. Nevertheless, these governments are likely to impact the population quality of life more than the federal ones because the decisions are made taken under consideration the local conditions and these decisions are focused on specific issues. Federal governments are focuses on general issues.

Reference List

Barro, R.J. 1991. Government Spending in a Simple Model of Endogenous Growth. NBER Working Paper No. W2588.

Buchanan, J. & Wagner, R. 1977. Democracy in Deficit: The Political Legacy of Lord Keynes. New York: Academic Press.

Bureau of Labor Statistics - BLS. 2007.

A www.bls.gov

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