Chapter 14 Assessment

Chapter Summary

A summary of major ideas in Chapter 14 appears below. See also the Guide to the Essentials of Economics, which provides additional review and test practice of key concepts in Chapter 14.

• Section 1 What Are Taxes? (pp. 359–363)

  The United States Constitution gives the government power to collect taxes to fund government programs. A tax base is a value on which a tax is calculated, such as income, property, or profits. Economists describe three different types of tax structures: proportional, progressive, and regressive. Many taxes in the United States are based on a principle of ability-to-pay. Other taxes are based on a benefits-received principle. Economists use supply and demand analysis to determine the incidence of a tax, or who bears the final burden of a tax.

• Section 2 Federal Taxes (pp. 365–369)

  The federal government has six major sources of revenue, or income. They are individual income taxes, corporate income taxes, social insurance payments (including Social Security, Medicare, and unemployment taxes), excise taxes, estate and gift taxes, and tariffs, or taxes on imports. Individual income taxes are paid on a pay-as-you-earn basis through payroll withholding. Each year, people with income must file a tax return and pay taxes on all taxable income.

• Section 3 Federal Spending (pp. 371–374)

  Much of the federal government's spending is mandatory spending, that is, it is required by existing law. The remainder of the budget is discretionary spending. Major categories of government spending include entitlements, such as Social Security and Medicare, defense, and interest on the national debt.

• Section 4 State and Local Taxes and Spending (pp. 375–380)

  Like the federal government, state and local governments fund their programs by levying taxes. States have two budgets, an operating budget and a capital budget. Most state and local government revenues fall into the following categories: income tax, sales tax, severance tax, inheritance tax, and property tax.

Key Terms

Match the following terms with the definitions listed below. You will not use all of the terms.

• taxable income
• revenue
• discretionary spending
• progressive tax
• balanced budget
• withholding
• mandatory spending
• real property

1. Income received by a government from taxes and nontax sources
2. Physical assets such as land and buildings
3. Budget category in which funds are committed to certain programs by law
4. Total income minus exemptions and deductions
5. Tax structure with a rate that increases with the amount or value being taxed
6. Amount taken out of an employee's paycheck as a prepayment on taxes

Using Graphic Organizers

7. Copy the double web map below on a separate sheet of paper. Complete the double web map by writing examples of sources of federal and state government revenue in the circles. You may add more circles as needed.

   
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