Magruder's American Government: 12. Government and the Economy, Sections 3–5

The word fiscal comes from the Latin word fiscus, meaning originally a reed basket and later a purse or treasury. In ancient Rome, the fiscus was the public treasury, the emperor's purse. A government’s fiscal policy consists of the various means it uses to raise and spend money and thereby influence the nation’s economy.

The income tax is also easily adapted to the principle of ability to pay. It is a progressive tax—that is, the higher one’s income, the higher the tax rate.

OASDI and Medicare are supported by taxes imposed on nearly all employers and their employees, and on self-employed persons. These levies are often called payroll taxes because the amounts owed by employees are withheld from their paychecks.

They are, instead, regressive taxes—taxes levied at a fixed rate, without regard to the level of a taxpayer’s income or his or her ability to pay them. In fact, the regressive OASDI and Medicare taxes now take more money out of the paychecks of many low and middle income workers than does the progressive federal income tax.

An excise tax is a tax laid on the manufacture, sale, or consumption of goods and/or the performance of services.

An estate tax is a levy imposed on the assets (the estate) of someone who dies.

An inheritance tax is another form of the so-called death tax. It is not levied on the entire net estate but, instead, on the portion inherited by each heir.

Customs duties are taxes laid on goods brought into the United States from abroad. Customs duties are also known as tariffs, import duties, or imposts.

Most imports are duties, but some are not—for example, Bibles, coffee, bananas, and up to $800 of a tourist's purchases abroad.

Interest is a charge for borrowed money, generally a percentage of the amount borrowed.

Entitlements are benefits that federal law says must be paid to all those who meet the eligibility requirements—for example, being above a certain age or below a certain income level.

That is, the government has run up a deficit (the shortfall between income and outgo) in each of those years—and it has borrowed to make up the difference.

Indeed, the government’s financial books did not show a surplus (more income than outgo) in any fiscal year from 1970 to 1998.

Borrowing produces a debt, of course. The public debt is the result of the Federal Government’s borrowing over time.

There is a growing economic interdependence among nations of the world. This interdependence, often called globalization, has been both driven and enabled by many remarkable advancements in communication and transportation technologies.

A tariff is a tax on imported goods. A tariff increases the cost of an imported item and makes American-made products more attractive to the domestic customer.

An import quota is a limit put on the amount of a commodity that can be imported into a country.

While recently limited by international agreements, import quotas are still in place in the United States on such items as cotton, sugar, and milk.

Trade embargoes and sanctions are more significant trade barriers—and are more often used to apply diplomatic pressure or as a punishment rather than as an economic tool.

A trade embargo is a ban on trade with a particular country or countries. Sanctions are similar to embargoes. An embargo might be placed on all goods or only specific items.