Taxes and public spending

In most economies government revenues come mainly from direct taxes on personal incomes and company profits as well as indirect taxes levied on purchase of goods and services such as value added tax (VAT) and sales tax. Since state provision of retirement pensions is included in government ex­penditure, pension contributions to state-run social security funds are included in revenue, too. Some small component of government spending is financed through government borrowing.

Government spending comprises spending on goods and services and trans­fer payments.

Governments mostly pay for public goods, that is, those goods that, even if they are consumed by one person, can still be consumed by other people. Clean air, national defense, health service are examples of public goods. Governments also provide such services as police, fire-fighting and the ad­ministration of justice.

A transfer is a payment, usually by the government, for which no cor­responding service is provided in return. Examples are social security, re­tirement pensions, unemployment benefits and, in some countries, food stamps.

In most countries there are campaigns for cutting government spending. The reason for it is that high levels of government spending are believed to exhaust resources that can be used productively in the private sector. Lower incentives to work are also believed to result from social security payments and unemployment benefits.

Whereas spending on goods and services directly exhausts resources that can be used elsewhere, transfer payments do not reduce society's resources. They transfer purchasing power from one group of consumers, those paying taxes, to another group of consumers, those receiving transfer payments and subsidies.

Another reason for reducing government spending is to make room for tax cuts.

Government intervention manifests itself in tax policy which is different in different countries. In the United Kingdom the government takes nearly 40 percent of national income in taxes. Some governments take a larger share, others a smaller share.

The most widely used progressive tax structure is the one in which the average tax rate rises with a person's income level. As a result of progressive tax and transfer system most is taken from the rich and most is given to the poor.

Rising tax rates initially increase tax revenue but eventually result in such large falls in the equilibrium quantity of the taxed commodity or activity that revenue starts to fall again. High tax rates are said to reduce the incentive to work. If half of all we earn goes to the government, we may prefer to work fewer hours a week and spend more time in the garden or watching television.

Cuts in tax rates will usually reduce the deadweight tax burden and re­duce the amount of taxes raised but might increase eventual revenue.

If governments wish to reduce the deadweight tax burden and balance spending and revenue, they are supposed to reduce government spending in order to cut taxes.

Vocabulary:

administration of justice - отправление правосудия

in return – в ответ

food stamps – продуктовые карточки, продовольственные талоны, по которым малоимущие граждане, как, например, в США, имеют право получать продукты питания в определенных магазинах, но не могут обменять их на деньги

to make room for – зд. создать условия для

the rich – богатые

the poor – бедные

reduce the deadweight tax burden – снизить налоговое бремя

result – результат

as a result – в результате

to result – происходить в результате

to result from – проистекать; обусловливаться чем-л

to result in – приводить к чему-л

most – 1. самый (употребляется перед прилагательными в превосходной степени после the); 2. весьма, крайне (перед прилагательными в превосходной степени после the и перед наречиями); 3. всего, всех (перед наречиями); 4. большинство, большая часть (перед существительными)

mostly – главным образом

that is – то есть

that is why – вот почему

so that – так, что(бы)

no - никакой (употребляется перед существительными)

mainly – главным образом, в основном

direct tax – прямой налог

indirect tax – косвенный налог (налог на товары или услуги, а не на частное лицо или компанию)

levy v – 1. облагать налогом; 2. собирать, взимать налоги

to levy a tax on smb – облагать кого-л налогом, взимать налог с кого-л

value added tax (VAT) – налог на добавленную стоимость (НДС)

sales tax – налог с оборота, налог на продажи (производители платят его, когда изделия считаются законченным товаром; оптовики – при продаже товара розничному продавцу; розничные продавцы – при продаже товара покупателям)

state n – государство

retirement pension – пенсия за выслугу лет

contribution – взнос

a contribution to a fund – взнос в фонд

social security fund – фонд социального обеспечения (государственный фонд для выплаты пособий по болезни и безработице, пенсий, пособий женщинам и детям)

borrowing n - заимствование

borrow v (smth from smb) – брать взаймы (что-л у кого-л), одалживать (что-л у кого-л)

comprise v (smth) – включать (что-л), состоять (из чего-л)

transfer payment – переводной платеж (производственный платеж, который не связан с оплатой товаров и услуг, например, пенсии, пособия по безработице, субсидии фермерам и т.д.)

pay (paid, paid) v (for smth) – платить (за что-л)

public goods – общественный товар, товар общественного пользования (благо, к которому одновременно имеют доступ все люди в данной экономике)

still cj – все де, тем не менее, однако

national defense – национальная оборона

unemployment benefit – пособие по безработице

cut (cut, cut) v – сокращать, снижать, уменьшать, урезывать

cut n – сокращение, снижение, уменьшение

reason n (for smth) – причина (чего-л)

for some reason – по какой-л причине

exhaust v – истощать, исчерпывать

productively adv – производительно, продуктивно

productive a – производительный, производственный

whereas cj – тогда как, в то время как

purchasing power – покупательная способность (стоимость денег, измеряемая в соответствии с количеством товара, который можно на них приобрести)

nearly adv – почти, чуть не

share n – доля, часть

tax rate – норма (ставка) налога (налогообложения) (налог, взимаемый на единицу облагаемой налогом суммы, выражаемый в процентном отношении, например, налог $5 на сумму в $100 значит, что ставка налога составляет 5%)

initially adv – с самого начала, вначале, первоначально

initial a – начальный, первоначальный, исходный

tax revenue – налоговые поступления, доходы от налогов

eventually adv – в конечном счете, в итоге, в конце концов

eventual a – конечный, окончательный

to tax v (smth) облагать налогом (что-л)

taxed commodity or activity – продукция или деятельность, облагаемая налогом; syn. taxable a – подлежащий обложению налогом

raise v – собирать, взимать (налоги, плату)

Exercise 1: Fill in the gaps with the words from Vocabulary:

1. The rise in oil prices raised the … of the OPEC and reduced... of oil-importing countries such as Germany and Japan. The world economy, … … …, was producing more for the OPEC and less for Germany and Japan.

2 Taxes... on goods and services are known as … …..., those... on in­come are called....

3 Due to a... capital use and more know-how, wages in West Germany were three times as much in... jobs as... in the East when the two Germanies united (объединяться) … … …, many East Germans moved (переехать) to the West.

4 In the 1980s British workers in the gas and electricity industries earned... £20 a week more than the national average.

5 The British national wealth... private assets (houses, factories, jewels) and national assets (the London Bridge, the paintings in the British Museum, the roads and telecommunications networks, and much more).

6... the nominal GNP is computed using the actual selling prices, the real GNP is computed using prices that existed in some pre­determined base year. The … … making a distinction between the nominal and real GNP is to know the general price increase, or inflation.

7 Keynes thought classical economists to consider... in national output of the different factors of production rather than the forces determin­ing the level of general economic activity.

8 Governments affect for whom output is produced through taxation and … ….

9 Non-renewable resources are those... in the process of use.

Exercise 2: Match the two parts of the sentences:

1. Government spending is	a) goes to households as employees, owners, or renters.
2. Spending and taxing,	b) payable to women at the age of 60 and men at the age of 65.
3. Whereas a sales tax is raised only when a final good is sold to the consumer,	c) the VAT is raised at different sta­ges of the production process.
4. The governments in northern Eu­rope often give out freely a great share of gross output privately pro­duced as public goods,	d) the sum of government purchases of goods and services and transfer payments.
5. What is not paid as corporate taxes or saved by firms	e) as its contribution to the Fund of Obligatory Medical Insurance (страхование).
6. Social security payments and un­employment benefits are	f) those comprise medical services, school, child care, public trans­ port, national defense.
7. Every firm in Russia is required to allocate two percent of the amount	g) believed to reduce incentives to work since they contribute to in­
to be paid out as wage	come.
8. A state retirement pension in most European countries is	h) the government plays an essential role in allocating resources in the economy.

Exercise 3: Make synonyms and antonyms pairs with the following words:

to manufacture, considerable, to buy, advantage, almost, mostly, so that, great, home, expenditure, provided, unemployed, to need, to produce, to supply, to lead to, taxable, as, if, unproductive, efficient, unlike, to purchase, spending, to cut, to levy, initially, taxed, productive, employed, to require, disadvantage, to sell, like, to provide, since, in order to, mainly, nearly, to impose, to reduce, eventually, domestic, to give rise to

Exercise 4: Find sentences where the word most means:

a) «большинство, большая часть»

b) «весьма, крайне»

1 Most of public expenditure is financed through taxation and govern­ment borrowing.

2 In a situation of full employment, the supply of most goods and servic­es will be inelastic.

3 Most often we look at the GNP per capita, or the average income in a country.

4 In 1986 there was a most sharp fall in world oil prices.

5 In most European countries and the USA, work experience (трудовой стаж) is required to receive unemployment benefits. For this reason, more people have an incentive to go into employment at an earlier age.

6 The International Monetary Fund (IMF) is considered to be one of the most influential multinational institutions stimulating international trade and maintaining balance-of-payments equilibrium.

7 The arts are a most important economic activity: their contribution to Britain's GDP was reported to be nearly £6,000 million in 1990.

8 As a result of the Industrial Revolution at the end of the 18th century, most workers became employed in large factories.

9 With some groups of population, payments from social security funds may be a most important contribution to household incomes.

Exercise 5: Translate the sentences into Russian paying attention to the meaning of the noun result and the verb to result:

1 A tax rate over 45 percent is known to result in a reduction in the taxes raised.

2 If labour supply is inelastic, there will be an increase in wages as a result of improvements in technology.

3 When transfers (e.g., unemployment benefits, disability payments) are added to labour incomes and distributed profits, the result is personal income.

4 Due to the tax reform the taxed income was lowered and an increase in tax revenue resulted though it was not as big as the government had expected it to be.

5 Higher profit resulted from decreased transportation expenses.

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