Question

Think about the priorities of the federal government as you read each of these scenarios. Then answer the question that follows. Fernando noticed that the percentage of federal income taxes his employer deducts from his paycheck each week has increased. This means he has less money to spend. However, he has heard that the company he works for just received a large contract from the federal government to build more high-tech helicopters for the military. Olivia is happy that the percentage she pays in federal income taxes has decreased this year. She is thrilled that the candidate who ran on a platform of tax cuts won. She is finally able to purchase a new car and to save money for a down payment on a home. At dinner that night, her friend tells her that his unemployment benefits have just been reduced, will run out soon, and won’t be renewed. What is the relationship between taxes and government spending in these two scenarios?

Answer 1

In Fernando’s case, an increase in federal income taxes is enabling the government to spend more on the military. In Olivia’s case, a decrease in federal income taxes means the government has less money to spend and has to reduce funding for programs such as unemployment insurance.

Explanation: Plato answer

Answer 2

Both of these scenarios show that there is a correlation between the tax changes and government spending. In the first scenario taxes were increased so that the government can use that money for its military purposes. In the other scenario the taxes were cut but at the expense of the unemployment benefits. The money government can use comes from the budget which is formed through taxes and the government decides how to allocate its resources.