ABSTRACT
Government plays a key role in the US economy in both macroeconomic and micro-economic issues. Government spending played a very small role in the American economy until the Second World War. In every peacetime expansion, taxes rise faster than government spending, so the amount of the deficit falls. In every peacetime recession, the amount of revenue from taxes falls, while government spending rises at a fast rate. During prolonged, large-scale wars, military spending by the US government caused a swift expansion of government spending. This led to a rise in employment so that the nation reached full employment. This chapter focuses on the revenue from taxes, especially the federal income taxes and the payroll tax for Social Security. Federal spending includes purchases as well as transfer payments. Federal receipts include taxes, fees, and profits from government agencies. Federal spending and revenue are reported in real dollars, adjusted for inflation.
