I n t h I s c h a p t e r y o u w I l L

O
N
T
AXABLE
I
NCOME
. . .
T
HE
T
AX
R
ATE
I
S
. . .
Up to $25,750
15.0%
From $25,750 to $62,450
28.0
From $62,450 to $130,250
31.0
From $130,250 to $283,150
36.0
Over $283,150
39.6

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2 4 8
PA R T F O U R
T H E E C O N O M I C S O F T H E P U B L I C S E C T O R
Medicare, the next category in Table 12-4, is the government’s health plan for
the elderly. Spending in this category has risen substantially over time for two rea-
sons. First, the elderly population has grown more quickly than the overall popu-
lation. Second, the cost of health care has risen more rapidly than the cost of other
goods and services. The rapid growth of this budget item is one reason that Presi-
dent Clinton and others have proposed reforms of the health care system.
The next category is health spending other than Medicare. This includes
Medicaid, the federal health program for the poor. It also includes spending on
medical research, such as through the National Institutes of Health.
The “other” category in Table 12-4 consists of many less expensive functions of
government. It includes, for example, the federal court system, the space program,
and farm-support programs, as well as the salaries of Congress and the president.
You might have noticed that total receipts of the federal government shown in
Table 12-2 exceed total spending shown in Table 12-4 by $79 billion. Such an excess
of receipts over spending is called a 
budget surplus.
When receipts fall short
of spending, the government is said to run a 
budget deficit.
The government
finances the budget deficit by borrowing from the public. When the govern-
ment runs a budget surplus, it uses the excess receipts to reduce its outstanding
debts.
S TAT E A N D L O C A L G O V E R N M E N T
State and local governments collect about 40 percent of all taxes paid. Let’s look at
how they obtain tax revenue and how they spend it.
R e c e i p t s
Table 12-5 shows the receipts of U.S. state and local governments.
Total receipts for 1996 were $1,223 billion. Based on the 1996 population of about
265 million, this equals $4,615 per person. The table also shows how this total is
broken down into different kinds of taxes.
The two most important taxes for state and local governments are sales
taxes and property taxes. Sales taxes are levied as a percentage of the total amount
spent at retail stores. Every time a customer buys something, he or she pays the
Ta b l e 1 2 - 4
S
PENDING OF THE
F
EDERAL
G
OVERNMENT
: 1999