Budget policy has to do with government taxation, spending, and borrowing. As shown in Chapter 7, the government collects tax revenues by taxing the economic choices of individual residents, in particular the choice of how much to make in wages by offering labor services to employers and how much to make in asset income by offering financial capital to investors. Federal and state income taxes affect those choices by taking away a part of taxpayers’ wages and asset income.
Means-tested transfer payments also affect decisions to work and save, insofar as the individual’s eligibility to receive those payments diminishes with the amount of income he receives. The fact that a tax filer can lose a portion of his earned income ...
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