Government and Economy

One of the key roles of the government is to provide goods and services that private businesses don’t offer.

This lesson is a part of Onsego GED Prep.

Video Transcription

One of the key roles of the government is to provide goods and services that private businesses don’t offer. Think of things like public parks, libraries, museums, and highways. The government also steps in to prevent mergers that could harm competition and enforces laws to protect consumers.

Monitoring the economy is another crucial government function. By analyzing economic indicators like GDP, unemployment rates, and the Consumer Price Index, the government can tell if the economy is growing or shrinking.

To ensure everyone can maintain a decent standard of living, the government promotes education and enacts laws to fight discrimination. There are also many programs in place to support people in need.

Government Finances

The government’s revenue mainly comes from taxes and borrowing. The largest chunk of federal income is from individual income taxes. Employers take a portion of employees’ wages and send it to the IRS. Corporations also pay taxes, but nonprofits do not.

A significant amount of money is collected from social insurance taxes to fund Social Security, Medicare, and unemployment benefits. Other types of taxes include excise taxes on specific goods and services, such as gasoline, alcohol, and tobacco; customs duties; and estate and gift taxes.

Taxes also shape economic behavior. For example, mortgage interest tax deductions encourage home buying.

Some groups and industries are exempt from certain taxes.

For instance, nonprofit organizations like charities and educational institutions often don’t pay federal income taxes because their work benefits the public.

Similarly, farmers might get tax breaks to support agriculture, and companies investing in renewable energy can receive tax incentives to promote clean energy use.

The Tax Reform Act of 1986 made substantial changes to the tax system. It aimed to simplify the tax code and ensure fairness.

Before this Act, a high-income individual could use numerous deductions to lower their taxable income significantly.

After the Act, many of these deductions were eliminated, and the introduction of the Alternative Minimum Tax (AMT) ensured that even those with high incomes paid a fair share.

The Act also lowered tax rates and increased the standard deduction, making it easier for many people to file their taxes without itemizing deductions.

Besides taxes, the government borrows money by selling bonds, notes, and treasury bills. Small investors can buy savings bonds.

The government pays interest on these borrowed funds. When spending exceeds revenue, the government runs a deficit, adding to the national debt.
Budgets
Each year, federal, state, and local governments prepare budgets, which outline plans for raising and spending money.

The president submits a proposed budget to Congress by early February. Congress then reviews and must approve it like any other bill.
State governments receive revenue from federal funds, sales taxes, and income taxes.

Local governments get revenue from federal and state governments and also from property taxes, sales taxes, fines, and fees.

Last Updated on October 19, 2025.