The housing slump set off a chain reaction in our economy. Individuals and investors could no longer flip their homes for a quick profit. Mortgages no longer became affordable for many homeowners, and thousands of mortgages defaulted, leaving investors and financial institutions holding the bag.
This caused massive losses in mortgage backed securities and many banks and investment firms began bleeding money. This also caused a glut of homes on the market which depressed housing prices and slowed the growth of new home building, putting thousands of home builders and laborers out of business. Depressed housing prices caused further complications as it made many homes worth much less than the mortgage value and some owners chose to simply walk away instead of pay their mortgage.
The credit well dried up
These massive losses caused many banks to tighten their lending requirements, but it was already too late for many of them the damage had already been done. Several banks and financial institutions merged with other institutions or were simply bought out. Others were lucky enough to receive a government bailout and are still functioning. The worst of the lot or the unlucky ones crashed.
The Economic bailout is designed to increase the flow of credit
Many financial institutions that are saddled with risky mortgage backed securities can no longer afford to extend new credit. Unfortunately, making loans is how banks stay in business. If their current loans are not bringing in a positive cash flow and they cannot loan new money to individuals and businesses, that financial institution is not long for this world as we have recently seen with the fall of Washington Mutual and other financial institutions.
The idea behind the economic bailout is to buy these risky mortgage backed securities from financial institutions, giving these banks the opportunity to lend more money to individuals and businesses, hopefully spurring on the economy. What? Credit got us into this mess! Why give more?!?
Ironic isnt it? Yes, it is true that credit got us into this mess, but it is also true that our economy is incredibly unstable right now, and being that it is built on credit, it needs an influx of cash or it could come crashing down. This is something no one wants to see as it would ripple through our economy and into the world markets in a matter of hours, potentially causing a worldwide meltdown.
Credit in and of itself is not a bad thing. Credit promotes growth and jobs. Poor use of credit, however, can be catastrophic, which is what we are on the verge of seeing now. So long as the bailout comes with changes to lending regulations and more oversight of the industry, along with other safeguards to protect taxpayer dollars and prevent thieves from not only getting off the hook, but profiting again, there is potential to stabilize the market, which is what everyone wants. Whether or not it works is to be seen, but as it has already been voted on and passed, we should all hope it does.
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Adapted Source: Ryan on September 29, 2008
VOCABULARY NOTES
| government bailout | / |
| this hurt individuals and businesses hard | / |
| to leverage billions of dollars of debt | |
| by simply shuffling paper | |
| credit went unchecked | |
| ticking time bombs | |
| set off a chain reaction | |
| holding the bag | . . -, |
| began bleeding money | . |
| glut of homes | |
| are saddled with risky mortgage backed securities | , |
| spurring on the economy | |
| got us into this mess | . |
| getting off the hook | . |
TEXT 3
Read the following text dealing with taxation. Scan it for the specific information helping you fill in the DATA SHEET (the first has been done for you). Present the filled in DATA SHEET when tested by the teacher on your progress in independent reading. Consult VOCABULARY NOTES if necessary.
Taxation
Cities, states, and countries pay for most of the expenses of government through taxes. Taxes are payments to the government that are
required by law. Almost every country in the world levies, or charges, taxes from its citizens, though the amount and type of taxes vary greatly from place to place.
Governments use the money raised from taxes for a variety of purposes. The primary purpose is to pay for the things that a government must provide to the people it serves. For example, taxes are used to build schools, roads, and bridges and to maintain services such as police and firefighting. Local, state, and national taxes also pay the salaries of all government officials, such as presidents, legislators, governors, mayors, and other leaders.
Beginning in the 20th century, historical events such as the Great Depression and new theories of economics led to new purposes for taxing citizens. Governments increasingly monitored the economy
to ensure better lives for their citizens. Some governments began to raise or lower taxes to improve national rates of employment or to spur economic growth.
Another major purpose of taxation that arose in the 20th century is the redistribution of wealth. The goal of this type of taxation is to provide assistance for those who need the help. For example, tax revenues are often applied to welfare programs that provide jobs and other benefits to people who cannot work.
Some countries levy other taxes to encourage certain types of behavior. In the United States high taxes on alcohol and tobacco products help to discourage their use and tax revenues help to offset the costs of health care for people who need treatment as a result of these drugs. Some nations use taxes in an attempt to change patterns in population. One example is taxing single people at a higher rate than married people to encourage marriage.
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There are many different types of taxes. Among them are income taxes, property taxes, sales taxes, inheritance taxes, and estate taxes.
An individual income tax, also called a personal income tax, is a tax on a persons income. Income includes wages, salaries, and other earnings from ones occupation; interest earned by savings accounts and certain types of bonds; rents (earnings from rented properties); royalties earned on sales of patented or copyrighted items, such as inventions and books; and dividends from stock. Income also includes capital gains, which are profits from the sale of stock, real estate, or other investments whose value has increased over time.
Whereas an income tax is levied on all sources of income, a payroll tax applies only to wages and salaries. Employers automatically withhold payroll taxes from employees wages and forward them to the government. Payroll taxes are the main sources of funding for various social insurance programs, such as those that provide benefits to the poor, elderly, unemployed, and disabled. In 1994 payroll taxes accounted for about 26 percent of all tax revenues in the United States; in Canada, the figure was 17 percent. For most people, payroll taxes are the second-largest tax they must pay each year, after individual income taxes.
Corporate income taxes make up another large portion of tax revenue in many countries. Companies pay taxes based on net profits, or the amount of money left over after the costs of conducting business plus other exemptions and deductions.
Property taxes are among the oldest type of taxation in the world. In many countries, including the United States, property is taxed at the state or local level instead of the national level. These taxes often provide the chief source of revenue for local governments. Most types of property are taxed. Exceptions include property owned by government, such as schools, libraries, and parks. Religious and charitable institutions can also be free from having to pay property taxes.
Sales taxes are among the most widely used type of taxes. These taxes are imposed as a percentage of the cost of goods and services, and they are charged upon purchase of those items. Many countries have national sales taxes, but only the states impose sales taxes in the United States. Different states have different percentage rates for their sales taxes, with some having no sales tax at all.
Inheritance and estate taxes create revenue from the transfer of property that happens when someone dies. An inheritance tax is charged on items that are handed down from one person to another. An estate tax applies when the object being handed down is the total estate left by the deceased. These taxes do not represent a large portion of income for state and national governments.
The system by which all citizens pay taxes to support the government is relatively new.
For a long time taxes played a very small role in the conduct of government. In ancient Greece and Rome, governments owned so much wealth that they did not require additional money to operate. The government received money from mining operations and from wealthy citizens in the form of gifts (though some were required by law). With the growth of trade, taxes were levied to pay for transportation and related costs. Taxes known as tariffs were imposed on imported goods.
During this time personal income taxes did not exist, but individuals did pay other taxes. Ancient Rome, for example, had an inheritance tax. In the 1st century BC Rome under Julius Caesar instituted a 1 percent sales tax.
The Middle Ages saw very little use of taxes. Under the system known as feudalism, wealthy kings and nobles offered protection in exchange for land. People who gave up their land could use it during their lifetime, but it often passed to the protector upon their death. This system
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began to fall apart as people gained greater rights under the law, such as the rights outlined in the Magna Carta. With less control over the people and the land, kings and nobles saw their wealth shrink. To restore their wealth, they introduced income and property taxes.
The American and French revolutions in the late 18th century were largely caused by people who were fighting against unjust tax systems. In particular, the American colonies complained of "taxation without representation." In other words, the colonies paid taxes to the British government, but Great Britain did not allow the colonies to have a voice in the government.
The income tax was introduced in Great Britain in 1799. The first income tax in the United States was adopted in 1862, during the American Civil War. The 1862 income tax was cancelled ten years later, and an attempt to reintroduce it in 1894 was declared unconstitutional, or contrary to the written guidelines of the government. The United States did not have a permanent national income tax until 1913. It required an amendment, or change, to the U.S. Constitution.
The 20th century brought about many changes to tax systems. In the United States many states began to abolish poll taxes, which were levied on voters at election time. (Poll taxes were declared unconstitutional in 1964.) The major change, however, was the changing of tax systems to redistribute wealth and to manage economic growth.
The 20th century also saw the United States and other governments experiment with new methods for obtaining revenue. Many states began lotteries, or games of chance in which players could win millions of dollars. Revenues from state lotteries were often set aside to pay for certain areas of government, such as education. Along the same lines, some state governments allowed the creation of casinos, or organized gambling establishments, which had been limited to very few locations in the country. These efforts were not considered taxes, but they did have the goal of reducing the burdens of taxation on the nation's citizens.
DATA SHEET
| The primary purpose of taxation | is to pay for the things (schools, roads) and services (police, firefighting) the government provides to the people of the country. |
| The secondary purpose of taxation | |
| Types of taxes. The oldest type of taxation. | |
| The most widely used type of taxes. | |
| Sources of income tax revenues | |
| Payroll tax refers only to and is the source of | |
| The proportion of payroll taxes in the USA | |
| Payments of corporate income taxes | |
| Peculiarity of sales taxes in the USA. | |
| Revenues from the transfer of property | |
| Tariffs are imposed on | |
| The taxes paid in Ancient Rome. | |
| Taxes introduced in the Middle Ages | |
| The introduction of income tax in Great Britain and the USA | |
| The major changes in tax systems in the 20th century. |
VOCABULARY NOTES
| 1. to `levy [levi] taxes (from) /to levy a tax on (smth) Synonyms to tax (people) /to impose a tax on (smb/smth) /to charge taxes to pay a tax on (smth) taxation | 1) , /, 2) the system of charging taxes |
| 2. to raise money (from taxes) | = to collect money |
| 3. to maintain services | (, . .) |
| 4. to spur economic growth | . |
| 5. redistribution of wealth | |
| 6. tax revenues ['revinjHz] | |
| 7. help to offset the costs of health care | |
| 8. income tax | |
| 9. payroll tax | , ( ) |
| 10. exemptions and deductions | |
| 11. inheritance and estate taxes | |
| 12. poll tax |
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SUPPLEMENT
