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taxes on products such as cigarettes and gasoline), federal grants-in-aid (redistri-

bution of funds from the federal government to lower levels of government),
income taxes, and property taxes (taxes on the value of individual properties,
mostly homes). Over the past 40 years, the substantial drop in revenue from
property taxes has been made up by rising federal grants and income taxes.
 What are the implications of shifting from taxation of property to taxa-

tion of income?

Regulatory Role of the Government

The discussion throughout this section has focused on the government as an
entity that exerts influence through its powers of taxation and spending.
Another critical role the government plays in all nations is that of regulating
economic and social activities. Consider some examples of how daily existence is
affected by the government in the United States:14
 The foods you eat and the medications you take have all been

approved by the Food and Drug Administration (FDA), an agency that

spends less than 0.1% of the governments budget each year, but whose
regulatory powers cover $1.5 trillion worth of goods annually, 20%
of total consumer expenditures. The FDA regulates the labeling and
safety of nearly all food products and bottled water, tests cosmetics to
ensure their safety, and approves drugs and medical devices to be sold
to the public.
 If youve lost a limb or developed carpal tunnel syndrome because

of your work, you might want to contact the Occupational Safety

and Health Administration (OSHA), which is charged with regulat-
ing the workplace safety of the 135 million Americans employed at
8.9 million job sites. In 2008, the agency sent its 1,100 inspectors on
39,000 visits to workplaces, which resulted in reports of over 87,000
workplace violations for which firms paid over $100 million in
 The radio stations in your car and the channels you watch on cable are

regulated by the Federal Communications Commission (FCC), which

regulates interstate and international communications by radio, televi-
sion, wire, satellite, and cable. Check any device in your home that
emits radiation of communication frequencies (wireless phones, remote
controls, etc.) and youll find an FCC identification number somewhere
on it.
 The air you breathe, the tap water you drink, and the land your home

is built upon are all regulated by the Environmental Protection Agency

(EPA), which is charged with minimizing dangerous pollutants in the
air, water, and food supplies.

14 Information on these regulatory agencies can be found at their respective Web sites:,,,, and