Presentation is loading. Please wait.

Presentation is loading. Please wait.

Tax – a required payment to a local, state, or national government –Income, sales, property, capital gains, etc. Revenue – income received by the government.

Similar presentations


Presentation on theme: "Tax – a required payment to a local, state, or national government –Income, sales, property, capital gains, etc. Revenue – income received by the government."— Presentation transcript:

1

2 Tax – a required payment to a local, state, or national government –Income, sales, property, capital gains, etc. Revenue – income received by the government from tax collection Tax Base – income, property, good or service that is subject to a tax Chapter 14 – Taxes and Government Spending Section 1 – What are Taxes?

3

4 Proportional Tax – % of income taxes remains the same for all income levels (Flat tax) It’s the same percentage for all. $40,000 income vs. $140,000 income 10% on $1000 = $100, Who has more in the end? Progressive Tax – % of income paid in taxes increases as income increases (Federal Income Tax) “The more you make the more they take” Regressive Tax - % of income paid in taxes decreases as income increases (Sales Tax) 6% tax on a can of beans for the $25,000 and the $125,000. Who does this impact more? Tax Structures

5 1.Simplicity – easy to understand, keep records, prepare tax forms, anticipate amount of taxes 2.Efficiency – easy to collect, taxpayers should not pay too much or take too much time to pay 3.Certainty – clear due dates, amount to be paid, how to pay 4.Equity – fair, so not one person bears too much or too little of the tax burden Characteristics of a Good Tax

6 “Pay-As-You-Earn” Taxation – taxes are paid based on annual income; individuals pay income taxes throughout the year Tax Withholding – tax payments taken out of employees pay before they receive it; ensures annual payment Tax Return – form used to file income taxes; declare income and taxable income Individual Income Taxes

7 Taxable Income – A person’s gross income minus exemptions and deductions Personal Exemptions – set amounts that you subtract from your gross income –0, 1, 2, 3, 4, 5, 6, etc. Deductions – amounts you can subtract, or deduct from your gross income. –Interest on a home, children, charity, religious, education, etc. Tax Bracket – scheduled rate at which you are taxed based on your annual income Individual Income Taxes

8 FICA (Federal Insurance Contributions Act) – funds Social Security and Medicare. Social Security – funds people of old-age, survivors and disabilities, established in 1935, originally to provide old-age pensions of workers Medicare – national health insurance program that helps pay for people over age of 65 or with certain disabilities Medicaid – national health insurance for people within the poverty threshold Unemployment – insurance for workers laid off through no fault of their own Corporate Income Taxes

9 Excise tax – tax on gasoline, cigarettes, alcohol, phone service, cable, internet, etc. Estate tax – “death tax”, tax on estate or value of money and property of a person who has died Gift tax – tax on money or property that one living person gives to another; a person can give up to $10,000 a year tax- free per individual Tariff – import tax on foreign goods brought into the country Other Types of Taxes

10 *Answer in complete sentences* 1.How did taxes affect early American colonists? 2.What gives the government the right to tax U.S. citizens? 3.What is the purpose of taxation? 4.What are some things that are provided by the government through revenue? 5.Where is the power to tax found in the Constitution? 6.What are the two limitations of taxes found in the taxation clause? 7.What is Congress unable to tax? 8.What is a tax base? 9.List the items that could be included in the tax base. Daily Assignment Questions – Ch. 14 Section 1 pgs. 359 – 360

11 Out of the 3.5 Trillion dollars of U.S. federal budget, break down in percentages the amount that you think should go towards the following areas of the economy: Chapter Do Now CategoryPercentage Allocated Social Security National Defense Unemployment/ Welfare/Mandatory Programs Medicare Medicaid Interest on Debt Education

12 Out of the 3.5 Trillion dollars of U.S. federal budget, break down in percentages the amount that you think should go towards the following areas of the economy: Chapter Do Now CategoryPercentage Allocated Dollars Social Security19.63$ 695 billion National Defense18.74$ 664 billion Unemployment/ Welfare 16.13$ 571 billion Medicare12.79$ 453 billion Medicaid8.19$ 290 billion Interest on Debt4.63$164 billion Education1.32$ 46.7 billion Other18.0$ 635 billion

13 Fiscal Policy – the use of government spending and revenue collection to influence the economy Federal budget – a written document indicating the amount of money the government expects to receive and how they will spend it –Released the first Monday in February each year Fiscal year – 12 month period, October 1 – September 30 Fiscal Policy and The Federal Budget

14 Step 1 – Federal agencies request money; spending proposals are sent to the Office of Management and Budget (OMB) Step 2 – The OMB works with the President to create a budget, President presents to Congress Step 3 – Congress makes changes to the budget and sends the amended budget to the President Step 4 – The President signs the budget into law Creating The Federal Budget Step 1 → Step 2 → Step 3 → Step 4

15 Mandatory Spending – programs that lawmakers are required by existing laws to spend money on (Social Security, Medicare, Medicaid, etc.) Discretionary Spending – spending that government can adjust; increase or decrease (Defense, environment, scientific research, etc.) Federal Spending

16 1.Which President had the smallest budget deficit’s in recent history? 2.Which President had the largest budget deficit in recent history? 3.Other than our current President, which three presidents had the largest budget deficits? 4.What do you have to do when you spend more than you can afford? Budget Deficits and the National Debt

17 Balanced budget – money going into the U.S. Treasury is the same amount of money going out –Revenue = Spending –The last balanced budget occurred in 1997 under President Bill Clinton Budget Deficits and the National Debt

18 Budget Surplus – occurs when the government takes in more than it spends –Revenue > Spending Budget Deficit – occurs when the government spends more than it takes in –Revenue < Spending Balancing the Budget

19 Create money – the government can print or inject money into economy Borrow money – government borrows money by selling bonds –Bond is a type of loan with a promise to repay with interest –Bonds sold domestically or globally –China owns 1 trillion dollars in U.S. bonds Dealing with a Budget Deficit

20 National debt – the total amount of money the federal government owes to bondholders Budget deficit – the amount of money the government owes to bondholders in one fiscal year Who does the United States owe money to? US Debt Clock The National Debt

21 Mandatory and Discretionary Spending Chart pgs Mandatory SpendingDescription Entitlements Social Security Medicare Medicaid Other Mandatory Spending Programs Discretionary Spending Description Defense Spending Other Spending Social welfare programs that people are “entitled to” if they meet certain eligibility requirements. The largest category of federal spending. More than 50 million retired or disabled people and their families and survivors receive monthly benefits. Serves around 40 million people, most over 65 years old. Pays for hospital care and the costs of physicians and medical services. A program that benefits low-income families, disabled and elderly people in nursing homes. Largest source of funds for medical and health related services for people within the poverty threshold. Food stamps, supplemental security income and child nutrition, retirement benefits and insurance for federal workers, veterans pensions and unemployment. Pays the salaries of people in the army, navy, air force, marines and civilian employees. Largest portion of discretionary spending. Education, training, scientific research, student loans, technology, national parks and monuments, law enforcement, environmental cleanup, housing.

22 Expansionary and Contractionary Fiscal Policies, pgs WordDefinition Description Expansionary Fiscal Policies 1.Purpose 2.Increase in government spending 3.Cutting Taxes Contractionary Fiscal Policies 1.Purpose 2.Decrease in government spending 3.Increasing Taxes

23 Tools of Fiscal Policy Chart Fiscal PolicyExpansionary/ Contractionary Explanation 1. The government cuts business and personal income taxes and increases its own spending. 2. The government increases the personal income, Social Security and corporate income tax. 3. Government spending goes up while taxes remain the same. 4. The government reduces the wages of its employees while raising taxes on consumers and businesses.

24 Tools of Fiscal Policy Chart Fiscal PolicyExpansionary/ Contractionary Explanation 1. The government cuts business and personal income taxes and increases its own spending. ExpansionaryDecreased taxes increase C & I. Increase in government spending increases G. Shifts AD to the right. 2. The government increases the personal income, Social Security and corporate income tax. 3. Government spending goes up while taxes remain the same. 4. The government reduces the wages of its employees while raising taxes on consumers and businesses.

25 Tools of Fiscal Policy Chart Fiscal PolicyExpansionary/ Contractionary Explanation 1. The government cuts business and personal income taxes and increases its own spending. ExpansionaryDecreased taxes increase C & I. Increase in government spending increases G. Shifts AD to the right. 2. The government increases the personal income, Social Security and corporate income tax. ContractionaryI & C decrease because of the tax increase. Shifts AD to the left. 3. Government spending goes up while taxes remain the same. 4. The government reduces the wages of its employees while raising taxes on consumers and businesses.

26 Tools of Fiscal Policy Chart Fiscal PolicyExpansionary/ Contractionary Explanation 1. The government cuts business and personal income taxes and increases its own spending. ExpansionaryDecreased taxes increase C & I. Increase in government spending increases G. Shifts AD to the right. 2. The government increases the personal income, Social Security and corporate income tax. ContractionaryI & C decrease because of the tax increase. Shifts AD to the left. 3. Government spending goes up while taxes remain the same. ExpansionaryHigher government spending without a corresponding rise in tax receipts increases G. Shifts AD to the right. 4. The government reduces the wages of its employees while raising taxes on consumers and businesses.

27 Tools of Fiscal Policy Chart Fiscal PolicyExpansionary/ Contractionary Explanation 1. The government cuts business and personal income taxes and increases its own spending. ExpansionaryDecreased taxes increase C & I. Increase in government spending increases G. Shifts AD to the right. 2. The government increases the personal income, Social Security and corporate income tax. ContractionaryI & C decrease because of the tax increase. Shifts AD to the left. 3. Government spending goes up while taxes remain the same. ExpansionaryHigher government spending without a corresponding rise in tax receipts increases G. Shifts AD to the right. 4. The government reduces the wages of its employees while raising taxes on consumers and businesses. ContractionaryReduction in government spending results in a decrease in aggregate demand. Increases in taxes reduces C. Increased business taxes reduce I. Shifts AD to the left.

28 Model of aggregate demand & aggregate supply Model used to explain short-run fluctuations in economic activity around its long-run trend Aggregate - sum of all supply and demand in an economy Two variables: Economy’s output of goods and services Average level of prices (CPI or GDP Deflator) 27 Price Level Quantity of Output Equilibrium price level Aggregate supply (AS) Aggregate demand (AD) Equilibrium output

29 Why is the AD Curve Downward Sloping? 28 Wealth effect – consumers are wealthier, which stimulates the demand for consumption goods Interest rate effect – interest rates fall, which stimulates the demand for investment goods Exchange Rate effect – currency depreciates, which stimulates the demand for net exports, vice versa 28 Price Level Quantity of Output Equilibrium price level Aggregate demand (AD) Equilibrium output

30 Aggregate Demand Aggregate-demand curve –Sum of C+I+G+NX (real GDP) at each price level –Downward sloping –Low price levels increase the quantity of goods and services, vice versa 29 Price Level Quantity of Output Equilibrium price level Aggregate demand (AD) Equilibrium output

31 Why the AD Curve Might Shift? 30 Shifts arising from changes in consumption –Decreases in spending – people become more concerned with saving for retirement –Increases in spending – stock market boom increases disposable income Shifts arising from changes in investment –Change in firm investing – tax policy, pessimism about economy in future, interest rates Shifts arising from changes in government purchases –Congress increases/decreases spending Shift arising from changes in net exports –Global recessions would cause a decrease in demand for U.S. products 30

32 What Shifts the Aggregate Demand Curve? Price Level Quantity of Output A B C SituationChange in ADNew AD Curve Congress cuts taxes Business spending decreases Government spending increases; no new taxes Survey shows consumer confidence jumps Stock collapses; investors lose billions President cuts defense spending by 20%; no increase in domestic spending C A C C A A

33 Effects of Fiscal Policy Chart ScenarioExpansionary/ Contractionary Effect on Federal Budget Objective for Aggregate Demand Action on Taxes Action on Gov’t Spending Effect on the National Debt 1. National unemployment rate rises to 12% 2. Inflation is strong at a rate of 14% per year. 3. Surveys show consumers are losing confidence in the economy, retail sales are weak and business inventories are increasing rapidly 4. Business sales and investment are expanding rapidly, and economists think strong inflation lies ahead. Expansionary Contractionary Expansionary Contractionary Move toward a deficit Move toward a surplus Move toward a deficit Move toward a surplus

34 Chapter 15 Practice Worksheet 1. If a country’s central bank were to engage in activist stabilization policy, in which direction should it move the money supply in response to the following events? a.A wave of optimism boosts business investment and household consumption causing price levels to increase. Decrease the money supply b.To balance its budget, the government raises taxes and reduces expenditures causing a slowdown in the economy. Increase the money supply c.OPEC raises the price of crude oil causing people’s disposable income to reduce. Increase the money supply d.The taste for the country’s products amongst the residents of other countries declines. Increase the money supply e.The stock market falls. Increase the money supply

35 Chapter 15 Practice Worksheet 2. In which direction should the Federal Reserve move interest rates in response to the following events? a.A wave of optimism boosts business investment and household consumption causing price levels to increase. Increase interest rates b.To balance its budget, the government raises taxes and reduces expenditures causing a slowdown in the economy. Decrease interest rates c.OPEC raises the price of crude oil causing people’s disposable income to reduce. Decrease interest rates d.The taste for the country’s products amongst the residents of other countries declines. Decrease interest rates e.The stock market falls. Decrease interest rates

36 Chapter 15 Practice Worksheet 3. If policy makers were to use fiscal policy to actively stabilize the economy, in which direction should they move government spending and taxes? a.A wave of optimism boosts business investment and household consumption causing price levels to increase. Decrease spending, increase taxes b.To balance its budget, the government raises taxes and reduces expenditures causing a slowdown in the economy. Increase spending, decrease taxes c.OPEC raises the price of crude oil causing people’s disposable income to reduce. Increase spending, decrease taxes d.The taste for the country’s products amongst the residents of other countries declines. Increase spending, decrease taxes e.The stock market falls. Increase spending, decrease taxes

37 1.What does a states operating budget pay for? List examples. 2.What does a state’s capital budget pay for? List examples 3.How do the state budgets differ from the federal government? 4.Where are taxes spent? List and describe each of the following: 1.Education 2.Public Safety 3.Highways and Transportation 4.Public Welfare 5.Arts and Recreation 6.Administration Daily Assignment Questions State and Local Taxes and Spending, pgs

38 Flow Chart Types of Taxes, pgs Individual Income Taxes Corporate Income Taxes Social Security, Medicare and Unemployment Taxes Other Types of Taxes Types of Taxes 1. Pay-As-You-Earn Taxation 2. Tax Withholding 3. Tax Return 4. Taxable Income 5. Personal Exemptions 6. Deductions 7. Tax Brackets 1. Impact on Federal Budget 2. Deductions 3. Progressive structure of Corporate taxes 1. FICA 2. Social Security 3. Medicare 4. Unemployment Taxes 1. Excise Taxes 2. Estate Taxes 3. Gift Taxes 4. Import Taxes (Tariffs) 5. Tax Incentive

39 Flow Chart Types of Taxes, pgs Individual Income Taxes Corporate Income Taxes Social Security, Medicare and Unemployment Taxes Other Types of Taxes Types of Taxes 1. Pay-As-You-Earn Taxation 2. Tax Withholding 3. Tax Return 4. Taxable Income 5. Personal Exemptions 6. Deductions 7. Tax Brackets 1. Impact on Federal Budget 2. Deductions 3. Progressive structure of Corporate taxes 1. FICA 2. Social Security 3. Medicare 4. Unemployment Taxes 1. Excise Taxes 2. Estate Taxes 3. Gift Taxes 4. Import Taxes (Tariffs) 5. Tax Incentive

40 Consumers Expect a Recession Fall in AD – Prices fall, real GDP falls Foreign Income Rises Rise in AD – Prices rise, real GDP rises Government Spending Increases Rise in AD – Prices rise, real GDP rises Foreign price levels fall Fall in AD – Prices fall, real GDP falls Workers Expect Future Inflation, Negotiate Higher Wages Now Fall in AS – Prices rise, real GDP falls Technological Improvements Increase Productivity Rise in AS – Prices fall, real GDP rises

41 Extra Credit 1.What is the name of the economist that supported government intervention to stabilize the economy? 2.What is the primary way that a state budget differs from the federal budget? 3.Around what amount is the national debt?

42 1.Chapter 15 Practice Worksheet 2.Chapter Study Guide 3.Ch CW Puzzle 4.Daily Tens 5.Vocab Terms 6.Ch Notes 7.Online Assignment – Article Binder Check Due Today 5-4


Download ppt "Tax – a required payment to a local, state, or national government –Income, sales, property, capital gains, etc. Revenue – income received by the government."

Similar presentations


Ads by Google