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Presentation on theme: "DeficitsSurpluses, National Debt Deficits, Surpluses, and the National Debt."— Presentation transcript:

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2 DeficitsSurpluses, National Debt Deficits, Surpluses, and the National Debt

3 Marriage License Tax Medicare Tax Personal Property Tax Property Tax Real Estate Tax Service Charge Tax Social Security Tax Road Usage Tax Sales Tax Recreational Vehicle Tax School Tax State Income Tax State Unemployment Tax (SUTA) Telephone Federal Excise Tax Telephone Federal Universal Service Fee Tax Telephone Federal, State and Local Surcharge Taxes Telephone Minimum Usage Surcharge Tax Telephone Recurring and Non-recurring Charges Tax Accounts Receivable Tax Building Permit Tax CDL license Tax Cigarette Tax Corporate Income Tax Dog License Tax Excise Taxes Federal Income Tax Federal Unemployment Tax (FUTA) Fishing License Tax Food License Tax Fuel Permit Tax Gasoline Tax (42 cents per gallon) Hunting License Tax Inheritance Tax Gross Receipts Tax Inventory Tax IRS Interest Charges IRS Penalties (tax on top of tax) Liquor Tax Luxury Taxes Workers Comp Tax Tax his car, Tax his gas, Find other ways To tax his ass Tax all he has Then let him know That you won't be done Till he has no dough. When he screams and hollers, Then tax him some more, Tax him till He's good and sore. Then tax his coffin, Tax his grave, Tax the sod in Which he's laid. Put these words upon his tomb, " T axes drove me to my doom..." When he's gone, Do not relax, Its time to apply The inheritance tax. Utility Taxes Vehicle License Registration tax Vehicle Sales Tax Watercraft Registration Tax Well Permit Tax   Tax his land,   Tax his bed,   Tax the table   At which he's fed.   Tax his tractor,   Tax his mule,   Teach him taxes   Are the rule.   Tax his cow,   Tax his goat,   Tax his pants,   Tax his coat.   Tax his ties,   Tax his shirt,   Tax his work,   Tax his dirt.   Tax his tobacco,   Tax his drink,   Tax him if he   Tries to think.   Tax his cigars,   Tax his beers,   If he cries, then   Tax his tears.   Telephone State & Local Tax   Telephone Usage Charge Tax   Utility Taxes

4 Single - no tax on 1 st tax on 1 st$7,825 35% 35% 33% 28% 25% 15% 10% $ 7,825 $164,550 $ 357,700 Standard Deduction [$5,350-dependent] 0 $78,850 $ 357,700+ $ 32,550 10% 15% 25% 28% 33% 35% 35% Marginal Tax Rates Flat Tax on Income: same % of income, different amounts, so Proportional Flat Tax on Products: same amount, different % of income, so Regressive I only have to pay the FICA tax. Progressive – takes a larger % from high income groups [$15,650-married filing jointly] [$15,650-married filing jointly] [$11,200-HH][7,825-single]

5 Layered Cake Our Progressive Tax System I s Like A Layered Cake 35% over $357,700 No tax on 1 st $8,025 10% up to $16,050 15% up to $32,550 25% up to $78, % up to $164,550 33% up to 357,700

6 Regressive– takes a larger % from low income groups $100,000 Proportional – takes same 20% [not amount] from all income groups 20 % $30,000 $40,000 $50, % 10 % $30,000 $40,000 $50,000 Take that, you “low incomer.” Pay $20,000 Pay $10,000 [So, not same amount but same %, 20%] I’m a “low incomer.” Example: Medicare – 1.45% on all income earned. Example: Sales Tax

7 Toll Road($1 per day) $10,000 $50,000 $200 $200 2%.4% Flat Tax on Income: s ame % of income, d ifferent amounts, so proportional. Flat Tax on Product: s ame amount, different % of income, so regressive. State 6.25% Excise Tax on Two Identical $ 20,000 Autos BO HO Flat Tax on Cigarettes Excise Flat Tax on Cigarettes [Excise ][$1.41 cents pack] [1 pack day] $10,000 $100,000 $515 $515 5%.5% Addicted $10,000 $100,000 $1,250 $1,250 $1,250 $1, % 1.25% What kind of taxes are these?

8 $100 Spent On The Lottery $20,000 $100,000 [$100 Lottery] 5%.1% 5%.1% voluntary “The lottery tax is a voluntary regressivetax on morons regressive tax on morons.” What about the.20 a gallon gasoline tax? regressive So – all of these taxes were regressive. Property Tax of 2.5% on $100,000 Houses Property Tax of 2.5% on $100,000 Houses $25,000 $50,000 [100,000 house] [$100,000 house] [100,000 house] [$100,000 house] $2,500 $2,500 $2,500 $2,500 10% 5% Flat Tax on Income: same % of income, different amounts, so Proportional Flat Tax on Products: same amount, different % of income, so Regressive I played the lottery.”

9 TAX RATETAX RATE State (Cents per pack) RankState (Cents per pack) Rank Alabama(1) Nebraska6424 Alaska200 4Nevada3539 Arizona200 4New Hampshire5232 New Jersey Arkansas(20) 5926New Jersey California 8719New Mexico9118 Colorado 2043New York (1) Connecticut200 3North Carolina3045 Delaware (3) 2441North Dakota4434 Florida Ohio5529 Georgia 3736Oklahoma2342 Hawaii ( Oregon Idaho 5727Pennsylvania Rhode Island Illinois (1) 9817Rhode Island Indiana South Carolina 751 Iowa 3637South Dakota5331 Kansas 2920Tennessee (1)(2)2048 Texas Kentucky (2) 3046Texas Louisiana 3637Utah Maine2003Vermont Maryland10012Virginia (1) 3047 Massachusetts151 4Washington Michigan200 5West Virginia5529 Minnesota 4833Wisconsin7721 Mississippi 1849Wyoming6025 Missouri (1) 1750Dist. Of Columbia U.S. Median90 Montana170 6U.S. Median90 Counties & cities may impose an additional tax on a pack of federal tax is 39 centsNYC cigarettes. Also, the federal tax is 39 cents. NYC has an pack price of $7.50 additional $1.50 for a total cigarette pack price of $ states have increased cigarette taxes since January 1, 2002 some twice. Every 10% increase reduces youth smoking by 7% and adult smoking by 2%. State Excise Tax on Cigarettes

10 Causes: Wars Recessions Tax Cuts Facts & Figures: N o political will F inancial Price Of War Total C ost p er ConflictCostPerson WW1 $125 bil. $2,489 WWII$600 bil. 20,388 Korea 336 bil. 2,266 Vietnam 494 bil. 2,204 Gulf War I 76 bil. 306 * Gulf War II 438 bil.* 536 * Cost over $12 billion a month The War in Iraq has cost $16,000 per family.

11 % 35% 91% on income over $200,000

12 Top Marginal Tax Rates YearTax Rate 1900 No Tax % [over $3,000] [Only 1 in 270 paid this tax at all] % [1 in every 32 was now paying taxes] % [1 in every 3 was paying taxes] 1943 *Paycheck withholding (by the boss) was launched to stop cheating [over $200,000] 91% % [E veryone was paying with taxable Y] % % % Medicare tax Medicare tax – 1.45% for an individual [2.9% for self employed] for every dollar earned. Harrison Ford Harrison Ford – received $25 million for 20 days work on a movie. 1.45% of $ 25 million = $362,500 $725,000medicare tax x 2 = $725,000 medicare tax. [Over his 35 years on the Big Screen, his films grossed over $10 bil. Jim Carrey Jim Carrey – gets $20 million per movie, so his tax is $580,000. [1.45% of $20 million = $290,000 x 2 = $580,000.] [91% for dollars over $200,000]

13 Do the rich pay their fair share of the taxes? And why is it the rich who always benefit from tax cuts?

14 Ave. Tax Rate Ave. Tax Rate T op 1 %[1,286,000] ($328,000+) paid 37 % of all taxes– average 24 % Top 5 %[6,430,000] ($137,000+) paid 57 % - average 21% Top 10 %[12,861,000] ($99,000+) p aid 68 % – average 18.5% Top 25 %[32,152,000] ($60,000+) paid 85% – average 15% Top 50 %[64,305,000] ($30,000+) paid 97% – average 14% B ottom 50 %[64,305,000] ( < $30,000) paid only 3.3 % of all t axes. There 469 billionaires.[793 in world] There are 9.2 million millionaires. There are 40 millionaires in the U.S. Senate.

15 37% 57% 68% 85% 97% 3.3% 100 % 90%80%70%60%40%30%20%10% Top1%Top5% Top10% Top25% Top50% Bottom5% 134 million filed tax returns but only 90 million paid any taxes. Our average tax rate was 14%. $61,000 and over $30,000 and over $99,000 and over $137,000 + $

16 ten men go out for beerbill for all ten Suppose that every day, ten men go out for beer and the bill for all ten comes to $100paid their bill the way we pay our taxesgo like this to $100. If they paid their bill the way we pay our taxes, it would go like this: first four menwould pay nothing  The first four men (the poorest) would pay nothing. fifth would pay $1  The fifth would pay $1. sixth would pay $3  The sixth would pay $3. seventh would pay $7  The seventh would pay $7. eighth would pay $12  The eighth would pay $12. ninth would pay $18  The ninth would pay $18. tenth manwould pay $59  The tenth man (the richest) would pay $59. $20 divided by six is $3.33 They realized that $20 divided by six is $3.33. But if they subtracted that from fifth man and the sixth man would each end up everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer being paid to drink his beer. So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them reduce a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20Drinksfor the ten nowcost just $80 the cost of your daily beer by $20. Drinks for the ten now cost just $80. still wanted to pay their bill the way we pay our taxesfirst The group still wanted to pay their bill the way we pay our taxes so the first four menwould still drink for free divide four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide $20 windfall so that everyone would get his'fair share?' the $20 windfall so that everyone would get his 'fair share?'

17 reduce each man's bill by So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount fifth mannow paid nothing same amount, and he proceeded to work out the amounts each should pay.! And so: The fifth man, like the first four, now paid nothing (100% savings). sixth now paid $2instead of $333%savings  The sixth now paid $2 instead of $3 (33%savings). seventh now pay $5 instead of $728%savings  The seventh now pay $5 instead of $7 (28%savings). eighth now paid $9 instead of $1225% savings  The eighth now paid $9 instead of $12 (25% savings) ninth now paid $14 instead of $1822% savings  The ninth now paid $14 instead of $18 (22% savings) tenth now paid $49 instead of $5916% savings  The tenth now paid $49 instead of $59 (16% savings). 6 was better offfirst 4 continued to drink for free  Each of the 6 was better off than before. And the first 4 continued to drink for free. got a dollar out of the $20,'declared the sixth mantenth But once outside the restaurant, the men began to compare their savings. 'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth man,' but he got $10!‘ fifth man. 'I only saved a dollar, too. It's unfair that 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!‘ 7 th man. 'Why should he get $10 back when I got only two? 'That's true!!' shouted the 7 th man. 'Why should he get $10 back when I got only two? first four men in unison. 'We The wealthy get all the breaks!' 'Wait a minute,' yelled the first four men in unison. 'We didn't get anything. The system exploits the poor!' nine men surrounded the tenth and beat him up didn't get anything. The system exploits the poor!' The nine men surrounded the tenth and beat him up. tenth man didn't show up for drinksnine sat down and had The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without himpay the bill beers without him. When it was time to pay the bill, they discovered something important. didn't have enough money between all of them for even half of the bill how our tax system works They didn't have enough money between all of them for even half of the bill! And that is how our tax system works. people who pay the highest taxes get the most benefit from a tax reductionTax them The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too muchthey just may not show up anymore too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier they might start drinking overseas where the atmosphere is somewhat friendlier.

18 1.Taxesmandatory payments 1.Taxes – mandatory payments made to the public goods and government to cover the costs of public goods and services services (like national defense and highways). Tax Ratepercent of income 2. Tax Rate – percent of income taken by the government. The Two Roles of Taxes Finance government operations A. Finance government operations and functions [regulations-F.D.A., public goods (highways), transfer payments, governmen t & military pensions.] Influence economicbehavior B. Influence economic behavior of individuals & firms. 1). Excise taxes (tobacco, alcohol & gasoline) raise revenue and discourage their use. Canada quadrupled the tax on cigarettes and reduced consumption by one-third. Three Tax Bases 1.Income 2.Wealth 3.Consumption

19 Progressive Taxeslarger percent 3. Progressive Taxes - takes a larger percent of income as income rises [takes more from rich people]. F ederal I ncome T ax of 10 %, 15 %, 25 %, 28 %, 33%, & 35% Proportional Taxesflat ratesame 4. Proportional Taxes (flat rate) – takes the same percent percent from all income groups. Ex: 20% on all income groups or 1.45 Medicare tax Regressive Taxeslarger percentage 5. Regressive Taxes – takes a larger percentage from low income groups. Ex: Sales and excise tax; any consumption tax.

20 Ability-To-Paymoreincome 6. Ability-To-Pay principle – people with more income wealthmore or wealth should pay more taxes. It doesn’t make any difference what benefits or services they received. *Can notbe transferred to another persontax with your name on it *Can not be transferred to another person; tax with your name on it “Ability-to-pay based on income” a. “Ability-to-pay based on income” – wages & salary, or any other payments-will pay based on their total dollar amount. Ex: Federal income tax “Ability-to-pay based on wealth” b. “Ability-to-pay based on wealth” – people with more assets ( houses, stocks, bonds ) would pay taxes based on the total value. Ex: Inheritance and estate taxes, property taxes, and capital gains. Benefits-Received principle 7. Benefits-Received principle – [consumption tax or user’s feebenefitmore user’s fee] – people who benefit bear its cost. The more they use, the more they pay they use, the more they pay. *Can be transferred to another personrelates to services received *Can be transferred to another person [relates to services received] Ex: gasoline taxes, tolls, cigarettes, alcohol

21 Yea! We don’t have to pay any federal income or SS taxes.

22 Three major sources 8. Three major sources of federal taxes(90%) Individual income a. Individual income taxes taxes Social Insurance b. Social Insurance Corporate income c. Corporate income taxes taxes 45%$1,096 37% $884 bil. 11% $261 B 7% $ 179 B Deficit $248 bil. We are paying about $1 trillion in taxes.

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24 Federal Expenditures Pensions and Income Security National Defense Health Interest on Public Debt Pensions & Income Security 35% NationalDefense 20% 20% Health 21% All Other 15% Interest 13% Total Expenditures $2,654 Billion

25 Federal Tax Revenues Personal Income Tax 46 % Personal Income Tax Marginal Tax RateMarginal Tax Rate Average Tax RateAverage Tax Rate

26 Federal Tax Revenues Personal Income Tax 46% PayrollTaxes38% Corporate Income Tax 8% All Other 4% Excise Taxes 4% Personal Income Tax Payroll Tax Corporate Income Taxes Excise Taxes Total Tax Revenues $2,407 billion

27 Revenues of $2.407 Expenditures of $ [Deficit of $248 ] Last Surplus

28 Individual Income Taxes Individual Income Taxes – [50%] [$1 trillion] The U.S. had no individual income tax until This is a progressive tax on an individual’s total income based on ability -to- pay.[10 %, 15 %, 28 %, 33 %, and 35%] 9.$5, Dependents pay no tax up to $5,350. In 1914, only workers who made over $3,000, paid 1%[$30 max]. Only 4% earned enough to file a tax return & only $28 million was collected. 10.S ocial S ecurity T axes FICA7.65 % 10. S ocial S ecurity T axes (FICA[7.65 % ]- Federal Insurance Contribution Act) [6.2% of income up to $102,000] $102,000 It is proportional up to $102,000, then it becomes regressive. [A person making $102,000 pays 2% SS tax but a person making $204,000 pays only 3.1 %. Medicare tax Medicare tax – 1.45 % on every dollar earned. This is a proportional tax. A person making $50,000, $100,000, or $500,000 would still pay 1.45% of his income.

29 Corporate Income Taxes progressive 11. Corporate Income Taxes – progressive federal profits taxes levied on a business corporation’s profits. Corporate Federal Tax Rate Under $50,00015% $50,001-$75,00025% $75,001-$100,00034% $100,001-$335,00039% $335,001-$10,000,00034% $10,000,001-$15,000,00035% $15,000,001-$18,333,33338% $18,333, %

30 Excise taxspecialized 12. Excise tax – specialized sales tax on the production particular or sale of particular products (not levied on the individual’s regressive income). Excise taxes are regressive because they take a larger % from low income groups. Excise taxes are levied on specific products like: gasoline, liquor, telephone services, tires, legal betting, and coal. In the early 90s, there was a luxury excise tax on autos over $30,000, boats, jewelry, and furs. This proved very unpopular so it was dropped. Estate tax 15. Estate tax – tax levied on the assets of a person $2.0 million who dies and has assets in excess of $2.0 million dollar s. Estate taxes range from 18-50% of the value of the progressive estate which makes this tax a progressive one. This tax is supposed to disappear in 2010 but reappear in 2011.

31 % 35% 91% on income over $200,000 14

32 GLOBAL PERSPECTIVE Total Tax Revenue – Selected Nations Percent of Total Output-2004 Sweden Denmark Norway Finland France Italy United Kingdom Germany Canada Australia United States Japan South Korea Source: Organization for Economic Cooperation and Development

33 If you inherit $2 million dollars this year, how much do you get to keep?

34 2007 The Federal Estate Tax is disappearing. An estate is exempt from federal estate taxes if it’s below the following thresholds. The Tax will disappear in 2010, only to reappear in [tax of 55% on estates after the first million ] If you live in one of the gold states, y ou might owe additional estate or inheritance tax, even after the federal G’s death tax disappears. $2 M tax free $2 M tax free $1 M tax free $3.5 M tax free No estate tax

35 Gift tax 15. Gift tax – tax placed on the transfer of certain gifts ($11,000 of value, such as money ($11,000 or more) or other personal property. The person who gives the gift pays progressive the gift tax. It also is progressive up to 50%. The estate & gift taxes account for only 1.3% of revenues. Customs duties tariffs 16. Customs duties (tariffs) – tax on imported goods. Although they produced most of government revenues prior to 1913, they produce very little revenue today. During George Washington’s time, tariffs brought in over 99% of the government’s revenue.

36 three most important state and local taxes 17. The three most important state and local taxes salesproperty are the sales tax(21%), property tax(18%), and the stateindividual income state individual income tax(12%). Salesregressive 18. Sales tax – an indirect regressive tax levied on most products. The sales tax is not levied on baby foodmedicine clothing, food, and medicine. The sales tax in PBC is 61/2 percent of every dollar. Only 5 states, Alaska, Delaware, Montana, N ew H ampshire, and Oregon – do not have a sales tax. On average, a family of four, pays about $800 a year on the sales tax.

37 Highways [.20 a gallon] STATE AND LOCAL Spending State Expenditures Education Public Welfare Health and Hospitals Public Safety Education36% Health & Hospitals 8% PublicWelfare25% Public Safety 5% All Other 18% Highways 8%

38 Property Taxes & Other Taxes Licenses and Others STATE AND LOCAL Revenues State Revenues Corporate Income Tax Sales and Excise Tax Personal Income Tax Sales & Excise T axes 48% StatePersonal Income Tax 34% Corporate Income Tax 7% Licenses & Others 6% Property Taxes & Other Taxes 5%

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41 STATE AND LOCAL Revenues Local Revenues Property Taxes 74% Personal & Corporate Income Taxes 6% All Other 4% Sales & ExciseTaxes16% Personal & Corporate Income Taxes Sales and Excise Taxes Property Taxes

42 Property Taxassetsland 19. Property Tax – tax on assets (mainly a tax on land buildings and buildings). These taxes are also on furniture, autos, farm animals, stocks, bonds, and bank accounts. They finance education, police and fire protection. This tax regressive is a regressive one because if two people own separate $100,000 homes, they both pay the same tax. State individual income tax – taxed by either the “graduated” or “flat-rate” Texas is one of 7 states with no state individual income tax. 29 cents 20. Americans pay about 29 cents of every dollar in taxes. Tax breaks cost $400 billion in lost revenue each year. OfficeManagementBudget 21. The Office of Management and Budget (OMB) devises the yearly budget for the president. It is about $2.9 trillion for 2007.

43 cheating$310 billion 22. Tax cheating amounts to about $310 billion a year. Self-employed Who cheats the most? Self-employed people who are in charge of their own taxes like gardeners, carpet layers, who get paid in cash. Others are auto dealers, barbers, telemarketers, restaurant owners, accountants, doctors, and lawyers. Many overstate deductions. 60% of corporationspaid zero taxes Over 60% of corporations paid zero taxes from Men Men cheat more than women. In 1987, the IRS began requiring taxpayers to report the SSN of all dependents. The next year 7 million children vanished(9%). People were listing their dogs, cats and birds as dependents. Only about 20% of the disappearing dependents represented children who had been claimed by both parents after a divorce. Informers on tax cheaters can get you 1% of what they collect or 10% if you provide paperwork.

44 23. Guns [defense] or Butter [social programs]

45 Budget Deficit G > T 24. Budget Deficit [ G > T] Budget Surplus T > G 25. Budget Surplus [ T > G] 26. Causes of budget deficits include: 1.) national emergencies national defense 2.) providing national defense stabilizing 3.) stabilizing the economy economic well-being 4.) promotion of economic well-being of citizens. National Debt total amount 27. National Debt - total amount of money G owes. Budget deficit one fiscal year [$162 bil.] 28. Budget deficit – debt during one fiscal year [$162 bil.] $9.3 trillion The debt totals $9.3 trillion. The interest on the debt $243 bi will cost $243 billion or 10 cents of each dollar. internally Most of the Public Debt is held internally.

46 Flow ($162 bil.) Stock ($9.4 trillion) Reasons for Debt 1. Lack of political will 2. Tax cuts 3. Recessions (transfers) 4. Wartime financing Attention Deficit Disorder [ADD] C ongressmen have trouble focusing attention on the deficit. 9.4 $ 9.4 $9.4 tril.

47 Per Capita Per Capita The Debt is increasing by $1 million per minute. The Debt is increasing by $1 million per minute. $33,000 9,9, 3,3, , 4 $1.58 billion per day is being added to the debt.

48 1.Annually Balanced Budget 2.Cyclically Balanced Budget 3.Functional Finance

49 [A. Annually Balanced; B. Cyclically Balanced; C. Functional Finance] Economy Annually Balanced Budget earth orbits the sun Annually Balanced Budget – each time the earth orbits the sun we balance the budget should balance the budget. economic straitjacket This would put the G in an economic straitjacket as we couldn’t fight pouring water on recessions with deficit spending. This would be like pouring water on a drowning man. worship at the alter of a balanced a drowning man. We used to worship at the alter of a balanced budget budget prior to the Great Depression. 49 states require this. not be counter-cyclical Balancing the budget during a recession would not be counter-cyclical, pro-cyclical Increasing taxesworsen the but pro-cyclical. Increasing taxes during a recession would worsen the recession Running asurplus during boom timesgiving the recession. Running a surplus during boom times and giving the money back would be inflationary money back would be inflationary. “Earth Orbits Sun” “G”

50 Recession “Tax cut” Inflation “Raise taxes” Cyclically Balanced Budgetdeficits during recessions Cyclically Balanced Budget – run deficits during recessions & surpluses during expansions surpluses during expansions so the budget is balanced not each year course of the business cycle but over the course of the business cycle. Economic wisdom tells us we deficits in lean yearssurpluses in fat years should have deficits in lean years and surpluses in fat years. There is nothing “sacred about 12 months asan accounting period.” nothing “sacred about 12 months as an accounting period.” counter-cyclical fiscal policybalance The government could conduct counter-cyclical fiscal policy and balance its budget over a period of years its budget over a period of years. The basic problem of this philosophy is that fluctuations are not usually symmetrical enough to ensure that the surplus will offset the deficit. “Deficit Spending” “Balanced” TaxCuts RaiseTaxes

51 Functional Finance balance the economy Functional Finance – balance the economy not the budget. annual or cyclically balanced budget is of secondary importance The annual or cyclically balanced budget is of secondary importance. The provide for non-inflationary, FE important thing is to provide for non-inflationary, FE & ensure the economy deficits surpluses produces its potential GDP. If there are chronic deficits or surpluses, so be it. Deficits are minor problemsinflationrecessions Deficits are minor problems, compared to inflation or recessions. U.S.Economy “Balance the economy, not the budget.”

52 $9.4 trillion is enough to: -Give every 18-year-old a 4-year college education for the next 57 years. A stack of $1,000 bills 4 inches high is a million. -A stack of $1,000 bills 4 inches high is a million. $ 1 trillion would be a stack of $1,000 bills mil. $ 1 trillion would be a stack of $1,000 bills mil. high. $9.4 trillion would be 2,348 miles high. high. $9.4 trillion would be 2,348 miles high. -A $1 bill is 6 inches long. If $9.4 trillion bills were laid end to end, they would form a chain 700 million miles long, enough to stretch from the surface of the earth to the surface of the sun and back –5 times.

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54 $9.4 Tril.

55 [adjusted for inflation in 2000 dollars] $9.4 Tril. Except for WWII, the deficit stayed pretty constant for about 40 years until 1983

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57 Source: Economic Report of the President, 2001 $ Budget Deficits or Surpluses, Billions Actual $162 in 2007 Projected

58 Source: Congressional Budget Office $ Budget Deficit (-) or Surplus, Billions ActualProjected($162 in 2007)

59 $412 $162

60 , % 1.8% 33,000

61 Interest [$243 ] Agriculture 90.9 Interest [$243 ] Commerce 6.7 Defense Education, job train Energy, Environment 21.6 Health/Human SVC Homeland Security 34.6 Housing/Urban Dev Interior 10.1 Justice, Law enforce 23.3 Labor 50.4 NASA 17.3 SEC & E xchange Com. 8.5 Corp Engineers 4.8 State 37.4 Social Security Transportation 67.3 L egislative Branch 4.8 Treasury525.5 Judiciary 6.7 Veteran’s Affairs 84.4 Other agencies Federal Budget Proposal-$2.9 Tril. $67.3

62 Federal Spending in 2007, by Function

63 Publicly Held Debt: International Comparisons As a Percentage of GDP Italy Belgium Japan Germany France United States Hungary Netherlands United Kingdom Spain Canada Poland Source: Organization for Economic Cooperation and Development

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65 [This is held both privately and publicly] 9% 42% 8% 25% 8% Debt held by the Fed & Gov. Agencies [51%] & Gov. Agencies [51%] Debt held outside the Federal Gov and Fed [49%] Federal Reserve U.S. Government Agencies Other, Including State & Local Governments U.S. Banks & Financial Institutions Foreign Ownership U.S. Individuals Foreigners hold $1.9 Trillion Japan-$582 B, China-$500 B, Britain-$266 B, OPEC-$126 B, S. K orea - $ 46 B, H. K ong–$ 56 B, T aiwan-$ 53 B, S ingapore- $ 24 B, T hailand -$13 B, & India- $ 13 B. World Total: $2,247 51% 49%

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67 * Children not inherit“national factory” * Children will not inherit as large of a “national factory” Economic Issues F rom T he Debt Abe Lincoln, with the Debt at $1 billion in 1864, said, “Men can readily perceive that they cannot be much oppressed by a debt which they owe themselves.” More I ncome D isparity more income disparity More I ncome D isparity [the debt is transferred from all taxpayers to the bond holders [the rich], so more income disparity] Incentives dampen incentives Incentives – larger taxes dampen incentives to bear risk, to innovate, to invest, or just to work.

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69 Two Ways To Balance The Federal Budget Increasing government revenues Increase a. Increase taxes b. tax cheating cost the government over $310 billion Decrease Decrease in government expenditures [2.5 tr. in 2005] c. Government must stop waste and fraud 26,000 1.) a check of 4 states (including Tx) turned up 26,000 dead people food stamps dead people getting food stamps, costing $1.5 billion a yr. prisoners get welfare 2.) Thousands of prisoners get welfare. 60,000 inmates $500 million in fraudulent benefits were getting $500 million in fraudulent benefits. illegal food stamps 12,000 inmates were receiving illegal food stamps. On “Dateline” a report said that $53 M was caught as prisoners were filling out W-2 forms, as if they had jobs, trying to get refunds. $10 M got thru. $80 billion in waste & fraud d. There is as much as $80 billion in waste & fraud. $4.3 billion in improper unemployment checks There is $4.3 billion in improper unemployment checks $70 billion fraud [out of $400 B] in Medicare There is $70 billion fraud [out of $400 B] in Medicare. DOD King of Fraud. FEMA was fleeced for $2 billion. The DOD is the King of Fraud. FEMA was fleeced for $2 billion. Federal employees each year charge millions of dollars for such things as internet dating, tailor-made suits, lingerie, lavish dinners to their government credit cards. Last year, for purchases over $2,500, about half were improperly received.

70 From 1 Trillion to 9.3 Trillion in 28 Years. $33,000 each 2007 $9.4 Trillion Will today’s children bear the burden of debt?

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72 0 100 L Tax revenue (dollars) Tax rate (percent)

73 0 100 M L Tax revenue (dollars) Tax rate (percent)

74 0 100 M N L Tax revenue (dollars) Tax rate (percent)

75 0 100 M M N L Tax revenue (dollars) Tax rate (%) MaximumTaxRevenue

76 Ben Stein’s part in this movie as a boring econ prof was voted one of the 50 most famous scenes in American film. Ben Stein [from “Ferris Bueler’s Day Off”] graduated from Ben Stein [from “Ferris Bueler’s Day Off”] graduated from Columbia University in 1966 with a degree in economics Columbia University in 1966 with a degree in economics and from Yale Law School in 1970 as valedictorian. He was and from Yale Law School in 1970 as valedictorian. He was a speech writer for Nixon. He has written 16 books, including a speech writer for Nixon. He has written 16 books, including his latest humor book, “How To Ruin Your Life”. his latest humor book, “How To Ruin Your Life”. Tax $ T ax R ate 0%0%0%0% 100%

77  Right click “Open Hyperlink”.  Click on video. Ben Stein boring his students about Supply-side econ & the Laffer curve

78 Reaganomics and Budget Deficits In honor of President R eagan’s 1 st 4 years the democrats wanted this new $1 Trillion bill.

79

80 Learn economics. Don’t be “economic girlie men.” A Word From Arnold

81 Parents are now getting questions like this from their children. Supply-side VoodooDoodooTrickle-down Girlie Men Dad, Do we believe in Supply-side, Voodoo, Doodoo, Trickle-down or Girlie Men economics? Supply-side Economics Economics VoodooEconomics DoodooEconomicsTrickle-downEconomics Girlie Men Economics

82

83 “no”entails three points The “no” answer entails three points. Refinancing 1. Refinancing – as portions of the debt fall due each month, the G does not cut G or raise T to retire the maturing bonds. refinances the debt It refinances the debt by selling new bonds and uses the proceeds to pay off holders of the maturing bonds. 2. Taxation 2. Taxation – if bankruptcy were imminent the G could always raise taxes. Creating Money inflationary 3. Creating Money – bankruptcy could be avoided by printing the money ( inflationary ). Economic Implications of the Debt: False Issues “G” “dies. ” [The “G” doesn’t have to pay the entire debt off because it never “dies. ” ] “G”“ rolling it over in perpetuity ” [The “G” will live forever so it will keep “ rolling it over in perpetuity ”] Going Bankrupt? Shifting Burdens Shifting Burdens owes $33,000 Does every new born get slapped on the backside, then told he owes $33,000? 82% of the debt is owed to ourselvespublic debt is a Not quite. About 82% of the debt is owed to ourselves. Thus the public debt is a a public creditliability to the taxpayer asset to the people bondholders a public credit. It is a liability to the taxpayer but an asset to the people (bondholders). retiring the debt would amount to a large transfer paymentU.S. Therefore, retiring the debt would amount to a large transfer payment from U.S. citizens to U.S. citizens citizens to U.S. citizens. The repayment would entail no decrease in the economy’s babies who inherit $33,000 worth of debt will wealth or standard of living. So the babies who inherit $33,000 worth of debt will inherit almost that same amount inherit almost that same amount. Whew! $33,000 each. I’m not paying no $33,000.

84

85 10% 8% 6% 4% 2% IGIGIGIG Real interest rate DIDIDIDI Investment (billions of dollars) [Incr G incr I.R. Decr Ig] Crowding Out Effect AS AD 1 AD2 4%4%2%2%4%4%2%2% YRYRYRYR G Friedman Just follow the “monetary rule.” Y*Y*Y*Y* D1D1D1D1 D2D2D2D2 s 6%6%6%6% 10 % Quantity of LF F1F1F1F1 F2F2F2F2 PL Real I.R. Loanable Funds Market Market 15 In this case, it would be 100% “crowding out”. G can finance a deficit by: 1. Borrowing - this raises interest rates in the LFM and “crowds out” investment. rates in the LFM and “crowds out” investment. 2. M oney C reation - no “crowding out” so is more expansionary than borrowing. so is more expansionary than borrowing. 0

86 DI1DI1DI1DI1 Investment (billions of dollars) Real interest rate (%) DI2DI2DI2DI2 AS AD 1 AD 2 YRYRYRYR Y*Y*Y*Y* G increased But … if the economy is operating well below its potential, the increased G could result in more jobs, more positive profit expectations, and a “crowding in” of Ig G could result in more jobs, more positive profit expectations, and a “crowding in” of Ig.

87 “Crowding In” – potential for G spending to stimulate private investment in an otherwise sluggish economy. Crowding Outpassive fiscal policy “Crowding Out” represents argument for passive fiscal policy. Crowding In “Crowding In” would be an argument for active fiscal policy. below its potential If the economy is operating well below its potential, the additional fiscal stimulus provided by deficit spending could encourage firms to invest more. A G deficit could stimulate a weak economy, increasing AD & putting a “sunny face on business expectations.” As business expectations grow more favorable, firms could become more willing to invest. [thus, “crowding in” of investment] crowded restaurant If you have ever approached a crowded restaurant, you may not long wait have wanted to put up with the hassle of a long wait and were thus “crowded out.”large G deficits may drive up interest rates “crowded out.” Similarly, large G deficits may drive up interest rates and crowd out some investment. On the other hand, did you ever pass up a restaurant because the place seemed dead-it had few customers. Perhaps you wondered why so few people chose to eat there. With just a few more customers, you might have been willing to “crowd in.” Businesses may be reluctant to invest in a lifeless economy. Economic stimulus could encourage them to “crowd in.” “No one As Yoga Berra would say, “No one goes there any more. It’s too crowded.” Yoga also said, “If you come to a fork Yoga also said, “If you come to a fork in the road, take it.”

88 Pay Down the Public DebtPay Down the Public Debt Reduce TaxesReduce Taxes Increase Government ExpendituresIncrease Government Expenditures Bolster the Social Security Trust FundBolster the Social Security Trust Fund Combinations of PoliciesCombinations of Policies

89

90 Crowding-out Crowding-out effect in an Open Economy [Xn are crowded-out, decreasing AD] 1. Federal Government deficits 2. High real U.S. interest rates 3. Decline in domestic inv. (crowding-out) 4. Increased foreign demand for U.S. bonds 5. Increased U.S. external debt 6. Increased international value of dollar 7. U.S. Exports decrease 8. U.S. Imports increase 10. Trade deficits 9. Decr in Xn decr AD

91 Gramm-Rudman-Hollings [30. Attempt to balance the budget which failed] [declared unconstitutional]

92 constitutional amendment 1.We could have a constitutional amendment to balance pro-cyclical and the budget. However, this would be pro-cyclical and destabilize the economy. destabilize the economy. Gramm-Rudman-Hollings Act Gramm-Rudman-Hollings Act – balance the budget by 1991(revised to 96). The Supreme Court later ruled it unconstitutional. Tax Increases 3. Tax Increases – Perot wanted to raise gasoline taxes 50 cents a gallon. Privatization 4. Privatization – U.S. government could sell its assets. Britain sold $25 billion of government assets in the 80s. Line-item veto 5. Line-item veto – the President could veto particular portions. Supreme Court declared this unconstitutional. This would get rid of “pork-barrel” legislation. Term Limits 6. Term Limits for congressmen and senators.

93 The term "pork barrel" stems back to the early 1800s when the popular meat was packed that way, and hungry farm hands reached in for slabs of salt pork. In 1879, it was adopted as political slang to mean goodies for the local district paid for by the taxpayers at large.

94 $107,000 to study the sex life of the Japanese quail. $1.2 million to study the breeding habits of the woodchuck. $150,000 to study the Hatfield- McCoy feud. $84,000 to find out why people fall in love. $1 million to study why people don't ride bikes to work MOST ABSURD PORK

95 $19 million to examine gas emissions from cow flatulence.  $144,000 to see if pigeons follow human economic laws.  Funds to study the cause of rudeness on tennis courts and examine smiling patterns in bowling alleys.  $219,000 to teach college students how to watch television.  $2 million to construct an ancient Hawaiian canoe.

96 $20 million for a demonstration project to build wooden bridges. $160,000 to study if you can hex an opponent by drawing an X on his chest. $800,000 for a restroom on Mt. McKinley. $100,000 to study how to avoid falling spacecraft. $16,000 study of the the komungo, a Korean instrument.

97 $1 million to preserve a sewer in Trenton, NJ, as a historic monument. $6,000 for a document on Worcestershire sauce. $10,000 to study the effect of naval communications on a bull's potency. $100,000 to research soybean- based ink.

98 $1 million for a Seafood Consumer Center. $57,000 spent by the Executive Branch for gold-embossed playing cards on Air Force Two. Total ABSURD PORK from previous pages: $ 45,980,000

99

100 Pork in Alaska In the latest $388 spending bill for 2005, there is $16 billion in pork barrel legislation, quite a bit going to Alaska. $950,000 for a recreation center and $150,000 for a botanical garden in Anchorage. $300,000 for a senior center in Fairbanks. $900,000 for an aquarium in Ketchikan. $500,000 for a quarry in Nome, Alaska. Ted Stevens who is chairmanTed Stevens who is chairman of the Appropriations Committee was responsible for most of this pork to Alaska. This is called “bringing home the bacon”.

101 It takes 5 minutes to get to this Alaskan island by ferry but the federal government is going to spend $223 million to build a bridge to it. The Federal budget is like a Christmas tree. Every congressman tries to hang on an ornament or two.

102 Other Pork Barrel Legislation for 2005 Other Pork Barrel Legislation for 2005 $443,000 to develop salmon-fortified baby food. $2.3 million for an animal waste management research laboratory $1.2 million for Cape Cod Seashore Eastham/Dennis Bike Trail Repair $50,000 to control wild hogs in Missouri A selected list of hometown and special-interest projects in the $388 billion government spending package: · Alabama: $4 million for the International Fertilizer Development Center in Muscle Shoals. · Alaska: $443,000 to develop salmon-fortified baby food. · Arizona: $2.5 million for Lone Pine Dam Road. · California: $150,000 for the Girl Scouts Golden Valley Council bridge project. · Florida: $1 million for the Palm Coast Trail System in Flagler County. · Kentucky: $2.3 million for an animal waste management research laboratory in Bowling Green. · Hawaii: $4 million for mitigation of congestion in Kapolei City. · Illinois: $1.4 million for an Interstate-55 sound barrier in Darien. · Massachusetts: $1.2 million for Cape Cod Seashore Eastham/Dennis Bike Trail Repair. · Mississippi: $750,000 for the Mississippi Museum of Natural Science. Missouri: $50,000 to control wild hogs in Missouri · Montana: $1.5 million for a ''fuels-in-schools'' biomass project. · North Carolina: $1 million for Garden Parkway in Gaston and Mecklenburg counties. $335,000 to protect North Dakota’s sunflowers from blackbirds $350,000 for music education programs at the Rock and Roll Hall of Fame in Cleveland. $2 million for the Fiery Gizzard Trail. There is also $1 million for a “Wild American Shrimp Initiative” North Dakota: $335,000 to protect North Dakota’s sunflowers from blackbirds. · Ohio: $750,000 for the city of Circleville's sewer construction project; $350,000 for music education programs at the Rock and Roll Hall of Fame in Cleveland. · Oregon: $6.28 million to Oregon State University for wood utilization research and $688,000 for a barley gene-mapping project. · Pennsylvania: $250,000 to promote tourism in the Allegheny National Forest area. · Tennessee: $2 million for the Fiery Gizzard Trail. · Vermont: $500,000 for a wood products program. · Virginia: $500,000 for the Amherst County River Walk Trail; $200,000 for a Vermont Civil War Monument in Virginia. · Washington: $1 million for the Enumclaw welcome center; $1 million for the Norwegian American Foundation. · Wisconsin: $3.2 million for the Chequamego-Nicolet National Forest ''Wisconsin Wild Waterways.'' There is also $1 million for a “Wild American Shrimp Initiative” so we might call this “No shrimp left behind initiative.” our, “No shrimp left behind initiative.”

103 “If you had a well-paying position that comes with perks and opportunities all kinds of perks and opportunities, would you fire yourself vote to fire yourself? Is there another position in set your own salary which you vote to set your own salary?

104 Maybe 6 years for representatives and 12 for senators, max. Currently, politicians take our money and convert it into pork projects to get themselves re-elected. They must treat other people’s money the way they treat their own. Also, we need to elect politicians who we can tell how much of our money we will let them spend instead of letting them tell us how much they will let us keep. Giving money and power to government is like giving beer and car keys to teenage boys. P.J. O’Rourke

105

106 $11,000 $32,000 $60,000 $65,000 $65,000 $42,000 $46,000 $55,000 $38,000 $25,000 $34,000 $82,000 $93,000 $42,000 $44,000 $34,000

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108

109 Texas Tax Revenue [mainly regressive] Sales Tax (R) 61% Motor Fuels 11% (R) Motor Vehicle Sales 10% (R) Bus. franchise Tax 9% Natural Gas 5% Oil production 2% Texas gets most of its revenue from the sales tax. Insur. Taxes 4% A lcoholic bev. 2% (R) 31. Texas gets most of its revenue from sales tax the sales tax.

110 32regressive 32. By relying on regressive sales, property, & excise taxes, Texas is taxing its poor more than five times the rate it does the rich. regressive Texas has one of the most regressive tax systems. does not Texas does not have a state income tax. 33education 33. The largest percentage of state & local taxes supports education %18%16%14%12%10% 8% 8% 6% 6% 4% 4% 2% 2% 0 Excise Tax Sales Tax Property Tax $10,812 $23,100 $35,300 $51,400 $80,400 $180,000 $945,500 $10,812 $23,100 $35,300 $51,400 $80,400 $180,000 $945,500 Average Annual Income Average Annual Income $1,812 2,472 2,965 3,804 5,470 9,180 29,311 $1,812 2,472 2,965 3,804 5,470 9,180 29, % 10.7 % 8.4 % 7.4 % 6.4 % 5.1 % 3.1 % % of income of a family of 4 in state/local taxes (TX)

111 Direct taxesindividuals 34. Direct taxes - levied directly on individuals and paid directly to the government. Ex: Federal income tax and Medicare tax Indirect taxesproducts 34. Indirect taxes – levied on certain products rather than directly on individuals (sales and excise taxes). The government gets the tax indirectly.

112 The Seven States With No Income Tax *They tend to have more regressive tax systems.

113

114 This is the way we used to get first cry out of a baby the first cry out of a baby. “You Now we tell them, “You owe$33,000.” owe $33,000.” (as their share of the National Debt ) We get the same result – their first cry their first cry; no more “Take that.” of that “Take that.” We no longer have to hit our newborn to get their first cry. “Take That! The Debt prevents me from having to do this.

115 Kelsey Silva P asses Econ Terrorist Lose

116 Goodbye Hassle, Hello Tassel. 08

117 Remember!!! These are the best years of your life!!!!!

118 And Who In The Class of 2008 Is Most Likely To Be Incarcerated In 2018? Proclamation June 10, 2010 Chief of Police Dallas, TX A lso $1,000 reward for arrest of Brad Benjamin, Matt Kantor, Colin Theall, and Maia Hommes. PANCHO (Jared) VILLA A nd what famous person will he more than likely share a cell with? Jocko

119 Juniors Still in BL bondage.

120 The End “Let me do the praying this time. Thanks for bringing me to Timmy’s house and not Michael Vick’s!!!”

121 Quiz – Taxes A. Progressive Tax B. Proportional Tax C. Regressive Tax 6.25% motor vehicle sales tax 2% state income tax $100 worth of lottery tickets car propertytaxes of $100 dollars $2,000 property tax smoke 3 packs of Marlboros a day41 a pack plasma TVs for $4,000sales tax of 6.25 Hong Kong Buffet10%15% 20 cents a gallon gasoline tax 1.45% medicare tax Quiz – Taxes A. Progressive Tax B. Proportional Tax C. Regressive Tax 1. Leah [income of $32,000] and Laura [income] of $50,000] both pay a 6.25% motor vehicle sales tax on the purchase of their separate $65,000 vipers. 2. Brad [ income of $27,000] and Michelle [income of $50,000] both pay a 2% state income tax on their entire income. 3. Anna [income of $60,000] and Candice [income of $35,000] both purchase $100 worth of lottery tickets. [so both paid the same amount of $100] 4. Kayla [income of $25,000] and Justin [income of $40,000] both pay car property taxes of $100 dollars because they have the same make of car. 5. Jacob [income of $40,000] and Maia [income of $30,000] each pay a $2,000 property tax on their separate $100,000 appraised houses. [Both paying same amount] 6. Jared [ income of $41,000] and Brad [income of $61,000] smoke 3 packs of Marlboros a day and both pay a tax of $1.41 a pack. 7. Bryan [income of $59,000] and the “Kat” [income of $30,000] both purchase plasma TVs for $4,000 and both pay a sales tax of 6.25%. 8. After Kelsey finished Bishop Lynch [took 6 years], he got a raise at the Hong Kong Buffet, which moved her from the 10% tax bracket to the 15% tax bracket. 9. John [income of $500,000] & Becca [income of $100,000] both pay 20 cents a gallon gasoline tax for 15 gallons they put into their Corvettes. [same amount] 10. Elisa [income of $12,000] and Andres [income of $70,000] both pay the 1.45% medicare tax on their salaries. Answers: 1.C 2.B 3.C 4.C 5.C 6.C 7.C 8.A 9.C 10.B

122 Consumption tax Takes 6.2% of every dollar User’s Fee Can be transferred Can be transferred to another Personal income tax wealthy pay more The wealthy pay more Arkansas state income tax of 7% of 7% on all income groups “Direct” tax “Direct” tax [federal income] Benefits go to survivors and disabled Most to Most of benefits go to retired persons retired persons The more u use The more u use (buy) of the more u pay product, the more u pay Cigarettes, alcohol, gas tax Cigarettes, alcohol, & gas tax Cannot be transferred Cannot be transferred to another Flat rate tax on income Flat rate tax on a product Estate tax Lottery ticket Takes same % Takes same % from all Y groups TAXES WORD SCRAMBLE TAXES WORD SCRAMBLE 10% Federal income tax on all income groups Corporate income tax Medicare tax of 1.45% based on income Excise tax Proportional 1._______________________________ 2._______________________________ 3._______________________________ 4._______________________________ 5._______________________________Regressive 1._______________________________ 2._______________________________ 3._______________________________ 4._______________________________ 5._______________________________Progressive 1._______________________________ 2._______________________________ 3._______________________________ 4._______________________________ 5._______________________________Ability-To-Pay 1._______________________________ 2._______________________________ 3._______________________________ 4._______________________________ 5._______________________________Benefits-Received 1._______________________________ 2._______________________________ 3._______________________________ 4._______________________________ 5._______________________________ Social Security Tax 1._______________________________ 2._______________________________ 3._______________________________ 4._______________________________ 5._______________________________ Bonus: Who is the orphan above? ________________________________ * bold face type. * Write the bold face type. Name 1. ____________________ Name 2._____________________ 50 cent tax 50 cent tax on toll road the toll road High income groups pay more groups pay more Federal income tax Federal income tax of 10%, 15%, 25%, 28%, 35% Low income groups pay more Ability-to-pay principle (make higher income groups higher %) based on income or Can be based on income or wealth wealth [estate taxes] regressive for Becomes regressive for incomes over $102,000 incomes over $102,000 Proportional Proportional tax on up to $102,000 incomes up to $102,000

123 Consumption tax Takes 6.2% of every dollar User’s Fee Can be transferred Can be transferred to another Personal income tax wealthy pay more The wealthy pay more Arkansas state income tax of 7% of 7% on all income groups “Direct” tax “Direct” tax [federal income] Benefits go to survivors and disabled Most to Most of benefits go to retired persons retired persons The more u use The more u use (buy) of the more u pay product, the more u pay Cigarettes, alcohol, gas tax Cigarettes, alcohol, & gas tax Cannot be transferred Cannot be transferred to another Flat rate tax on income Flat rate tax on a product Estate tax Lottery ticket Takes same % Takes same % from all Y groups TAX WORD SCRAMBLE TAX WORD SCRAMBLE 10% Federal income tax on all income groups Corporate income tax Medicare tax of 1.45% based on income Excise tax Proportional 1. Flat rate tax on income 2. Takes same % from all income grps 3. 10% federal tax on all income groups 4. Medicare tax of 1.45% 5. Arkansas state income tax of 7%Regressive 1. Flat rate tax on a product 2. Lottery ticket 3. Excise tax cent tax on toll road 5. Low income groups pay moreProgressive 1. Estate tax 2. Corporate income tax 3. High income groups pay more 4. Federal income tax 5. Ability-to-pay principleAbility-To-Pay 1. Direct tax 2. Based on income or wealth 3. Personal income tax 4. Wealth pay more 5. Cannot be transferredBenefits-Received 1. More u use, the more u pay 2. Consumption tax 3. User’s fee 4. Can be transferred 5. Cigarettes, alcohol, & gas tax Social Security Tax 1. Benefits to survivors/disabled 2. Most of benefits go to retired persons % of every dollar 4.Proportional tax on inc up to $102,00 5. Becomes regressive for incomes over $102,000 Bonus: Who is the orphan above? ________________________________ * bold face type. * Write the bold face type. Name 1. __Key_______________ Name 2._____________________ 50 cent tax on the toll road the toll road High income groups pay more groups pay more Federal income tax Federal income tax of 10%, 15%, 25%, 28%, 35% Low income groups pay more Ability-to-pay principle (make higher income groups higher %) based on income or Can be based on income or wealth wealth [estate taxes] regressive for Becomes regressive for incomes over $102,000 incomes over $102,000 Proportional Proportional tax on up to $102,000 incomes up to $102,000


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