2 What do taxes pay for? Public schools Roads and highways National defenseFirefighters/policeSafe drinking waterPublic welfare programs (WIC, food stamps)
3 Tax theoriesAbility to PayBenefits ReceivedThose who CAN afford to pay taxes should pay more than those who can’tPeople with higher income should pay more than those with lower income.Takes away incentive.Only the people that who use the programs/services would pay the taxes to support them.Example: toll roads
4 Benefits Received – Unfair? People with limited income benefit more from:UnemploymentPublic welfareHousing subsidiesDo people with little income pay enough taxes to provide the money the receive?
5 Progressive vs. Regressive Progressive TaxRegressive TaxTakes a larger percentage of income from people in higher-income groupsExample: federal income taxesTakes a larger percentage of income from people in lower-income groupsExample: sales tax at stores
7 More… The overall tax system in US = progressive $ paid in income tax > $ paid in sales taxFree riders: A problem that happens when people benefit from using goods and services without paying for them.
8 Why People Don’t Pay Taxes They say it’s illegal.It’s in violation of religious beliefs.It’s not required by the US Constitution.
9 PunishmentIf you do NOT report the correct amount of income (underreporting taxable income) … OR If you do NOT file a tax return, you can face criminal prosecution. (fine or imprisonment) Accidental errors on tax forms can still result in fines and penalties
10 IRS – Internal Revenue Service Division of US Department of TreasuryResponsible for maintaining confidence in the federal tax systemHas the right to audit a person’s tax return (question anything reported)File your income tax return in timeKeep good records of income and expensesAlways be honest
11 Reporting Your Taxes Done each spring – April 15 W-2 to complete tax formHAS to be done
12 Ethical and Moral Issues Paying taxes is part of their responsibility to others and to societyMany complain about payingSome disagree how money is spentGood citizens pay taxesHelps provide public goods
13 Vocabulary Standard of living – level of wealth w/in country Quality of life – what makes people happySales tax - a tax paid on certain goods and services at the point in time they are purchasedVoluntary compliance - A system that relies on individual citizens to report income voluntarilyUnderpaying taxes: knowingly paying less than you’re required to pay