3 What are Taxes?Taxes are required to pay for local, state, and federal programsThe income received from taxes is known as revenueThe government has the power to tax under the ConstitutionCertain powers to the state and localCertain powers to federalAll must be for the common defense and general welfare of the country
4 Tax BaseThe tax base is the income that is subject to tax. Made up of:Income taxSales taxProperty taxCorporate income tax
5 Tax Structure Proportional Tax…% of income…flat tax Progressive Tax…% increases with income…income taxRegressive Tax…places a higher burden on those with less income…sales taxUsually on goods and services
6 What Makes a Good TaxSimplicity…laws are simple and easy to understandEfficiency…collect taxes without spending too much time or moneyCertainty…know what is due and whenEquity…fair so there is not a heavier burdenFairnessBenefit received approachThose receiving the benefits pay the tax (gas)Ability to pay principlePeople pay according to their ability to
7 Bearing the Burden Who actually pays? The producer can easily shift the burden of the tax to the consumerEasier to shift it if there is inelastic demand!The final burden is known as the incidence of a tax
9 Federal Taxes Individual Income Taxes 48% of federal revenue Withheld from incomeFile a tax return to balance what you oweExemptions and deductions...reduce your taxable incomeTax brackets...determine % you will payIncome tax is a progressive tax
10 Federal Taxes Corporate Income Tax 11% of revenueFICA...social security, Medicare, unemployment33%Other TaxesExcise...taxes on certain goods (gas, tobacco)Estate Taxes...tax on the estate of someone who has diedGift Taxes...taxes on gifts above $10,000Import Taxes...tariffs...tax on importsTax incentives...used to encourage or discourage behavior
11 Review1. Taking taxes out of an employee’s wages before he or she receives them is called(a) tax return.(b) social security.(c) FICA.(d) withholding.2. How is the federal income tax a progressive tax?(a) The higher the income a person has, the higher the percentage that person pays as tax.(b) A person with a higher income pays more money in taxes, although the percentage he or she pays as tax is less.(c) Two married people who file their taxes together will pay more taxes than a single person will.(d) Children pay no taxes, regardless of whether they earn a large income.
13 Federal SpendingThe government uses tax revenue to fund the operations of the countryMandatory vs. Discretionary spendingMandatory...programs that need to be funded by law (interest on national debt and entitlement programs)Entitlement programs are those that people are entitled to and meet the requirements of...social security, Medicare etc...Discretionary spending...programs that can be adjustedDefense, education, environment etc...
14 Federal SpendingMuch of the revenue collected by the federal government through taxation is also distributed to state and local governments
16 Review1. All of the following are examples of mandatory spending except(a) defense spending.(b) Medicare.(c) Social Security.(d) Medicaid.2. An entitlement program is(a) a program to provide benefits paid to everyone.(b) a program to provide benefits paid to government employees only.(c) a program to provide benefits to people who meet certain requirements.(d) a program to provide benefits to illegal aliens.
17 State and Local Taxes and Spending Chapter 14, Section 4
18 State TaxationLike the federal government, state governments collect taxes to pay for their operating costsStates have strict tax laws and are required to balance the budgetOperating budget...pays for operation of stateCapital budget...pays for upgrades and investments
19 Spending State Taxes Education Law enforcement Transportation Public welfareRecreation
20 Sources of Income for States Sales TaxState income taxesBusiness TaxesFees and licenses
21 Local GovernmentLike the state government, local governments need to tax to cover operating costsSchoolsFireLawTransportationElectionsRecreation
22 Local Government Revenue Property Taxes...major sourceOther local taxes (sales tax, bed taxes, rental taxes etc...)
23 Review 1. For most state governments, the main source of revenue is a (a) room tax.(b) property tax.(c) general excise tax.(d) statewide sales tax.2. The main source of revenue for local governments is(a) a property tax.(b) an excise tax.(c) a sales tax.(d) an income tax.