8 Question 1Can you explain why a worker earns $264 but receives a paycheck for less than $264?
9 Question 2What happens to the amount earned not received by the employee? Meaning where did the $30.84 that the employee go to?
10 Benefits-Received Principle Financing of road construction & maintenance through gasolineDifficult for governments to asses exactly how much different taxpayers benefit from services like national defense, national parks, local police, fire protection, and public education
11 Ability-to-Pay Principle People with higher incomes will pay more than people of lower incomesThe level of benefits is not a consideration
12 Ability-to-Pay Principle Questions to ConsiderShould everyone pay the same percentage of income?Should those with higher incomes pay a higher percentage of their income in taxes?
13 Criteria for TaxationEquity, Simplicity, & Efficiency
14 Equity Example Some believe Requires people in similar situations pay a similar amount of taxesExampleEveryone pays the same price for taxSome believeEquity requires that people with higher incomes pay more than people with lower incomes
15 SimplicityShould be NO confusion bout the time the tax is due and the amount to be paidSales tax meets the criterion of simplicity
16 Efficiency Taxpayers’ view Tax efficiency can be judged by the amount of effort and expense it takes to pay the taxIndividual income tax best meets the criterion efficiency
17 Tax Base & StructuresTax base, each type of wealth is subject to taxesIndividual income, corporate income, sales, and property
18 Individual Income TaxWages, interests, dividends, and tipsAll taxes are ultimately paid from Income, but using income as a tax base means that the amount of tax is directly linked to a person’s earnings
19 Corporate Income TaxFrom savings & investment in the form of interests & dividends
20 Sales TaxGenerally imposed on a wide range of goods or servicesPercentage of the posted price of the good or serviceIncluded in the final price the buyer paysThe seller then passes the tax revenue collected from customers on to the government that has imposed the tax
21 Property Tax Generally real estate Pay on the values of their buildings and the landProperty tax is generally included in rent chargesCan be imposed on other assets like automobiles
22 If overall personal income rises, the individual income tax base grows If there are fewer homes or businesses in a certain locality or if the value declines, the property tax base shrinks
23 Tax StructuresThe way in which taxes are imposed on the different tax bases gives rise to three different tax structuresThese tax structures are distinguished from one another
24 Proportional Tax Example Flat tax, rate of the tax is the same for all taxpayersExampleAll taxpayers in a given state might be charged a flat 15% tax on the incomeNo matter a person’s income is
25 Progressive Tax United States Income increases so does your tax rate Federal income tax = progressive taxTax rate increases as income increases
26 Taxable income of $40,000 Page 413 Income BracketMarginal Tax Rate$0-10,00010 %$10,000-$30,00015%$30,000-$50,00025%
27 Income in each bracketTax Bracket$ 10,00010%$ 20,00015%$10,00025%
28 Income in BracketXMarginal Tax Rate=Marginal Tax$ 10,00010 %$1,000$ 20,00015%$3,000$10,00025%$2,500Total Tax$6,500
29 Regressive Tax Income paid in taxes decreases as income increases Sales tax
35 Individual Income TaxThe federal government takes in around $2.5 trillion in revenue each yearIndividual income tax , Social insurance taxes, Corporate income taxes, Estate taxes, Gift taxes, Excise taxes, & Customs taxesLargest source of taxes = individual income taxGovernment uses income tax16 Amendment to the US Constitution in 1913