3 What are taxes?Taxation is the primary way that the government collects moneyWithout revenue, or income from taxes, government would not be able to provide goods and services
4 Taxes and the Government The constitution gives Congress the power to taxThe 16th amendment gives Congress the power to levy an income tax
5 Limits on the Power to Tax Taxes must be for “the common defense and general welfare”Federal taxes must be the same in each stateGovernment cannot tax exports
6 Tax Bases and Tax Structures A tax base is the income, property, good or service that is subjected to a taxProportional taxes are a tax for which the percentage of income paid in taxes remains the same for all income levels
7 Tax Bases and Tax Structures Progressive Taxes are taxes for which the percent of income taxed increases as income increasesRegressive Taxes are taxes for which the percentage of income taxed decreases as income increases
8 Characteristics of a Good Tax 1) Simple- easy to understand2) Economy- Government should be able to collect taxes without spending too much time or money3) Certainty- Should know when the tax is due4) Equity- Should be fair
9 Who bears the burden of the tax? Incidence of a tax examines who bears the final burden of a taxIf a good is inelastic, the consumer will bear the burden of the tax. If a good is elastic, the seller will bear the burden of the tax.
11 Individual Income Taxes Federal Income taxes are collected throughout the year as you earn incomeWithholding is the process by which employers take tax payments from you before your receive your paycheckThe federal income tax is progressive
12 Filing a Tax ReturnA tax return is a form where you declare your income to the governmentA taxable income is a person’s total income minus exemptions and deductions
13 Filing a Tax ReturnExemptions are set amounts that you subtract from your income (spouse, kids)Deductions are variable amounts that you can subtract from your income (school supplies for students)
14 Corporate Income Taxes Corporations must pay a federal tax on their incomeThis is a progressive tax i.e Profit = taxes
15 Social Security, Medicare and Unemployment Taxes Social Security Tax- Funded by Federal Insurance Contributions Act (FICA). Go to those of old age, survivors and disability insurance.Medicare Taxes- Funded by FICA. Health insurance for those over 65 and some with disabilities.Unemployment Taxes- Collected by both the federal and state government. You can collect unemployment if you were laid off or are actively seeking work
16 Other Types of TaxesExcise Tax- a tax on a production of a good (ex. Cigarettes)Estate Tax- a tax on the total value of money and property of a person that has died. Paid before inheritors receive their shareGift Tax- a tax on the money or property one living person gives to anotherImport tax- taxes on imported good are called tariffs
18 Mandatory and Discretionary Spending Mandatory spending is money that lawmakers must spend on certain programs or to use for interest payments on the national debt
19 Mandatory and Discretionary Spending Discretionary spending allows lawmakers to spend money wherever they like
20 Discretionary Spending Defense spending- counts for about half of the federal government’s discretionary spending-includes military salaries, military equipment and operating costs of military bases
21 EntitlementsAn entitlement program is a social welfare program that people are “entitled” to if they meet certain requirements (Social Security, Medicare)Medicaid- benefits low-income families, some people with disabilities and elderly people in nursing homes.
23 State BudgetsA state’s operating budget pays for everyday expenses such as salaries, supplies and maintenance of state facilities.A state’s capital budget pays for investment spending.
24 Where are State Taxes Spent? Education- Help finance public state universities and some aid to local governments for K-12.Public Safety- State police systems and prisonsHighways and Transportation- States build and maintain highways. Also pay some costs of waterways and airports
25 Where are State Taxes Spent? Public Welfare- Support some public hospitals and clinics. Help pay for and administer federal benefits programsArts and Recreation- State parks, some museums and historical sitesAdministration- Help keep the state running (Congressman)
26 State Tax Revenues Limits to State Taxation -Since trade and commerce are considered national enterprises, states cannot tax imports or exports. They also cannot tax goods sent between states.
27 State Tax RevenuesSales tax- sales taxes are the main source of revenue for many statesOther state taxes include state income tax, excise tax and property tax
28 Local Government Spending and Revenues Local government help assist with public school systems, fire protection, public transportation, record keeping (birth/death certificates) and law enforcement
29 Local Government Spending and Revenues Property taxes are the main source of local revenueLocal governments can collect their own excise, sales or income taxSome taxes, such as room and occupancy rates, are aimed at nonresidents in order for local governments to earn extra money