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SSEMA3 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. a. Define fiscal.

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Presentation on theme: "SSEMA3 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. a. Define fiscal."— Presentation transcript:

1 SSEMA3 The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. a. Define fiscal policy. b. Explain the governments taxing and spending decisions. SSEPF3 The student will explain how changes in monetary and fiscal policy can have an impact on an individuals spending and saving choices. a. Give examples of who benefits and who loses from inflation. b. Define progressive, regressive, and proportional taxes. c. Explain how an increase in sales tax affects different income groups.

2 What is a tax? A required payment to a local, state, or national government.A required payment to a local, state, or national government. –The main way that government collects money needed to operate.

3 What allows government to tax? Article I, Section 8, clause 1Article I, Section 8, clause 1 –Limits: must be for common defense and general welfare (not for individual interests), must be same in every state (federal taxes), cant tax church services (freedom of religion), cant tax exports (only imports). 16 th Amendment allows tax on incomes16 th Amendment allows tax on incomes

4 What is a tax base? The income, property, good or service that is subject to a tax.The income, property, good or service that is subject to a tax. –might be your earnings, value of a good or service being sold, value of property, value of a companys profits. EXAMPLES:EXAMPLES: –Individual income tax –Sales tax –Property tax –Corporate income tax

5 3 tax structures Proportional: tax for which the percentage of income paid in taxes is the same for everyone.Proportional: tax for which the percentage of income paid in taxes is the same for everyone. –Ex: flat tax, Social Security (proportional up to $87,000, regressive after because lower income pays greater percentage of income.), Medicare (1.45% of income) Progressive: tax for which the percentage of income paid in taxes increases as income increases.Progressive: tax for which the percentage of income paid in taxes increases as income increases. –Ex: income tax Regressive: tax for which the percentage of income paid in taxes decreases as income increases.Regressive: tax for which the percentage of income paid in taxes decreases as income increases. –Ex: sales tax (higher income families spend a lower percentage of their income on sales tax than lower income families. They pay more in actual dollars, but not in percentage of income.)

6 Incidence of a Tax Who bears the final burden of a tax?Who bears the final burden of a tax? –Taxes affect more than just the people who send in the checks to pay them. Ex: Government imposes a 50 cent/gallon tax on gasoline and collects the tax from gas stations.Ex: Government imposes a 50 cent/gallon tax on gasoline and collects the tax from gas stations. –Seems like burden is on the gas station – they pay the government. –In fact, when the cost of supplying the gas goes up, supply decreases (remember when costs rise, suppliers supply less, shift to the left). If demand is relatively inelastic (not much reaction to price increase to consumers) they bear a large share of the burden. If demand is more elastic, they will bear a smaller share of the burden.

7 What are the characteristics of a good tax? Simplicity – easy to understand.Simplicity – easy to understand. Economy - can be collected without spending too much time or money.Economy - can be collected without spending too much time or money. Certainty - clear when its due, how much, and how it should be paid.Certainty - clear when its due, how much, and how it should be paid. Equity – fair – no one bears too much or too little of the tax burden.Equity – fair – no one bears too much or too little of the tax burden.

8 Where do our tax dollars go? FederalFederal –Six major sources of revenue Individual income taxes – main source (45%)Individual income taxes – main source (45%) Corporate income taxes – 7%Corporate income taxes – 7% Social insurance taxes – 40% (FICA – Social Security and Medicare)Social insurance taxes – 40% (FICA – Social Security and Medicare) Excise taxes – 4% (on sale or manufacture of a good)Excise taxes – 4% (on sale or manufacture of a good) Estate and gift taxes - 1%Estate and gift taxes - 1% Taxes on imports – 1%Taxes on imports – 1%

9 Individual Income Taxes Main source of federal government income.Main source of federal government income. Pay-as-you-earn – payments made throughout the year, gives government money throughout the year to meet expenses.Pay-as-you-earn – payments made throughout the year, gives government money throughout the year to meet expenses.

10 Process of Paying Income Taxes W-4 – new employees fill out the form determining the withholding from their pay.W-4 – new employees fill out the form determining the withholding from their pay. Employers withhold $$ from your check based on that W-4.Employers withhold $$ from your check based on that W-4. $$ is forwarded to the government by the employer. (installment on what you will owe at the end of the year)$$ is forwarded to the government by the employer. (installment on what you will owe at the end of the year) End of the year, employer gives you a report that shows what they held out of the check all year (W-2).End of the year, employer gives you a report that shows what they held out of the check all year (W-2). Employee completes a tax return (by April 15).Employee completes a tax return (by April 15). –Declare your income to the government. –Taxable income = income minus exemptions and deductions. –Determine whether you owe the government or whether the amount paid already through your payroll deductions was enough. May have a return due.

11 Federal Spending Mandatory v. DiscretionaryMandatory v. Discretionary –Required v. choice Which categories receive the most federal funds?Which categories receive the most federal funds?

12 Activity Create a chart of some sort that shows federal, state and local revenues.Create a chart of some sort that shows federal, state and local revenues. Create a chart of some sort that shows federal, state and local spending.Create a chart of some sort that shows federal, state and local spending. Compare and contrastCompare and contrast Which categories of federal spending would you lower?Which categories of federal spending would you lower? Which categories would you raise?Which categories would you raise? Explain why!!Explain why!!

13 Federal RevenuesRevenues –Individual Income Tax 45% –FICA 40% –Corporate Income Taxes 7% –Excise taxes 4% –Miscellaneous 2% –Estate and Gift Taxes 1% –Customs duties and tariffs 1% Spending –22% Social Security –18% Defense –15% Income security –11% Medicare –10% Health –8% Net interest –4% Education –3% Veterans benefits –3% transportation –2% administration of justice –1% agriculture –1% energy, natural resources, environment –1% science, space, and technology

14 State RevenuesRevenues –26% Intergovernmental Revenue –22% Sales and excise taxes –18% Individual Income Taxes –18% Other (licensing fees, transfer tax on deeds, tax for using certain resources) –10% insurance trust revenue –3% interest earnings –3% corporate income tax –1% property taxes Spending –30% parks and recreation –19% public welfare –13% education –10% insurance trust expenditure –8% other –6% highways –3% governmental administration –3% interest on general debt –3% hospitals –3% corrections –2% health –1% natural resources

15 Local RevenueRevenue –35% intergovernmental revenue –24% property taxes –19% other taxes and charges –8% utility revenue –6% sales and excise taxes –4% interest earnings –2% individual income taxes –2% insurance trust revenue Spending –38% education –13% other –10% utility –5% governmental administration –5% police protection –4% hospitals –4% interest on general debt –4% highways –3% parks and recreation –3% public welfare –2% housing and community development –2% insurance and trust expenditure –2% fire protection –2% sewerage


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