TAXES AND OTHER REVENUE

Taxation and its purposes ■ A tax is a charge levied by the government on persons or property to raise money to meet public needs. ■ However that is not the only purpose that government implements taxes for; the government also has protective tariffs and excise taxes

Personal Income Tax ■Income taxes were legalized by the 16 th Amendment and are the Federal government’s largest source of revenue ■43% of the government’s tax revenue comes from personal income taxes ■Individuals pay income taxes at different percentages based upon what “tax bracket” they fall under ■Tax brackets range from 10% to 39.6%

Progressive Taxes ■A progressive tax is a tax that places a larger tax burden upon those with more wealth ■The personal income tax is a type of progressive tax ■The more money a person makes, the higher the percentage of their income that is paid in taxes

Payroll taxes ■Payroll taxes are taxes taken directly out of ones paycheck that fund social welfare programs such as Medicare, Social Security, and Unemployment benefits ■Payroll taxes are the Federal governments second largest source of tax revenue ■Payroll taxes are paid by both employees and employers ■For example, employees pay a 6.2% tax on each paycheck that their employer must match. If you are self employed, you must pay a 12.4% tax on your income!

Regressive Tax ■A regressive tax is a tax that, while applied evenly regardless of income, places a larger tax burden upon the poor ■Sales taxes and Payroll taxes are an example of a regressive tax ■For example a man who makes $100,000 a year living in Virginia buying $4,000 worth of food per year would pay $60 per year on grocery taxes. While a man making $15,000 spending $4,000 per year on grocery taxes would spend the same amount, he is therefore paying a much higher percentage of his income on food taxes.

Corporation Income taxes ■Like people, businesses must also pay taxes, these are called Corporation income taxes, or corporate taxes. ■Like personal taxes, corporate taxes also function on as a progressive tax ■While corporations must pay between 15 and 35% taxes on their net income, there are many tax deductions available to corporations so their real tax rate may be much lower ■Corporate taxes account about 7% of Federal tax revenue and is the nations third largest revenue producer

Protective Tariffs ■ A protective tariff is a tax on imported goods designed to protect an industry within a nation - The united states currently has a 126% protective tariff on paper clips imported from China. As a result, the vast majority of paper clips used in the United States are made domestically

Excise Taxes ■Excise taxes are taxes placed on specific goods. While a sales tax may apply to all good or perhaps a particular set of goods (i.e. food) an excise tax is a tax put in place on specific items. ■These items are usually items that are viewed immoral, unhealthy, or luxurious. Common items include alcohol and tobacco. ■The act of gambling may also carry an excise tax. ■ Lastly, luxury items, such as certain cars may carry a excise. For example, the taxes on Mercedes S might be taxed at a higher rate than a Honda Accord. ■Excise taxes are often referred to as “sin” taxes

Virginia Taxes ■Most states, like the federal government, rely on personal income taxes for a large percentage of their revenue; however there are certain taxes that are unique to states ■Virginia is one one 45 states with a sales tax which applies to most items an individual buys. The standard tax rate for the Virginia tax rate is 5.3%. Groceries are only taxed at 2.5% while prepared food (restaurant food) may carry an additional “Food and beverage” tax as much as 6% by a locality ■Virginia also has excise (sin) taxes on tobacco and alcohol. Virginia's excise tax on tobacco is only about $0.30 per pack while its beer tax is 5% on top of the 5.3% sales tax and the liquor tax can be as high as an additional 20% tax.