Taxes

Taxes A required payment to local, state, or national government. Revenue is then used to provide goods and services.

What does this chart tell you? Ask students what they notice about this chart. What information does this chart provide? What does this tell you about the deficit? What does it tell you about individual and corporate income taxes?

TWO ESSENTIAL QUESTION ABOUT TAXES What is being taxed (tax base)? How does it affect taxpayers?

WHAT IS BEING TAXED? TAX BASE: What is being taxed? Income Property Consumption

TYPES OF TAXES Federal State Local Individual Federal Income Tax Individual State Income Tax Property Tax FICA (Federal Insurance Corporations Act) - Social Security - Medicare Sales Tax Utility Tax (taxes on cable, phone, electricity, etc.) “Sin” Taxes Corporate Income Tax State Fees (License) State Park Fees Federal Taxes Individual Income Tax: tax on the income an individual makes from wages and investments. This is a progressive tax and households pay a % dependent on the tax bracket FICA (Federal Insurance Corporations Act):a payroll tax taken out one’s paycheck for the Social Security and Medicare systems, which provide an income and medical care to retired and disabled Americans. Social Security:6% of income up to $98,000 Medicare- 14% for all Corporate Income Tax: Corporations are taxed off of their profits. Estate Tax: deals with the transfer of property when a person dies. Gift Tax: placed on large donations of money- paid by the donor. State Taxes Sales Tax– also known as an excise tax. It is a tax that depends on the value of goods/services sold and states have different levels. Therefore this is a regressive tax Michigan 6% Individual Income Taxes: tax on the income an individual makes from wages and investments. This is a proportional tax “Sin” taxes: tax on activities deemed socially undesirable (cigarettes, alcohol, lottery) $2.00 on a pack of cigarettes since 2004 Beer= 20 cents/gallon, wine= 51 cents/gallon, liquor= 4% State fees: Fees charged to individuals for certain activities (hunting and drivers licenses, tuition, hospitals, state park fees) Local Taxes Property Tax- assessed each year to indicate home value It is a proportional tax based on value of home Also based partly on community vote for mileage (police, education, infrastructure, ect) Utility Payments- taxes on cable, phone, etc. Estate Tax Gift Tax

HOW DOES THE TAX RATE EFFECT TAXPAYERS? Proportional (flat tax) Regressive (consumption based) Progressive (percent)

PROPOPRTIONAL TAXES “FLAT TAX” Takes the same percentage (or amount) from both high and low income tax payers Example: Michigan income tax - all are taxed on their income at the same percentage (4.35%)

REGRESSIVE TAX One tax rate, but people pay less of a percent as their income increases (typically consumption based) Example: Sales Taxes: Michigan 6% tax on goods purchased. Those with more money pay less of a percent of their income in tax.

REGRESSIVE TAX Gas Taxes $ 20 Each person paid $20 tax for gas. $1,000 /yr $200,000 /yr Each person paid $20 tax for gas. The rich guy only paid 0.0001 percent of his income for the gas. The poor student paid 0.02 percent of his income for the gas. 1/10,000

Married Filing Jointly PROGRESSIVE TAX Takes a larger share of the income of high- income taxpayers than of low-income taxpayers. Higher income levels are taxed at higher rates Tax Bracket Single Married Filing Jointly Head of Household 10% $0 – $8,950 $0 – $17,900 $0 – $12,900 15% $8,950 – $36,250 $17,900 – $72,500 $12,750 – $48,600 25% $36,250 – $87,850 $72,500 – $146,400 $48,600 – $125,450 28% $87,850 – $183,250 $146,400 – $223,050 $125,450 – $203,150 33% $183,250 – $400,000 $223,050 – $450,000 $203,150 – $400,000 39.6% $400,000+ $450,000+

PROGRESSIVE TAX What is the overall tax rate for each of the three income levels?

TYPES OF TAXES Federal State Local Individual Federal Income Tax Individual state Income tax Property tax FICA (Federal Insurance Corporations Act) Social Security Medicare Sales Taxes “Sin” Taxes Utility Tax (taxes on cable, phone, electricity, etc.) Corporate income tax State fees (License) State park fees Estate Tax Gift Tax PROGRESSIVE PROPORTIONAL REGRESSIVE REGRESSIVE REGRESSIVE PROPORTIONAL PROGRESSIVE Federal Taxes Individual Income Tax: tax on the income an individual makes from wages and investments. This is a progressive tax and households pay a % dependent on the tax bracket FICA (Federal Insurance Corporations Act):a payroll tax taken out one’s paycheck for the Social Security and Medicare systems, which provide an income and medical care to retired and disabled Americans. Social Security:6% of income up to $98,000 Medicare- 14% for all Corporate Income Tax: Corporations are taxed off of their profits. Estate Tax: deals with the transfer of property when a person dies. Gift Tax: placed on large donations of money- paid by the donor. State Taxes Sales Tax– also known as an excise tax. It is a tax that depends on the value of goods/services sold and states have different levels. Therefore this is a regressive tax Michigan 6% Individual Income Taxes: tax on the income an individual makes from wages and investments. This is a proportional tax “Sin” taxes: tax on activities deemed socially undesirable (cigarettes, alcohol, lottery) $2.00 on a pack of cigarettes since 2004 Beer= 20 cents/gallon, wine= 51 cents/gallon, liquor= 4% State fees: Fees charged to individuals for certain activities (hunting and drivers licenses, tuition, hospitals, state park fees) Local Taxes Property Tax- assessed each year to indicate home value It is a proportional tax based on value of home Also based partly on community vote for mileage (police, education, infrastructure, ect) Utility Payments- taxes on cable, phone, etc. PROGRESSIVE REGRESSIVE PROGRESSIVE

Characteristics of “GOOD TAX” Equity: A tax should have vertical and horizontal equity. Vertical - People with different amounts of income should pay different amounts of taxes. Horizontal – People with the same amount of income should pay the same amount of taxes. Certainty: It should be clear WHEN a tax is due, how much is due, and how it should be paid. Efficiency: The tax should not inhibit productive activities; nor should it discourage people from working or investing in new capital or businesses. It also should not encourage individuals to be wasteful in buying goods. Simplicity: The tax should be simple to administer and follow. The rationale for the tax should be generally agreeable and justifiable. Loopholes and exemptions should be minimized.

Government Limits regarding taxes Must be for general welfare and common defense Not individual or personal gains Federal taxes must be the same across states Taxes may not infringe on Constitutional rights Exports may not be taxed