Bell Ringer “In this world nothing can be said to be certain, except death and taxes.” –Benjamin Franklin “The only difference between death and taxes is that death doesn't get worse every time Congress meets.” –Will Rogers

Bell Ringer, cont. Taxation is slavery. Taxes are the price we pay to have a civilized society. VS. Which of these two statements do you agree with most, and why?

Identify the sources of the government’s authority to tax. Objectives Identify the sources of the government’s authority to tax. Describe types of tax bases and tax structures. Identify who bears the burden of a tax.

Government’s Authority to Tax Where does the federal government get its authority to tax? U.S. Constitution, Article 1, Section 8: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”

The Purpose of Taxation Why does the government tax its citizens? Taxes give the government the money it needs to operate. Taxation is the primary mean through which the government collects money. Individual Income Tax accounts for nearly 50% of total federal revenue!

Progressive Tax A progressive tax is a tax for which the percentage of income paid in taxes increases as income increases. In other words, the more you make, the higher the percentage of your income that is paid in taxes. The U.S. has had a progressive tax system since 1913.

Proportional Tax (Flat Tax) A proportional tax (or flat tax) is a tax for which the percentage of income paid in taxes remains the same at all income levels. A salesperson making $25,000/year pays the same percentage of their income as a lawyer making $250,000/year. Pros: Simplicity, “fairness” Cons: Heavier burden on low earners Checkpoint Answer: Progressive

Regressive Tax A regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases. Sales and excise taxes are regressive because higher income households spend a lower proportion of their incomes on taxable goods and services. Checkpoint Answer: Progressive

Tax Base Individuals Corporate Property Sales Tax Bases Tax Base Individuals Corporate Property Sales Tax is based on… …people’s earnings …company profits …real estate …goods and services

Key Terms tax: a required payment to a local, state, or national government revenue: the income received by a government from taxes and other nontax sources progressive tax: a tax for which the percentage of income paid in taxes increases as income increases proportional tax: a tax for which the percentage of income paid in taxes remains the same at all income levels regressive tax: a tax for which the percentage of income paid in taxes decreases as income increases

Key Terms, cont. tax base: the income, property, good, or service that is subject to a tax individual income tax: a tax based on a person’s earnings corporate income tax: a tax based on a company’s profits property tax: a tax based on real estate and other property sales tax: a tax based on goods or services that are sold

Bell Ringer What types of taxes do you currently pay or expect to pay when you enter the job market?

Objectives Describe the process of paying individual income taxes. Explain the purpose of Social Security, Medicare, and unemployment taxes.

Individual Income Taxes The government’s main source of revenue comes from individual federal tax income payments. Answer: 44% 14

“Pay-As-You-Earn” Taxation Individuals usually pay most of their income tax throughout the year to lessen the burden that one large yearly tax would place on an individual and to make it possible for the government to meet its regular expenses. This “pay-as-you-earn” system means that people pay their state and federal taxes as they earn income. 15

Your range of income puts you in a specific tax bracket. Tax Brackets The federal income tax is a progressive tax, which rises with the amount of taxable income. Your range of income puts you in a specific tax bracket. Answer: $4,220 plus 25% 16

Social Security and Medicare Federal Insurance Coalition Act (FICA) taxes help fund Social Security, Medicare, and unemployment insurance Most of the FICA taxes you pay go to Social Security benefits for retired people, surviving members of wage earners, and disabled people. You do not get a refund on what you pay toward FICA.

Withholdings and Tax Returns Employers help collect taxes by withholding money from your paycheck based on an estimate of how much you will owe in federal income tax for that year. You can adjust the percentage that your employer takes out for federal taxes with a W-4 form, and for AZ state taxes with an A-4 form.

Withholdings and Tax Returns After the calendar year ends, employers issue a W-2 tax statement, which is a report of how much income tax has already been paid.

Doing Your Taxes 101 Save all important documents. Never pay to have your taxes done. (Not yet, anyway.) Check with your parents to see if they’re claiming you on their taxes. At your age, you probably don’t have to file anyway (depending on your income). If you don’t, you won’t get a refund. If you do, you have to file every year after that. Keep all your tax information for at least three years after you file.

How did they end up paying so little in taxes? Bell Ringer In FY2014, ExxonMobil made $45 billion in profit. However, they only paid $1.53 billion in federal income tax (a 3.4% tax rate). How did they end up paying so little in taxes?

Identify other types of taxes collected by the government. Objectives Describe the basic characteristics of corporate income taxes, including how many U.S. corporations avoid paying income taxes. Identify other types of taxes collected by the government.

Other Types of Taxes Estate taxes—a tax on the total value of the money and property of a person who has died (aka, “Death tax”) Gift taxes—a tax on the money or property that one person gives to another Import taxes—Tariffs, or import taxes, are taxes placed on imported goods. 23

Corporate Income Taxes Like individual income taxes, corporate income taxes are progressive. Determining corporate income taxes can be more difficult than determining an individual’s because businesses can take many deductions. Checkpoint Answer: because businesses can take many deductions. 24

Corporate Income Taxes Also, many loopholes exist in the current tax system which allow companies to pay low taxes, zero taxes, or even get a tax return. CEO pay at Boeing, Ford exceeds companies’ tax bill Checkpoint Answer: because businesses can take many deductions. 25

The Panama Papers In April 2016, millions of confidential tax documents were leaked to the press. These documents detailed what people already suspected, namely that large corporations and super wealthy individuals were avoiding paying taxes through off-shore accounts. https://www.youtube.com/watch?v=k2APY PjTWZ8 Checkpoint Answer: because businesses can take many deductions. 26

Key Terms withholding: taking tax payments out of an employee’s pay before he or she receives it tax return: a form used to file income taxes tax deduction: a variable amount that taxpayers may subtract from their gross income estate tax: a tax on the total value of the money and property of a person who has died gift tax: a tax on the money or property that one living person gives to another

Bell Ringer The U.S. government’s budget for Fiscal Year 2015 was $3.8 trillion. How much do you think it spent on the military? How much do you think it spent on Social Security & Unemployment? How much do you think it spent on education?

Bell Ringer How much do you think it spent on the military? $609 billion (16%) How much do you think it spent on Social Security & Unemployment? $1.25 trillion (33%) How much do you think it spent on education? $102 billion (2.5%)

Objectives Distinguish between mandatory and discretionary spending. Describe the major entitlement programs. Identify categories of discretionary spending.

There are two types of government spending: Federal Spending There are two types of government spending: Mandatory spending Discretionary spending 31

Mandatory Spending Mandatory spending is money that Congress is required by law to spend on certain programs or to use for interest payments on the national debt. 32

Entitlement Programs Most of the mandatory spending items are for entitlement programs, which fund social welfare programs (aka, the “Safety Net”). Food stamps, veterans’ pensions, unemployment, affordable housing, etc. Entitlements are a largely unchanging part of government spending. Congress can only change the eligibility requirements or reduce benefits if there is a change in the law.

Entitlement Programs Social Security is a huge portion of federal spending. About 60 million Americans receive monthly benefits from the Social Security Administration. This number grows each day. Why? Medicare and Medicaid are the other major entitlement programs. About 54 million Americans receive Medicare benefits. About 70 million low-income Americans receive Medicaid. 34

Discretionary Spending Discretionary spending is spending about which lawmakers are free to make choices. 35

Discretionary Spending Defense spending accounts for about half of the government’s discretionary spending. The remaining discretionary funds go to pay for the following: Education and training Scientific research Student loans Law enforcement Environmental cleanup Disaster relief …and everything else! Checkpoint Answer: About half 36

Federal Spending Response Do you think our federal government’s priorities are correct when it comes to budgeting and spending? Why/why not? If not, how should it be different? Cite examples. 37

Key Terms mandatory spending: spending that Congress is required by existing law to do discretionary spending: spending about which Congress is free to make choices entitlement: social welfare program that people are “entitled to” benefit from if they meet certain eligibility requirements