GOVERNMENTAL REVENUES Ch.9 12.3.1 Students analyze the influence of the federal government’s fiscal policies (taxation, borrowing, spending) on the American economy

Why have taxes. Best way for nations to raise revenue Why have taxes? Best way for nations to raise revenue! But it lowers income for consumers and businesses, which shifts demand and supply curves to left, and causes unemployment.

2 PRINCIPLES OF TAXATION Benefit Principle – those who benefit from taxes should pay. Ability to Pay Principle – people should pay based on their ability to.

TYPES OF TAXES Proportional (same rate of taxation) ex. 10% Progressive (higher rate on higher incomes) Regressive (Higher percentage rate on lower incomes, burden of tax) Proportional taxes become regressive.

FEDERAL TAXES (Top 3) INDIVIDUAL INCOME TAX (progressive) tax on earnings (Legal wages, not under the table or black market) Payroll withholding system – employer takes out tax and sends to IRS IRS – Internal Revenue Service, Branch of the U.S. Treasury Dept. Tax Return – Annual report sent to the IRS (April 15th) summarizing your total income, taxes withheld, credits, and deductions by employers. The IRS determines if the Govt. owes you a refund for overpayment of taxes, or if you owe more $ for not paying enough. (exemptions)

Table 2. Statutory Marginal Tax Rates, 2014 Married Filing Jointly TAX BRACKETS Table 2. Statutory Marginal Tax Rates, 2014 Tax Schedules by Filing Status Married Filing Jointly If taxable income is: Then, tax is: $0 to $18,150 10% of the amount over $0 $18,150 to $73,800 $1,815 plus 15% of the amount over $18,150 $73,800 to $148,850 $10,162.50 plus 25% of the amount over $73,800 $148,850 to $226,850 $28,925 plus 28% of the amount over $148,850 $226,850 to $405,100 $50,765 plus 33% of the amount over $226,850 $405,100 to $457,600 $109,587.50 plus 35% of the amount over $405,100 $457,600 plus $127,962.5 plus 39.6% of the amount over $457,600 Single Returns $0 to $9,075 10% of the amount over $0 $9,075 to $36,900 $907.50 plus 15% of the amount over $9,075 $36,900 to $89,350 $5,081.25 plus 25% of the amount over $36,900 $89,350 to $186,350 $18,193.75 plus 28% of the amount over $89,350 $186,350 to $405,100 $45,353,75 plus 33% of the amount over $186,350 $405,100 to $406,750 $117,541.25 plus 35% of the amount over $405,100 $406,750 plus $118,118.75 plus 39.6% of the amount over $406,750 Heads of Households $0 to $12,950 10% of the amount over $0 $12,950 to $49,400 $1,295 plus 15% of the amount over $12,950 $49,400 to $127,550 $6,762.50 plus 25% of the amount over $49,400 $127,550 to $206,600 $26,300 plus 28% of the amount over $127,550 $206,600 to $405,100 $48,434 plus 33% of the amount over $206,600 $405,100 to $432,200 $113,939 plus 35% of the amount over $405,100 $432,200 plus $123,424 plus 39.6% of the amount over $432,201

FICA (Federal Insurance Contributions Act) 2 types: Social Security – payments to retiree’s, widows, orphans, and disabled. Medicare – medical health program for senior citizens.

3. CORPORATE INCOME Tax on corporations profits (progressive). Ex. 15% up to 50,000 / 23% 50,000 –75,000 / 34% 75,000 – 10 million / 35% over 10 million. Rate becomes unjust to small business…regressive. (Why?)

OTHER FEDERAL TAXES Excise – tax on certain products (inelastic/vices) Gas, Liquor, Cigarettes. Estate – tax on the transfer of property when someone dies. Customs Duty - tax on imported goods. User fees – tax / charge for use of good or service (National Parks, Toll roads).

STATE TAXES Ranked from highest to lowest in revenue Sales - tax on most products (Proportional) therefore (Regressive) Intergovernmental Revenues – money received from the Federal Govt. Individual Income – tax on earnings. Employee Retirement Contributions – fee to cover state retirement plans.

Ranked from highest to lowest in revenue LOCAL TAXES Ranked from highest to lowest in revenue Intergovernmental Revenues – money received from the State Govt. Property Tax (3 types)– tax on Real (permanently attached to land), Tangible (wealth not attached to land / buildings), and Intangible (stock/bonds, banking accounts) Properties. Public Utilities – tax on gas, water. And power. (DWP) Liquor Store Income Sales Tax

GOVERNMENTAL EXPENDITURES (Spending) Ch.10 12.3.1 Students analyze the influence of the federal government’s fiscal policies (taxation, borrowing, spending) on the American economy

2 kinds of spending Goods and Services – Public goods, salaries, and Military Transfer Payments – Payments where Govt. receives nothing in return (Soc. Security, Welfare, Unemployment, etc,). AKA: Entitlements

FEDERAL BUDGET Is an annual plan outlining proposed revenue and expenditures for the upcoming fiscal year. Budgets have 3 possible outcomes: Balanced Budget : revenues = expenditures  Budget Surplus : revenues  expenditures  Surplus can help decrease the Fed Debt. Budget Deficit : revenues  expenditures 

DEFICIT SPENDING Is when you spend more $ than you receive in revenues. Each year we deficit spend, we add to the National Debt: (total amount borrowed to finance the Govt.’s deficit spending)

Deficit spending = 592 billion dollars!   How large is the Federal/National debt today? 19,917,9727,125,000 What is the Fed Govt. interest payment on the debt? 2,494,814,770,000 How much does the Fed Govt. have in tax Revenues? 3,368,318,220,000 How much are the Fed Govt. expenditures? 3,960,865,100,000 Deficit spending = 592 billion dollars! WOW! As of 5/22/17 6:15 a.m. www.usdebtclock.org Debt Scenarios P.275, Figure 10.8

MAJOR FEDERAL EXPENDITURES Interest on the Fed Debt – 2,539,462,117,000 (see pg.263) Social Security – 826,945,641,000 Medicare – 782,647,237,000 National Defense – 594,164,732,000 Income Security (entitlements: welfare, unemployment, workers comp., Obama Care?) – 336,228,977,000

MAJOR STATE EXPENDITURES Intergovernmental Revenues (Local) Public Welfare Insurance Trusts (State Employees) Higher Education Highways Interest on the State Debt Corrections see pg. 269

MAJOR LOCAL EXPENDITURES Elementary / Secondary Education Utilities Hospitals Police / Fire Interest on Local Debt

Governmental Revenues/Expenditures (taxes) SAR Questions Describe the kind of impact taxes have on the economy. Also explain the principles of taxation along with the types of taxes, and argue which is the fairest. (debates) Compare the 3 levels of governments’ top forms of revenue. How are they similar, and different? Also explain how the Federal government receives your individual income tax, and what factors influence whether you get a refund, or pay the government. If you were President, How would you propose to balance the budget? (look at expenditure categories ch.10 sec.3/ notes) What additions and cuts would you make? What would be the consequences of your actions?   15 points (Homework)