Raising Revenue AKA Fiscal Policies The federal government can’t develop and sustain its programs without revenue –The income the government collects from us.

How does the Federal government make revenue? Taxes –Charges laid on individuals and businesses by a government. THIS IS THE FEDERAL GOVERNMENTS PRIMARY SOURCE OF REVENUE!!

Federal Taxes How does the federal government collect taxes from an individual? –Income taxes!!

Individual Income Tax Makes up the federal government’s largest source of revenue. –Around 70% of all federal revenue comes from personal income tax. –What does this include? Wages and salaries Business profits Tips Dividends –Payments received as a return on an investment

Individual Income Tax, cont. Personal income tax is based on a progressive tax –Larger percentages of income are taken from people with higher incomes. Table 1 [Income Tax Paid to Federal Government] Individual Tax Payer 10% on income between $0 and $8,025 15% on the income between $8,025 and $32,550 25% on the income between $32,550 and $78,850 28% on the income between $78,850 and $164,550 33% on the income between $164,550 and $357,700 35% on the income over $357,700

What is taxable income? Taxable income = sum of all sources of a person’s income minus deductions and exemptions Math Equation: –All Personal Income – (Deductions + Exemptions) = Taxable Income

What are deductions and exemptions? Deductions: –Money that the government allows you to subtract from your taxable income. School loan interest Mortgage interest Donations Exemptions: –Money that can not be taxed at all. Given to people who have children.

So how does this all add up? Personal Income –$40,000 Deductions –$3,000 mortgage interest –$650 school loan interest –$750 donations Total = $4,400 deductions Exemptions –$3,500 for one child Total taxable income = $32,100 –WHY IS THIS IMPORTANT???

You get a refund!! Original Personal Income –$40,000 Taxed at 25% –Should have paid $10,000 in taxes! True taxable income –$32,100 Taxed at 15% –Only have to pay $4,815 in taxes. Refund = $5,185 Table 1 [Income Tax Paid to Federal Government] Individual Tax Payer 10% on income between $0 and $8,025 15% on the income between $8,025 and $32,550 25% on the income between $32,550 and $78,850 28% on the income between $78,850 and $164,550 33% on the income between $164,550 and $357,700 35% on the income over $357,700

Trip to Bahamas

Or Cavs floor seats Season Tickets

Or rent your own castle for a day!

When do you have to pay your taxes? April 15 th of every year! –If you do not pay by then, you have to: File for an extension Pay fines Go to jail!

What if I own a business? If you own a business, –You must pay a corporate income tax. Based on a business’s net income. –What is net income? Revenue (Money made) – Expenses (Money spent). Makes up the 3 rd largest source of revenue for the federal government. Example: –Apple Computers paid $1,580,000,000 in 2008

How much did Apple make in 2008? $6,210,000,000 in revenue!