Taxes & Government Spending Chapter 14 Section 1 What are Taxes?

Taxes & Government Spending  Objectives: Understand how the government uses taxes to fund programs. Identify the roots of the concept of taxation in the United States Constitution. Describe types of tax bases and tax structures. List the characteristics of a good tax. Identify who bears the burden of a tax.

Taxes & Government Spending  If you look at all taxes taken from your paycheck, it can be a bummer.  Frustration over taxes, is what led the American Colonists to go to war against Britain and declare their independence.

Taxes & Government Spending  Money taken from your paycheck, it is not done without your consent.  As citizens of the United States, we authorize the government, through the Constitution and our elected representatives in Congress, to raise money in the form of taxes.

Taxes & Government Spending  Funding Government Programs A TAX is a required payment to a local, state, or national government. Taxation is the primary way that the government collects money. Taxes give the government the money needed to operate. Revenue – income received by a government in the form of taxes and other non-tax sources.

Taxes & Government Spending  What is a Tax?  What is Revenue?

Taxes & Government Spending  Tax A payment to any local, state, or national government  Revenue income received by a government in the form of taxes and other non-tax sources.

Taxes & Government Spending Without revenue from taxes, the government would not be able to provide the goods and services that we not only benefit from, but that we expect the government to provide. Provide things like…  Education  National Defense  Highways  Law Enforcement

Taxes & Government Spending  List one way that the money from revenue is spent by a governmental body?

Taxes & Government Spending  List one way that the money from revenue is spent by a governmental body?  Education  National Defense  Highways  Law Enforcement

Taxes & Government Spending  Taxes & the Constitution Taxation is a powerful tool. The founders of the United States did not, without careful consideration, give their new government the power to tax. The Constitution they created spells out specific limits on the government’s power to tax.

Taxes & Government Spending 1. Power to Tax + Article I Section 8 Clause 1 To lay and collect taxes, duties, Imports, and excise, to pay the debts, and provide for the common defense and general welfare of the united States; but all duties, imports, and excises shall be uniform throughout the United States.

Taxes & Government Spending  What gives the Government the power to tax the people ?

Taxes & Government Spending  U.S. Constitution Article I Section 8 Clause 1

Taxes & Government Spending 2. Limits on the Power to Tax + Constitution limits certain kinds of taxes. 1. the purpose of a tax must be for the “common defense and general welfare”. A tax cannot bring money to an individual 2. Federal taxes must be the same in every state.

Taxes & Government Spending  Tax Bases and Tax Structure Tax Base - is the income, property, good, and service that is subject to a tax. Income – Individual Income Taxes Property – Property Taxes Good & Service – Sales Taxes

Taxes & Government Spending  Name three types of taxes that our country has?

Taxes & Government Spending  Name three types of taxes that our country has?  Income  Property  Sales

Taxes & Government Spending Proportional Tax – a tax for which the percentage of income paid in taxes remains the same for all income levels. i.e. a state income tax is 6% of your individual income. Progressive Tax – a tax for which the percentage of income paid in taxes increases as income increases. i.e. the US federal income tax

Taxes & Government Spending Regressive Tax – a tax which the percentage of income paid in taxes decreases as income increases. i.e. the sales tax The higher-income households spend a lower proportion of their incomes on taxable goods and services.

Taxes & Government Spending  Characteristics of a Good Tax A good tax should have four characteristics 1. Simplicity – it should be simple and easily understood by everyone 2. Efficiency – the government should be able to collect the taxes without spending too much time or money.

Taxes & Government Spending  Characteristics of a Good Tax 3. Certainty – it should be clear to the taxpayer when a tax is due, how much money is due, and how the tax should be paid. 4. Equity – the tax system should be fair, so that no one bears too much or too little of the tax burden.

Taxes & Government Spending  What are the 4 characteristics of a good tax?

Taxes & Government Spending  What are the 4 characteristics of a good tax? Simplicity = Easy to understand Efficiency = Easy to collect Certainty = Clear when and how much you owe. Equity = Fairness

Taxes & Government Spending  What is a regressive tax?  Give an example.

Taxes & Government Spending  What is a regressive tax? a tax which the percentage of income paid in taxes decreases as income increases  Give an example. Sales Tax

Taxes & Government Spending  What is a progressive tax?  Give an example.

Taxes & Government Spending What is a progressive tax? a tax for which the percentage of income paid in taxes increases as income increases. Give an example  U.S. Federal Tax System

Taxes & Government Spending  What is a proportional tax?

Taxes & Government Spending  What is a proportional tax?  a tax for which the percentage of income paid in taxes remains the same for all income levels.  Give an example State Income Tax

Taxes & Government Spending  Defining Fairness Two proposed ideas 1. Benefits-Received Principle - A person should pay taxes based on the level of benefits he or she expects to receive. - People who drive should pay the gasoline taxes that are used to build and maintain highways.

Taxes & Government Spending 2. Ability-to-Pay Principle - People should pay taxes according to their ability to pay. - This is a progressive tax plan – individual income taxes.

Taxes & Government Spending  Who Bears the Burden of a Tax? The people who pay the tax The business who collects the tax and sends it into the government. Incidence of a tax – who will pay the final burden of the tax. When policymakers consider a new tax, they examine who will actually bear the burden. Sometimes the consumer bears it and sometimes the business has to bear it.

Taxes & Government Spending  What is a incidence of tax?

Taxes & Government Spending  What is a incidence of tax? who will pay the final burden of the tax.