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Tax Collection Unit 5 Macroeconomics “An ARTFUL taxman so plucks the goose as to obtain the most feathers for the least hissing.” Jean-Baptiste Colbert, treasurer to Louis XIV

How to get the most feathers with least hissing? Three Types of Tax Structures: 1.Proportional Tax or “Flat Tax” 2.Progressive Tax 3.Regressive Tax I've been rich and I've been poor. Rich is better. Sophie Tucker

1. Proportional Tax Proportional Tax “Flat Tax” is a tax for which the percentage of income paid in taxes remains the same for all income levels % rich income = % poor income 15% = 15% EOC study guide Macroeconomics #4

2. Progressive Tax Progressive Tax is a tax for which the percentage of income paid in taxes increases as income increases % income rich > % income poor 30% > 15% EOC study guide Macroeconomics #2

Federal-Individual-Individual-Income-Tax-Rate-Adjusted-for-Inflation

3. Regressive Tax Regressive Tax is a tax for which the percentage of income paid in taxes decreases as income increases % as income EOC study guide Macroeconomics #3

Which Type is Most Fair? 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 a gas tax that is used to build and maintain highways ID Hunting and fishing licenses would amount to the $77,253,271 it takes to run ID fish and game, not just $25,692,000 they take in EOC study guide Macroeconomics #7

Which Type is Most Fair? Ability-to-pay principle People should pay taxes according to their ability to pay This is the idea behind the progressive tax—the more you make the higher the percentage you should pay EOC study guide Macroeconomics #6

Where Does the Gov Get its $$? 1.Individual income tax 2.Payroll (withholding) taxes—Social Security, Medicare and Unemployment taxes 3.Corporate income tax Other taxes

EOC study guide Macroeconomics #1 Top Revenue Sources of Federal Government:

1. Individual Income Tax Biggest source of revenue$$ Employers must take out FIT (Federal Income Tax) and in some states SIT (State Income Tax) At the end of the year employers give employees a W-2 Form that shows how much income tax has been withheld and sent to the federal government

There are 3 types of “withholding” taxes that are taken out before you get your paycheck: 1.Federal Income Taxes (FIT) 2.State Income Taxes (SIT) 3.Social Security and Medicare(FICA) EOC study guide Personal Finance #4

2. Social Security/Payroll/Withholding Taxes Employers must take out FICA (Federal Insurance Contributions Act )taxes include Social Security and Medicare Both employers and employees share FICA payments 12.4% of income for the first $120,000 Employers may take out for health insurance, retirement, etc.

Pay-as-you-earn system means how much you will owe the federal government is estimated and divided among your paychecks

3. Corporate Income Tax Corporations must pay federal income tax on their income Businesses can take many deductions so determining a corporation’s tax income is complicated Corporate income tax rates are progressive and range from 15%-34%

4. "Other Taxes”? 1.Excise tax Gasoline, alcohol, tobacco, gambling 2.Estate tax A tax on the value of the money and property of a person who has died exemption amount $5,340,000 3.Gift tax A person can give up to $14,000 a year tax-free to each of several people 4.Import tax Tariffs