Taxing

I. Sources of Federal Revenue A. Key Constitutional Provisions 1. Tariffs must be uniform. 2. Direct taxes must be apportioned to the states on the basis of population. B. In the past: 1. Tariffs and excise taxes were the major sources of federal revenue. 2. Income tax of 2% passed in 1894 was ruled unconstitutional by Supreme Court (Pollock v. Farmers' Loan and Trust Company-1894) since it was not proportional to state populations. Passage of 16th Amendment in 1913 took care of that problem.Pollock v. Farmers' Loan and Trust Company

Current Income Tax Brackets C. Presently (2010 figures): 1. Individual income taxes (progressive taxes): 41.6% of all federal revenue. 2. Social insurance taxes: 40% of all federal revenue. 3. Corporate taxes: 8.9% of all federal revenue. 4. Excise taxes: 3% of all federal revenue. 5. Other: 6.5% D. When revenue does not meet expenditure, we borrow money.we borrow money

D. Tax revolt. 1. California's Prop 13 in 1975 was a stimulus to the tax revolt movement. It spread throughout the states. 2. Reagan’s tax cuts in Bush’s “no new taxes” promise as a symptom of how politically volatile the tax issue had become. 4. Two additional (and higher) tax brackets added during Clinton’s 1st term. 5. Tax cut proposals by both parties in With surpluses of late 90s/early 00s, Republicans preferred tax cuts, whereas Democrats preferred bolstering the Social Security system. 7. $1.36 trillion tax cut (over 10 yrs.) in Bush’s first year, 2001.

Tax systems/types Income Tax Progressive: Those with higher incomes pay a higher proportion of income. (We have this currently) Regressive: Those with lower income pay the same or greater proportion of their income. (Flat tax) Consumption Tax Sales tax: Imposed at the point of sale (Some have suggested increasing it and replacing income tax with it). Value Added Tax (VAT): Tax is paid on goods and services at each stage of the production process. (Results in more expensive goods when consumer finally gets them).