1. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 1 Chapter 5 LESSON 5.3 Taxes and Government Objective: By the end of class, students will be able to:  Describe where local, state and federal governments get the money they spend  Explain principles and type of taxation

2. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 2 Chapter 5 Sources of Federal Government Income for 2002 Personal income taxes 43% Excise, customs, estate, gift, and miscellaneous taxes 7% Corporate income taxes 7% Social security, Medicare, and unemployment and other retirement taxes 35% Borrowing to cover deficit 8%

3. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 3 Chapter 5 Social Security and Medicare  Contributions to Social Security- 6.2 percent of gross income  Contributions to Medicare- 1.45 percent of gross income.  Your employer’s contribution- Employers must match employees contributions to Social Security and Medicare.

4. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 4 Chapter 5 Principles of Taxation  Benefit principle- Principle that states that those who use a good or service provided by the government should pay for it.  Ability-to-pay principle – Principle that states that those who have larger incomes should pay a larger share of what they receive.

5. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 5 Chapter 5 Taxes and Income  Progressive taxes- Taxes that take a larger share of higher incomes.  Regressive taxes- Taxes that take a smaller share of higher incomes than of lower incomes.  Proportional taxes- Taxes that take the same share of all incomes.

6. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 6 Chapter 5 How Taxes Are Collected  Direct taxes- Taxes such as income and property taxes are paid directly to the government.  Indirect taxes- Taxes that are included in the cost of a good or service.  Pay-as-you-earn taxes- Taxes that are paid as you earn income.

7. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 7 Chapter 5 Types of Taxes  Income taxes  Sales taxes  Property taxes  Excise taxes  Estate taxes  Gift taxes  Business and license taxes  Customs duties and tariffs

8. © Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Student Practice/Application  Your task:  1. Read Pages 176-180 in your Economics textbook.  2. Complete Try These Questions 1-4 on page 180 of your Economics textbook  3. Complete Think Critically Question # 6 of Your Economics Textbook.  Extra Credit: Complete Think Critically Question # 5 on page 180 of your Economics Textbook Slide 8 Chapter 5