1. GOVERNMENT FINANCE (TAXES)

2. Essential Question : 1. 9.07 – How does the Federal Government accumulate revenue (income) and determine how to spend it?

5. M&C 3

6. 1. Revenue and Expenditures – Money brought into the government and money spent by the government. 2. Taxation – Money we pay for government services. 3. Personal Income tax – Annual taxes your parents pay based on their income. 4. Excise Tax – Tax on specific items such as gasoline, tobacco, alcohol,gambling, and telephone services (sometimes known as a “sin” tax).

7. 5.Regressive Tax - Opposite of Progressive tax – percentage you pay goes down as you get richer. Poor people actually pay a higher percentage of their income!! Examples: social security tax, gas tax, sales tax. 6.Progressive Tax – Tax rate increases as your income increases. Example: federal income tax.

8. 7. Proportional Tax - An income tax that takes the same percentage of income from everyone regardless of how much (or little) an individual earns. Ex. Flat tax – rare 8. Sales Tax – Tax levied on consumer purchases of nearly all products. The more expensive the item, the higher the sales tax.

9. 9.Payroll Tax – Taxes deducted from a worker’s paycheck. Examples: social security and Medicare. 10. Entitlement Programs – provide health, nutritional, or income payments to people meeting eligibility requirements. Social Security, Medicare, and Medicaid, Veterans' Administration programs, unemployment compensation, food stamps, and agricultural price support programs (subsidies).

10. 12. Medicare – Pays some health care costs for elderly people. 13. Medicaid – Pays for health care for poor people. 11. Social Security – Money to help people when they retire, orphaned children or disabled.

11. MEDICAID VS. MEDICARE Medicaid is health care for certain groups of poor persons, including single parent families, persons over age 65 and the disabled. Coverage is based on a person falling into one of the target groups and passing income and resources tests. Medicaid is administered by states and counties and financed with federal, state and county funds. Medicare is health care for persons over age 65 and for the disabled who receive Social Security payments. Medicare is financed by employer/employee contributions to the Social Security Trust Fund. Beginning in 2006, Medicare Part D states will pay a portion of the cost of prescription drugs previously paid for persons dually eligible for Medicaid and Medicare.

12. Social Security and Medicare (FICA) Taxes The Federal Insurance Contributions Act (FICA) is a federal law that requires you to withhold two separate taxes from the wages paid to employees: a social security tax and a Medicare tax. Each of the FICA taxes is imposed at a single flat rate. Currently, the social security tax rate for employees is 6.2 percent and the Medicare tax rate is 1.45 percent. You simply multiply an employee's gross wage payment by the applicable tax rate to determine how much you must withhold and how much you must pay.

13. Let's assume you have one employee, to whom you pay gross wages of $500 every two weeks. You must withhold from each paycheck $31.00 in social security taxes ($500 x 6.2%) and $7.25 in Medicare taxes ($500 x. 1.45%). You will also owe equal amounts ($31.00 in social security and $7.25 in Medicare) as the employer's portion of the taxes. In other words, each $500 wage payment will create a combined FICA tax liability of $76.50.

14. ENTITLEMENT STATUS There are many federal entitlement programs. Entitlement means any individual who is found eligible has a legal right to receive services and cannot be denied services. Implications for State Government  All eligible persons who apply for Medicaid must be served.  The medical bills for Medicaid eligible must be paid.  If the appropriations for the Medicaid Program are inadequate, eligible persons must be served even if the funding must come from other areas of State government.

15. In the chart below, please complete where the Federal, State, and Local governments get their money (revenue) and where they spend it (expenditures). Please do not include intergovernmental revenue in your chart. FEDERALSTATELOCAL Most revenue (taxes) from Highest expenditures on

16. In the chart below, please complete where the Federal, State, and Local governments get their money (revenue) and where they spend it (expenditures). Please do not include intergovernmental revenue in your chart. Highest expenditures on Most revenue (taxes) from Elementary and Secondary education 1.Miscellaneous 2. Public welfare (entitlement programs) Social Security Property taxSales tax1.Income taxes 2.Payroll taxes LOCALSTATEFEDERAL