1. Taxes and Government Spending
Chapter 14
Taxes and Government Spending

2. Funding Gov’t Programs:
Citizens authorize the govt. to levy taxes through the Constitution
Taxation is the primary way that the govt collects money.
Without revenue, or income from taxes, the govt wouldn’t be able to provide goods & services.

3. The Constitution: Limits on the Power to Tax
Article 1, Section 8, Clause 1 of the Constitution grants Congress the power to tax.
The 16th Amendment gives Congress power to levy an income tax.
Limits on the Power to Tax
The power to tax is also limited through the Constitution:
Purpose of the tax must be for “the common defense and general welfare.”
Federal taxes must be the same in every state.
The govt. may not tax exports.

4. Individual Income Tax: Peoples earnings
Largest source of revenue for Federal Govt
Sales Tax:
Dollar value of good or service being sold .

5. Types of Tax Structures:
Proportional Tax:
AKA: “flat tax”
Percentage of income paid in taxes remains the same for all income levels
Everyone pays 10% of their income regardless if poor or a millionaire
Property taxes are good example
Social Security up to $100k

6. Types of Tax Structures:
Progressive Tax:
Tax for which the percentage of income paid in taxes increases as income increases.
Takes a larger %of a larger income
& a smaller %of a smaller income.
Ex. US Federal Income Tax
luxury cars.

7. Types of Tax Structures:
Regressive Taxes
% of income paid in taxes decreases as income increases.
sales tax (especially on necessities)
gas tax

8. progressive tax- takes a larger % of income from high-income groups than from low-income groups.
proportional tax- takes the same % of income from all income groups.
regressive tax- takes a larger & of income from low-income groups than from high-income groups.

9. Is there a good tax? A good tax has the following characteristics:
Simplicity
Tax laws should be simple and easily understood.
Economy(Efficiency)
Should be able to collect taxes w/out spending too much time or money.
Certainty
Should be clear to taxpayer when the tax is due, how much is due, and how it should be paid.
Equity
Tax system should be fair, so that no one bears too much or too little of the tax burden.

10. Who Bears the Burden of a Tax?
To fully evaluate the fairness of a tax, it is important to think about who bears the burden of the tax.
If demand is inelastic, a tax will increase the price of a good and consumers will bear a large burden of the tax. If demand is elastic, the opposite is true.

11. Federal Taxes: Individual Income Tax: tax on an individual’s income
45% of Federal Revenue comes from payments of individual income taxes
MAIN SOURCE OF FEDERAL REVENUE!
Collected as “pay–as-you-earn” system - Individuals pay taxes throughout year.
In April: they pay any additional income tax they owe
Withholding: employers taking payments
out of your paycheck for taxes

12. What is Taxable Income?:
total income minus exemptions & deductions.
Includes salaries, wages, tips, commissions, & income from investments (Interest on Savings Accounts & Dividends from stocks)

13. $ 346 Billion in Federal Money given to states
Federal Spending:
Mandatory Spending: - Is required by existing laws.
Entitlement Programs: FICA (Federal Insurance Contributions Act) Social Security, Medicare, Medicaid
Discretionary Spending: - Govt. planners can make choices.
Education, scientific research, national parks & monuments, law enforcement, environmental cleanup, housing, transportation, disaster aid, foreign aid, farm subsidies.
$ 346 Billion in Federal Money given to states

14. WHERE DO OUR TAX DOLLARS GO?

16. State & Local Taxes and Spending: Most of $$ comes from Property taxes!
Local Govt. Taxes Spent:
Public School system
Law enforcement
Fire protection
Public facilities, Parks & recreation
Public health
Public transportation
Elections
Record Keeping
Social Services
Where are State Taxes Spent?
Education
Public Safety
Highways & Transportation
Public Welfare
Arts and Recreation
Administration
Schools by State:
americas-schools-have-a-money-problem

17. NYS Tax Table

18. Other types of taxes:
Excise taxes: general revenue tax on sale or manufacture of a good
Federal excise taxes apply to gasoline, cigarettes, alcoholic beverages, telephone services, cable tv, & airline tickets
Estate taxes: tax on the estate (total value of money and property) of a person’s estate

19. Soda pop taxes
months-take