2. Quiz Answers 1. Discretionary 2. Outlays 3. Social Security 4. Debt
5. Deficit
6. Federal Budgets
7. Office of Management and Budget

3. Free Ride Problem
Goods and Services that are accessible and beneficial to all
Things that you could benefit from, whether or not you paid
Why we have taxes!
The government provides the goods and services to all but can’t afford to have “free riders”
Privatization: handing over control of public functions to private companies. Can refer to goods or services
Public Sector: part of the economy concerned with providing basic government services
Includes such services as the police, military, public roads, public transit, primary education and healthcare for the poor

4. Today’s Agenda
Objective: To be able to explain the difference between progressive, regressive, and flat rate taxes.
Essential Skill: Explicitly assess information and draw conclusions

6. Background on Federal Taxes
Levied and established by Congress
Collected by the Internal Revenue Service (IRS)
Tax returns due by April 15th!

7. Forms of Taxation Find a partner
Use your notes to complete the definition column of the sheet and the progressive/regressive section if you can find the information
Also fill in the rates for the first 4 taxes

9. Limits on Federal Taxation
Have to tax on public concerns
No taxation of exports
Direct taxes have to be applied equally amongst the states (except income tax)
Hasn’t been used since the Civil War
All indirect taxes set at the same rate
Can’t tax state government functions that provide for the public (education, transportation, etc.)

10. Progressive Tax The more you earn the higher the rate you pay.
Not everyone pays the same percentage of taxes
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Why? What’s the rationale?
Example

11. Regressive Tax TEXTBOOK DEFINITION IS WRONG! Proportional flat tax
Regressive Taxes= taxes which affect lower income earners at a higher rate and higher income earners at a lower rate (cap on the amount you can be taxed on)
=Taxes levied at a fixed rate, without regard to the level of the taxpayers income or his/her ability to pay them ( no cap)

12. As income increases, the share of it paid on cigarette tax decreases

13. Regressive: Payroll Tax
Income
Amount 4.2%
Tax paid in $
% of Income
42K
$1,764
4.2%
85K
$3,570
110K
$4,620
300K
1.5%
2 M
0.2%
50 M %

14. Sample Pay Stub
Using your notes complete the tax deductions on Chris’s earnings statement
The write his net pay in the check

15. Overall, which tax system do you think is the most fair? Why?
Progressive
Regressive
Flat Tax