1. Which taxes do you pay? Make a list with a partner.

2. Government Taxation Policy
Essential Question: How can changes in taxation policy impact the U.S. economy?

3. Functions and/or Purposes of Taxation
To pay for government goods/services
To redistribute income
To aid American companies
To discourage the consumption of some goods & services
To stimulate and/or control economic growth (known as “expansionary” or “contractionary” policy)

4. Federal Taxes
Federal tax policy is determined by Congress and the President. Congress enacts and amends taxes by passing a bill to do so. The President signs these bills into law.
We will be discussing the following federal taxes:
Individual Income Tax
Payroll Taxes
Corporate Income Tax
Excise Taxes
Estate Tax
Gift Tax
Customs Duties

5. Payroll Withholding System Income Tax Return
2013 – Present
10%
15%
25%
28%
33%
35%
39.6%
Key Concepts:
16th Amendment
Payroll Withholding System
Income Tax Return
Gross Income vs. Taxable Income
Exemptions (Dependents)
Standard Deduction vs. Itemized Deductions
Progressive Tax

6. Individual Income Tax

7. Gross Income: $450,000
One Exemption: $3,950
Itemized Deductions: $9,207.50
Total Taxable Income: $436,842.50

8. Taxable Income Tax Rate Tax Owed Math Work
Gross Income: $450,000
One Exemption: $3,950
Itemized Deductions: $9,207.50
Total Taxable Income: $436,842.50
Taxable Income
Tax Rate
Tax Owed
Math Work
Between $0 & $9,075
10%
A. $907.50
 9075 x .10
Between $9,075 & $36,900
15%
B. $4,173.75
 36,900 – 90,75 = 27,825 x .15
Between $36,900 & $89,350
25%
C. $13,112.50
 89,350 – 36,900 = 52,450 x .25
Between $89,350 & $186,350
28%
D. $27,160.00
 186,350 – 89,350 = 97,000 x .28
Between $186,350 & $405,100
33%
E. $72,187.50
 405,100 – 186,350 = 218,750 x .33
Between $405,100 & $406,750
35%
F. $577.50
 406,750 – 405,100 = 1,650 x .35
Over $406,750
39.6%
G. $11,916.63
 436, – 406,750 = 30, x .396
xxxxxxxxxxxxxxxxxxxxxxxxx
Total Owed $130,035.38
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

9. Taxable Income Tax Rate Tax Owed Math Work
Gross Income: $450,000
One Exemption: $3,950
Itemized Deductions: $9,207.50
Total Taxable Income: $436,842.50
Tax Owed: $130,035.38
Tax Deducted From Paycheck: $140,000
Tax Refund: $9,964.62
George’s Effective Tax Rate: 29% (130, ÷ 450,000)
Taxable Income
Tax Rate
Tax Owed
Math Work
Between $0 & $9,075
10%
A. $907.50
 9075 x .10
Between $9,075 & $36,900
15%
B. $4,173.75
 36,900 – 90,75 = 27,825 x .15
Between $36,900 & $89,350
25%
C. $13,112.50
 89,350 – 36,900 = 52,450 x .25
Between $89,350 & $186,350
28%
D. $27,160.00
 186,350 – 89,350 = 97,000 x .28
Between $186,350 & $405,100
33%
E. $72,187.50
 405,100 – 186,350 = 218,750 x .33
Between $405,100 & $406,750
35%
F. $577.50
 406,750 – 405,100 = 1,650 x .35
Over $406,750
39.6%
G. $11,916.63
 436, – 406,750 = 30, x .396
xxxxxxxxxxxxxxxxxxxxxxxxx
Total Owed $130,035.38
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

10. Payroll Taxes AKA Employment Taxes
AKA FICA Taxes (Federal Insurance Contributions Act)
Must be matched by your employer
Social Security = 6.2% of wages & salaries up to $118,500 (2015 cap) paid by employee and employer. *Self-employed individuals owe 12.4%.
Medicare = 1.45% of wages & salaries (no cap) paid by employee and employer *Self-employed individuals owe 2.9%.
Both taxes combined = 7.65%

11. Corporate Income Tax

12. Excise Tax
The Federal tax system imposes excise taxes on selected goods and services. Generally, excise taxes are taxes imposed on a per unit or ad valorem (i.e., percentage of price) basis on the production or sale of a specific good or service. Among the goods and services subject to U.S. excise taxes are motor fuels, alcoholic beverages, tobacco products, firearms, certain telephone communications, indoor tanning services, etc.
The largest excise taxes in terms of revenue are those for gasoline motor fuel ($25.4 billion collected in fiscal year 2015) diesel motor fuel ($10.3 billion), and domestic air tickets ($9.8 billion). In fiscal year 2013, the latest fiscal year for which data is publicly available, $13.6 billion was collected on the excise tax on domestic cigarettes.

13. Estate and Gift Tax
Estate Tax: A tax imposed on the transfer of the "taxable estate" of a deceased person. Estates with a market value under $5.45 million are exempt from the federal estate tax (2016 cap). It is a graduated tax (the percentage paid increases as the value of the estate increases).
Gift Tax: A tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. Gifts of $5.45 million or less are exempt (2016 cap). The donor is generally responsible for paying the gift tax.

14. Customs Duty
AKA tariffs, these taxes are imposed on the importer of the good. The importer, naturally, increases the price of the product to recoup the cost. Tariffs have the effect of making foreign products more expensive than domestic goods.

15. Pennsylvania Taxes
Pennsylvania tax policy is determined by the General Assembly and the Governor. The PA General Assembly enacts and amends taxes by passing a bill to do so. The Governor signs these bills into law.
We will be discussing the following Pennsylvania taxes:
Personal Income Tax
Sales and Use Tax

16. Key PA Taxes
The Personal Income Tax & the Sales and Use Tax are the largest sources of PA revenue
Personal Income Tax – 3.07% regardless of income
Sales and Use Tax – 6% (exclusions: groceries, clothing, textbooks, drugs, firewood, resale items, etc.)

17. Local Taxes
Several units of local government impose taxes. Each county, municipality, and school district enacts taxes. County taxes are enacted by the County Commissioners. In cities, municipal taxes are enacted by city council. In boroughs, municipal taxes are enacted by borough council. In townships, municipal taxes are enacted by the township commissioners. School taxes are enacted by the elected school board.
We will be discussing the following local taxes:
Local Earned Income Tax
Local Services Tax
Per Capita Tax
Real Estate Tax

18. Key Local Taxes
Local Earned Income Tax – a tax on income paid to the municipality in which you reside. The current rate in Mechanicsburg, Upper Allen Township, and Shiremanstown Borough is 1.7%.
Local Services Tax – a tax paid to the municipality in which you work (maximum of $52 per year, and individuals that earn less than $12,000 are exempt).
Per Capita Tax – a $5 or $10 annual tax per adult 18 yr. old resident. This tax is imposed by some municipalities and some school districts.
Real Estate Tax – annual tax assessed on the value of your real estate (the value of your property is periodically reassessed by the county). This tax is levied by all school districts, most municipalities, and the county.

19. Map of Municipalities in Cumberland County
Real Estate Tax must be paid to:
1.) The County. This tax rate is legislated by the Cumberland County Commissioners. Each county has a different tax rate.
2.) The Municipality (a city, borough, or township). Everyone in Cumberland County lives in a borough or a township. Each municipality has a different tax rate.
3.) The School District. Most school districts include several municipalities. MASD includes the Borough of Mechanicsburg, Upper Allen Township, and the Borough of Shiremanstown. Each school district has a different tax rate.

21. The Real Estate Tax rate is expressed in “mills”
The Real Estate Tax rate is expressed in “mills”. One mill equals one thousandth of a dollar. One mill is expressed as The tax is computed by multiplying the millage rate set by the taxing body times the assessed value of the property.
For example, a homeowner whose property is assessed at $125,000 may pay the following taxes:
A. To the County – mills ( x 125,000 = $237.75)
B. To the Municipality – .957 mill ( x 125,000 = $119.63)
C. To the School District – mills ( x 125,000 = $1,288.63)
Or...calculate by multiplying the property value times the millage rate and then divide by 1,000
The actual taxes will depend upon the millage rates established each year by the taxing districts.

22. Taxation Considerations
Is the tax fair? Are wealthy or poor people being unfairly penalized?
Who will bear the burden of this tax? Can the taxpayer simply shift the burden to someone else?
Will this tax be a stable and reliable source of revenue? Or, will the revenue fluctuate with the business cycle?

23. Are the wealthy unfairly penalized? Are the poor unfairly penalized?
Is this tax fair?
Are the wealthy unfairly penalized?
Are the poor unfairly penalized?
Progressive Tax – makes up a higher percentage of the income of individuals with higher incomes when compared to those with lower incomes
Regressive Tax – makes up a higher percentage of the income of individuals with lower incomes when compared to those with higher incomes
Proportional Tax sometimes called a “Flat Tax” – makes up the same percentage of a person’s income, regardless of their level of income

24. Federal Personal Income Tax
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year

25. Federal Personal Income Tax
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $9, in tax, which is 17.5% of his income.
Bob paid $26, in tax, which is 22.3% of his income.

26. Federal Personal Income Tax
PROGRESSIVE TAX
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $9, in tax, which is 17.5% of his income.
Bob paid $26, in tax, which is 22.3% of his income.

27. Real Estate Tax Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year

28. Real Estate Tax Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $2,842 in tax, which is 5.16% of his income.
Bob paid $2,842 in tax, which is 2.37% of his income.

29. REGRESSIVE TAX Real Estate Tax Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $2,842 in tax, which is 5.16% of his income.
Bob paid $2,842 in tax, which is 2.37% of his income.

30. Sales Tax
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year

31. Sales Tax Joe Earned $55,000 Last Year Bob Earned $120,000 Last Year
Joe paid $12 in tax, which is % of his income.
Bob paid $12 in tax, which is 0.01% of his income.

32. REGRESSIVE TAX Sales Tax Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $12 in tax, which is % of his income.
Bob paid $12 in tax, which is 0.01% of his income.

33. Pennsylvania Personal Income Tax
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year

34. Pennsylvania Personal Income Tax
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $1, in tax, which is 3.07% of his income.
Bob paid $3,684 in tax, which is 3.07% of his income.

35. Pennsylvania Personal Income Tax
PROPORTIONAL TAX
Joe Earned $55,000 Last Year
Bob Earned $120,000 Last Year
Joe paid $1, in tax, which is 3.07% of his income.
Bob paid $3,684 in tax, which is 3.07% of his income.

36. Government Taxation Policy
Summarizer:
Which tax do you believe is the fairest? Why? Explain
Which tax do you believe is the most unfair? Why? Explain