1. Bell Ringer
“In this world nothing can be said to be certain, except death and taxes.” –Benjamin Franklin
“The only difference between death and taxes is that death doesn't get worse every time Congress meets.” –Will Rogers

2. Taxation is slavery. VS. Bell Ringer, cont.
Taxes are the price we pay to have a civilized society.
VS.
Which of these two statements do you agree with most, and why?

3. Objectives Identify the sources of the government’s authority to tax.
Describe types of tax bases and tax structures.
Identify who bears the burden of a tax.

4. Government’s Authority to Tax
Where does the federal government get its authority to tax?
U.S. Constitution, Article 1, Section 8:
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”

5. The Purpose of Taxation
Why does the government tax its citizens?
Taxes give the government the money it needs to operate.
Taxation is the primary mean through which the government collects money.
Individual Income Tax accounts for nearly 50% of total federal revenue!

6. Limits on the Government
There are also limits on the government’s power to tax.
The purpose of a tax must be “for the common defense and general welfare.” A tax cannot bring in money that goes to individual interests.
Federal taxes must be the same in every state.

7. Progressive Tax
A progressive tax is a tax for which the percentage of income paid in taxes increases as income increases.
In other words, the more you make, the higher the percentage of your income that is paid in taxes.
The U.S. has had a progressive tax system since 1913.

10. Proportional Tax (Flat Tax)
A proportional tax (or flat tax) is a tax for which the percentage of income paid in taxes remains the same at all income levels.
A salesperson making $25,000/year pays the same percentage of their income as a lawyer making $250,000/year.
Pros: Simplicity, “fairness”
Cons: Heavier burden on low earners
Checkpoint Answer: Progressive

11. Regressive Tax
A regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases.
Sales and excise taxes are regressive because higher income households spend a lower proportion of their incomes on taxable goods and services.
Checkpoint Answer: Progressive

14. Tax Base Individuals Corporate Property Sales
Tax Bases
Tax Base Individuals Corporate Property Sales
Tax is based on… …people’s earnings …company profits …real estate …goods and services

15. Key Terms
tax: a required payment to a local, state, or national government
revenue: the income received by a government from taxes and other nontax sources
progressive tax: a tax for which the percentage of income paid in taxes increases as income increases
proportional tax: a tax for which the percentage of income paid in taxes remains the same at all income levels
regressive tax: a tax for which the percentage of income paid in taxes decreases as income increases

16. Key Terms, cont.
tax base: the income, property, good, or service that is subject to a tax
individual income tax: a tax based on a person’s earnings
corporate income tax: a tax based on a company’s profits
property tax: a tax based on real estate and other property
sales tax: a tax based on goods or services that are sold

17. Bell Ringer
What types of taxes do you currently pay or expect to pay when you enter the job market?

18. Objectives Describe the process of paying individual income taxes.
Explain the purpose of Social Security, Medicare, and unemployment taxes.

19. Individual Income Taxes
The government’s main source of revenue comes from individual federal tax income payments.
Answer: 44% 19

20. Answer: 44% 20

21. “Pay-As-You-Earn” Taxation
Individuals usually pay most of their income tax throughout the year to lessen the burden that one large yearly tax would place on an individual and to make it possible for the government to meet its regular expenses.
This “pay-as-you-earn” system means that people pay their state and federal taxes as they earn income. 21

22. Tax Brackets
The federal income tax is a progressive tax, which rises with the amount of taxable income.
Your range of income puts you in a specific tax bracket.
Answer: $4,220 plus 25% 22

23. Answer: $4,220 plus 25% 23

24. Social Security and Medicare
Federal Insurance Coalition Act (FICA) taxes help fund Social Security, Medicare, and unemployment insurance
Most of the FICA taxes you pay go to Social Security benefits for retired people, surviving members of wage earners, and disabled people.
You do not get a refund on what you pay toward FICA.

25. Withholdings and Tax Returns
Employers help collect taxes by withholding money from your paycheck based on an estimate of how much you will owe in federal income tax for that year.
You can adjust the percentage that your employer takes out for federal taxes with a W-4 form, and for AZ state taxes with an A-4 form.

26. Sample W-4 & A-4

27. Withholdings and Tax Returns
After the calendar year ends, employers issue a W-2 tax statement, which is a report of how much income tax has already been paid.

28. Sample W-2

29. Doing Your Taxes 101 Save all important documents.
Never pay to have your taxes done. (Not yet, anyway.)
Check with your parents to see if they’re claiming you on their taxes.
At your age, you probably don’t have to file anyway (depending on your income).
If you don’t, you won’t get a refund.
If you do, you have to file every year after that.
Keep all your tax information for at least three years after you file.

30. How did they end up paying so little in taxes?
Bell Ringer
In FY2013, ExxonMobil made $45 billion in profit.
However, they only paid $1.53 billion in federal income tax (a 3.4% tax rate).
How did they end up paying so little in taxes?

31. Objectives
Describe the basic characteristics of corporate income taxes.
Identify other types of taxes.

32. Other Types of Taxes
Unemployment taxes—pays for “unemployment compensation” that people can receive when they are laid off.
Excise taxes—a general revenue tax on the sale or manufacture of a good or service such as gasoline, cigarettes, and other items (“sin taxes”)
Estate taxes—a tax on the total value of the money and property of a person who has died (aka, “Death tax”) 32

33. Other Types of Taxes, cont.
Gift taxes—a tax on the money or property that one person gives to another
Import taxes—Tariffs, or import taxes, are taxes placed on imported goods.

34. Corporate Income Taxes
Like individual income taxes, corporate income taxes are progressive.
Determining corporate income taxes can be more difficult than determining an individual’s because businesses can take many deductions.
Checkpoint Answer: because businesses can take many deductions. 34

35. Corporate Income Taxes
Also, many loopholes exist in the current tax system which allow companies to pay low taxes, zero taxes, or even get a tax return.
CEO pay at Boeing, Ford exceeds companies’ tax bill
Checkpoint Answer: because businesses can take many deductions. 35

37. The Panama Papers
In April 2016, millions of confidential tax documents were leaked to the press.
These documents detailed what people already suspected, namely that large corporations and super wealthy individuals were avoiding paying taxes through off-shore accounts.
2APYPjTWZ8
Checkpoint Answer: because businesses can take many deductions. 37

38. Key Terms
withholding: taking tax payments out of an employee’s pay before he or she receives it
tax return: a form used to file income taxes
tax deduction: a variable amount that taxpayers may subtract from their gross income
estate tax: a tax on the total value of the money and property of a person who has died
gift tax: a tax on the money or property that one living person gives to another

39. Bell Ringer
The U.S. government’s budget for Fiscal Year 2015 was $3.8 trillion.
How much do you think it spent on the military?
How much do you think it spent on Social Security & Unemployment?
How much do you think it spent on education?

40. Bell Ringer How much do you think it spent on the military?
$609 billion (16%)
How much do you think it spent on Social Security & Unemployment?
$1.25 trillion (33%)
How much do you think it spent on education?
$102 billion (2.5%)

41. Objectives Distinguish between mandatory and discretionary spending.
Describe the major entitlement programs.
Identify categories of discretionary spending.

42. Federal Spending 42

43. Federal Spending There are two types of government spending:
Mandatory spending
Discretionary spending 43

44. Mandatory Spending
Mandatory spending is money that Congress is required by law to spend on certain programs or to use for interest payments on the national debt. 44

45. Entitlement Programs
Most of the mandatory spending items are for entitlement programs, which fund social welfare programs (aka, the “Safety Net”).
Food stamps, veterans’ pensions, unemployment, affordable housing, etc.
Entitlements are a largely unchanging part of government spending.
Congress can only change the eligibility requirements or reduce benefits if there is a change in the law.

46. Entitlement Programs
Social Security is a huge portion of federal spending.
About 60 million Americans receive monthly benefits from the Social Security Admin- istration. This number grows each day.
Medicare and Medicaid are the other major entitlement programs.
About 54 million Americans receive Medicare benefits.
About 70 million low income Americans receive Medicaid. 46

48. Unsustainable Spending? 48

49. Discretionary Spending
Discretionary spending is spending about which lawmakers are free to make choices. 49

50. Discretionary Spending
Defense spending accounts for about half of the government’s discretionary spending.
The remaining discretionary funds go to pay for the following:
Education and training
Scientific research
Student loans
Law enforcement
Environmental cleanup
Disaster relief
…and everything else!
Checkpoint Answer: About half 50

55. Key Terms
mandatory spending: spending that Congress is required by existing law to do
discretionary spending: spending about which Congress is free to make choices
entitlement: social welfare program that people are “entitled to” benefit from if they meet certain eligibility requirements