1. Taxes and Government

2. Classifying Taxes Every taxpayer should be treated equally under law
America functions on the benefit principle
The benefit principle is the idea that if you use a good or service provided by the government you should have to pay for it.

3. Taxes and Income
Progressive Taxes take a larger share of higher incomes.
Example = Federal Income Tax
Regressive Taxes take a smaller share of higher incomes than of lower incomes.
Example = State and Local Taxes
Proportional Taxes take the same share of all incomes.
If all people were taxed 10 percent of all their income, this would be the proportional tax.

4. Tax Classifications Progressive Higher income = higher taxes
Ex. Federal Income Taxes

5. Purchase $50 shirt, 10% sales tax ($5 tax)
Tax Classifications
Regressive
Everyone pays the same fixed amount
Lower % of income from rich
Higher % of income from poor
Purchase $50 shirt, 10% sales tax ($5 tax)
Person A (poor)
Net Pay = $100/wk
Spend 5% of income on sales tax ($5 of $100)
Person B (rich)
Net Pay = $1000/wk
Spend 0.5% of income on sales tax ($5 of $1000)

6. How are taxes collected?
Pay-As-you-Earn Taxes – Taxes that are paid as you earn income. (Example – Federal Withholding)
Direct
Indirect
Taxes paid directly to the government
Ex. Income and property taxes
Taxes included in the cost of a good or service
Ex. Sales tax

7. Other Taxes Property Taxes Estate Taxes Gift Taxes
Business License Taxes
Customs Duties or Tariffs
Luxury Taxes

8. Types of Taxes
Sales Taxes are taxes added to the price of goods and services at the time of purchase (some states don’t have sales tax)
Property taxes are taxes on the value of real property
Excise Tax is collected on the sale of specific goods and services.

9. Types of Taxes….
Estate Taxes are when a person dies and someone inherits their property they have to pay taxes on that property (separate from property taxes)
Gift taxes are taxes that the giver of gifts may pay.
A business tax is a fee paid for a license, permit, or stamp to operate certain kinds of businesses.
License Tax

10. Customs Duties and Tariffs
Taxes imposed on imported goods

11. Government Spending
Government’s spending pays for goods and services that benefit all Americans
Public goods include roads, schools, national defense, and services of various regulatory agencies.
What State and Local Governments provide:
Building and maintaining roads
Operating police and fire protection services
Maintaining a criminal justice service
Schools, State colleges, and universities
Constructing and operating sewage treatment plants
Unemployment compensation programs