1. Tariff Laws-with Nathan

2. Chapter 14: “Taxes and Government Spending”

3. Funding Government Programs
Citizens of the United States authorize the government, through the Constitution and elected officials, to raise money through taxes
Taxation is the primary way that the government collects money (raises revenue)
Without revenue, or income from taxes, government would not be able to provide goods and services

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

5. Where to get taxes
A tax base is the income, property, good, or service that is subject to a tax…

6. Types of Tax Schemes Proportional Taxes
A proportional tax is a tax for which the percentage of income paid in taxes remains the same for all income levels:
A.KA. Flat Tax
e.g. Social Security up to $100k - some Eastern European countries, some state taxes

7. Types of Tax Schemes (cont.)
Progressive Taxes
A progressive tax is a tax for which the percent of income paid in taxes increases as income increases
e.g. US federal income tax

8. Types of Tax Schemes (cont.)
Regressive Taxes
A regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases
e.g. Sales tax, gas tax

9. Is there a good tax? A good tax has the following characteristics:
Simplicity
Tax laws should be simple and easily understood.
Efficient
Government administrators should be able to collect taxes without spending too much time or money.
Certainty
It should be clear to the taxpayer when the tax is due, how much is due, and how it should be paid.
Equity
The 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 fairness of a tax, it’s important to think about who bears the burden of it. The incidence of a tax is the final burden of the tax.
REMEMBER: 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. Tax Burdens Elasticities of Demand and Tax Effects Quantity Price
$1.40
$1.00
Lower quantity
Inelastic Demand
Higher quantity
New supply with $.50 tax
Original supply f i
Demand
Elastic Demand
Lower quantity
Higher quantity
Quantity
Price
$1.10
$1.00
New supply with $.50 tax
Original supply i g
Demand

12. Quick Review
1. The power to tax is granted by the United States Constitution to
(a) the Treasury Department.
(b) Congress.
(c) the President.
(d) the Supreme Court.
2. All of the following are characteristics of a good tax except
(a) economy
(b) certainty
(c) revenue
(d) equity

13. Taxes-Crash Course

19. Ron Swanson teaches Tax

20. Government Expenditures
C+I+G+(X-M)
Government Expenditures

21. Government Expenditures
Government expenditures are made up of government purchases and transfer payments
Government purchase- a good or service purchased by the government (government hiring a private contractor to build a house)
Transfer payments-made to individuals by the federal government through various social benefit programs (Social Security)
Over time the percentage of government purchases have decreased while the percentage of transfer payments have increased

22. Expenditures and Revenue
Federal Government
Main expenditure- pensions, income security, national defense, health costs, and interest on the public debt
Main revenue- personal income tax
State Government
Main expenditure- education, public welfare, health and hospitals, and highway maintenance
Main revenue- sales and excise tax
Local Government
Main expenditure- education
Main revenue- property tax

23. Gross Tax vs. Taxable income
Gross is how much make overall. Taxable income is your income after deductions.

24. FICA What kind of Tax did we say Social Security was?
Federal Insurance Contributions Act
funds Social Security and Medicare
Social security established in the 1935 during the Great Depression
What kind of Tax did we say Social Security was?

25. Types of Taxes
Excise tax – an indirect tax, general revenue… boats, cars, etc.
Estate tax – when you die and pass on your wealth
Gift tax – tax on gift of property
Import tax – taxes on foreign goods
Sin tax – a sumptuary tax, taxes on alcohol, tobacco, sodas, candy, etc.
Property tax – tax on land

26. Tax incentives
Government taxes or doesn’t tax something in order to encourage or discourage certain behaviors. For example, taxing cigarettes and tax break on hybrid cars.

27. Types of Government Spending
mandatory = has to be spent, already voted into law
discretionary = up to politicians on whether or not to spend it

28. Medicare and Medicaid
Medicare – “care” for the elderly
Medicaid – “aid” to the poor
 Baby Boom
Pay as you go system (variation) – current workers pay for current retirees
What issues might the Baby Boomers create for Medicaid?

29. Balanced Budget
Revenue = spending
states require it so they don’t have to borrow $$$
the single largest expenditure in most state governments
Education
 other services provided by states:
highways
transportation
public safety
public welfare
arts
recreation

30. Property Taxes tax on land and/or buildings
Local government some state government

31. Tax Discussion
What type of tax is this mostly effecting (Progressive, Proportional, Regressive)?
What is one change to the tax code that you agree with? Why?
What is one change to the tax code that you disagree with? Why?
If you cannot find a single thing you agree/disagree explain two pieces you agree/disagree with

32. Problems with Social Security
Large number of baby boomers set to retire within the next 20 years
Advances in medicine
Increased Life expectancy

33. Banking on Bitcoin