2. Taxes and You  DO NOW Seven Minutes  Grapple: Why should we pay taxes and how much should we pay?  Essential --- What benefits do we receive from paying taxes?  DO NOW Seven Minutes  Grapple: Why should we pay taxes and how much should we pay?  Essential --- What benefits do we receive from paying taxes?

3. TAXES: The main source of government revenue …nothing is certain, but death and taxes. B. Franklin …nothing is certain, but death and taxes. B. Franklin

5. Taxes Fund Public Goods and Services National Defense State and Local Police Financial Aid Health Care for Elderly Public Education Social Services

6. The Economics of Taxation  In addition to creating revenue for the government, taxes also impact the economy in the following ways:  Resource allocation - if taxes are too high, supply will decrease and /or prices will increase causing a shift in the allocation of land, labor and capital.  Behavior adjustment - sin taxes, such as those placed on cigarettes attempt to change a person’s behavior  Productivity and Growth - if taxes are too high, there is less incentive for people or businesses to continue to grow. Why earn more if most of it is taken away in higher taxes?  Correct negative externalities  Stabilize the economy through fiscal policy  In addition to creating revenue for the government, taxes also impact the economy in the following ways:  Resource allocation - if taxes are too high, supply will decrease and /or prices will increase causing a shift in the allocation of land, labor and capital.  Behavior adjustment - sin taxes, such as those placed on cigarettes attempt to change a person’s behavior  Productivity and Growth - if taxes are too high, there is less incentive for people or businesses to continue to grow. Why earn more if most of it is taken away in higher taxes?  Correct negative externalities  Stabilize the economy through fiscal policy

7. To be effective Taxes must meet the following criteria:

8. TWO PRINCIPLES of TAXATION  “Who pays What” is based on two principles:  Benefit Principle - The more you benefit from something, the more you should pay. Taxes on gasoline  Ability to Pay - The more you make the more you should pay.  “Who pays What” is based on two principles:  Benefit Principle - The more you benefit from something, the more you should pay. Taxes on gasoline  Ability to Pay - The more you make the more you should pay.

9. Types of Taxes  Taxes are classified according to the ay in which the tax burden changes as income changes.  Proportional Tax  Progressive Tax  Regressive Tax  Taxes are classified according to the ay in which the tax burden changes as income changes.  Proportional Tax  Progressive Tax  Regressive Tax

10. Proportional Taxes  Regardless of Income, the same tax rate is imposed upon everyone. Another term for a proportional tax is a flat tax.  If there is a 20% flat tax, how much do you pay in taxes if you earn $10,000? What if you earn $100,000?  Note as a person’s income increases, the percentage of total income paid in taxes remains the same.  Property Tax is a proportional tax.  Regardless of Income, the same tax rate is imposed upon everyone. Another term for a proportional tax is a flat tax.  If there is a 20% flat tax, how much do you pay in taxes if you earn $10,000? What if you earn $100,000?  Note as a person’s income increases, the percentage of total income paid in taxes remains the same.  Property Tax is a proportional tax.

11. Proportional Tax Income 10,00050,000100,000 Tax Rate 40% 20% 10%

12. Progressive Tax  People with higher incomes pay a higher percentage in taxes. Federal and State income tax are progressive taxes.  Simple “the more you make the more they take”  People with higher incomes pay a higher percentage in taxes. Federal and State income tax are progressive taxes.  Simple “the more you make the more they take” INCOMEAmount Paid in Taxes Amount Paid as a percentage of Income $10,000$1,00010% $50,000$ 10,00020% $100,000$ 30,00030%

13. Progressive Tax Income 10,00050,000100,000 Tax Rate 40% 20% 10%

14. Regressive Taxes  The lower the income the higher percentage paid in taxes.  Sales tax is an example of a regressive tax. Assume two families paid $1000 in sales tax by the end of the year. Which family spent a higher percent of their income on taxes?  The lower the income the higher percentage paid in taxes.  Sales tax is an example of a regressive tax. Assume two families paid $1000 in sales tax by the end of the year. Which family spent a higher percent of their income on taxes? IncomeAmount paid in taxes Amount paid in taxes as a percentage of their income. $10,000$1000.0010% $50,000$1000.005%

15. Regressive Tax Income 10,00050,000100,000 Tax Rate 40% 20% 10%

16. FEDERAL TAXES -Amendment 16 gives Congress the power to lay and collect taxes. Federal Income Taxes are due April 15. -The Internal Revenue Service (IRS) enforces/ collects from the tax code.

17. Income Tax  Individual income taxes are paid over time through a payroll withholding system (just look at your paycheck). By April 15, of every year you must file a tax return. Any difference in the amount paid compared to the amount owed is settled at this time.  Two forms to know are your W4 and your W2. What are they?  Individual income taxes are paid over time through a payroll withholding system (just look at your paycheck). By April 15, of every year you must file a tax return. Any difference in the amount paid compared to the amount owed is settled at this time.  Two forms to know are your W4 and your W2. What are they?

19. W4  Your withholding allowance  Fill out a W4 every time you start a new job  Increases or Decreases the amount of withholdings based on the number of dependents  0=more withheld 2 =less withheld  Your employer and you are putting away small portions of your paycheck, in order for you to pay your income tax at the end of the year.  Your withholding allowance  Fill out a W4 every time you start a new job  Increases or Decreases the amount of withholdings based on the number of dependents  0=more withheld 2 =less withheld  Your employer and you are putting away small portions of your paycheck, in order for you to pay your income tax at the end of the year.

20. What does W4 look like?  http://www.irs.gov/pub/irs-pdf/fw4.pdf http://www.irs.gov/pub/irs-pdf/fw4.pdf  http://www.irs.gov/pub/irs-pdf/fw4.pdf http://www.irs.gov/pub/irs-pdf/fw4.pdf

21. Sample W-2 Form  Contains your tax information for one job in one year  You’ll receive one for each job you worked at during the year  Must be mailed by January 31 or every year.  Contains your tax information for one job in one year  You’ll receive one for each job you worked at during the year  Must be mailed by January 31 or every year. Real World Business Money Town, NY 60640 Erma Money 2301 South Jackson Money Town, NY 14111 000-00-000 16,680.24 1034.16 1,728.00 241.9216,680.24 IL12-222222216,680.24440.40 12-2222222 D2000.00

22. Payroll Taxes

23. More Federal Taxes  Corporate Income Tax - As a separate legal entity, corporations are taxed.  Excise Tax - tax on the manufacture or sale of selected items  Estate Tax - tax (18-50%) on the transfer of property upon a death. As of 2006, estates worth less than 2 million dollars are exempt.  Gift Tax - Tax on money donations, paid by the person donating.  Customs Duties: Tax on imported goods. Exported goods may not be taxed.  Corporate Income Tax - As a separate legal entity, corporations are taxed.  Excise Tax - tax on the manufacture or sale of selected items  Estate Tax - tax (18-50%) on the transfer of property upon a death. As of 2006, estates worth less than 2 million dollars are exempt.  Gift Tax - Tax on money donations, paid by the person donating.  Customs Duties: Tax on imported goods. Exported goods may not be taxed.

24. State Taxes and Local Taxes  Intergovernmental Revenues - transfer of money from the federal government  Sales Tax  Employee Retirement Contributions  Individual Income Tax  Intergovernmental Revenues - transfer of money from the federal government  Sales Tax  Employee Retirement Contributions  Individual Income Tax  Intergovernmental Revenues -from state level  Property Tax  Public Utility or State owned liquor stores  Sales Tax - this varies from city to city!  Intergovernmental Revenues -from state level  Property Tax  Public Utility or State owned liquor stores  Sales Tax - this varies from city to city!

25. Where does our tax money come from and then go?

26. Where do your New York tax dollars go?  http://www.nationalpriorities.org/auxilia ry/taxday2008/243.pdf http://www.nationalpriorities.org/auxilia ry/taxday2008/243.pdf  http://www.nationalpriorities.org/auxilia ry/taxday2008/243.pdf http://www.nationalpriorities.org/auxilia ry/taxday2008/243.pdf