What is the purpose of taxation? Tax- a required payment to a local, state, or national government. They give the gov the money to operate (primary way they collect money) Revenue- the income received by a government from taxes and other nontax sources. Without revenue from taxes, gov would not be able to provide goods we only benefit from. (national defense, education)
Limits to Taxing The constitution spells out specific limits on taxing A tax cannot bring in money that goes to individual interests. Federal taxes must be same in every state Cannot tax churches (freedom of religion)
Types of taxes Progressive- Percentage of income paid ion taxes increases as income increases (ex. Federal income tax) Regressive- The percentage of income paid in taxes decreases as income increases Proportional- Percentage of income paid in taxes remains the same at all income levels
Taxes (cont.) Tax base- the income, property, good, or service that is subject to tax Different taxes have different bases Examples; Individual income tax- a tax based on a persons earnings Corporate income tax- tax based on company profits Property tax- tax based on real estate Sales tax- tax based on goods or services
Characteristics of a Good Tax Simplicity- easy to understand, keep necessary records, etc. Efficiency- accessible by gov, easy to pay Certainty- clear due date, how much is due and how it should be paid Equity- no one bears too much/too little of tax burden
Determining Fairness 2 ideas: Benefits-received principle: person should pay taxes based on level of benefits from gov Ability-to-pay: people should pay taxes according to their ability to pay
MADISON ZIEMBA 2 AND JUSTIN BROJAKOWSKI Federal Taxes
Individual Income Taxes “Pay-As-You-Earn” Taxation: paid throughout the year Tax Brackets: progressive tax; rises with the taxable income Tax Withholding: taxes taken out of pay Taxable Income: earnings on which taxes are paid; Total income minus exemptions & deductions Personal Exemption: amount subtracted from gross income Tax Deduction: variable amount subtracted from gross income Tax Credit: variable amount subtracted from gross income
Corporate Income Tax Progressive Tax They can subtract many expenses from their income. It’s tricky to determine taxable income because of this.
Social Security, Medicare, and Unemployment Taxes Social Security Provides old-age pensions and unemployment insurance to workers Unemployment Taxes Paid by employers If the workers are laid off through no falt of their own they can file for unemployment compensation Medicare National health insurance that helps pay for healthcare
Other Types of Taxes Excise Taxes: on the sale or manufacture of a good Estate Tax: on the value of money and the property of a person who has died Gift Tax: on the money or property that one living person gives to another Import Tax: tariff (on imported goods) Tax Incentive: use of taxation that discourages or encourages types of behavior
Mandatory and Discretionary Spending Mandatory spending: money that Congress is mandated Discretionary spending: Spending where lawmakers are free to make choices The largest of federal spending goes to Medicare & Medicaid. The smallest is Interest.
Enlightenment Programs Enlightenment programs are social welfare programs Social Security Medicare About 42 million people mostly over 65 year old Medicaid Low income families, disabilities, and elderly people in nursing homes Other mandatory spending programs Benefits people and families whose income fall below certain level
Discretionary Spending Discretionary spending is a spending category which governments can spend through an appropriations bill. This spending is optional. Defense spending is the amount of financial resources dedicated by an entity. Other Discretionary spending What some of federal spending pays for… Education, training, scientific research, student loans, law enforcement, and environmental cleanup.
Federal Aid To state and local Government In total about $404 billion a year in federal money is divided among the states, Average of about $1,400 per person.
JOE IMPERATO State and Local Taxes and Spending
Taxes and Spending Like families and individuals, governments must plan their spending ahead of time. Budget-an estimate of future revenues and expenses Federal gov.- One budget for planned revenue and expenses States- Two budgets; operating budgets and capital budgets States put an operating budget to plan for its dat to day spending needs
Spending and taxes Since trade and commerce are considered national enterprises states cannot tax imports or exports Sales taxes are a main source of revenue for state governments Some states tax property; Real property- land and any permanent structures on the land which the person has a legal title Personal property- movable possessions or assets
Questions Why do we have to tax? What are the 4 characteristics of a good tax? Explain how the gov arrives at a person’s taxable income. Explain what unemployment taxes are. Why are they important? Why do we have Social Welfare programs? Why do we have Federal spending? What is a budget?