1. CHAPTER 20 SECTION 1 PGS. 555-559 Taxing and Spending

2. Taxes as a Source of Revenue “In this world, nothing is certain but death and taxes.” – Benjamin Franklin Taxes – payments by individuals and businesses to support the activities of the government Article I, Section 8 of the Constitution – Pg. 555

3. Taxes and the Economy Levying and collecting taxes is a concurrent power (belongs to both state and federal governments.) Taxation is the government’s chief source of revenue (income). Governments may use taxation as a means of manipulating the economy (i.e., higher taxes for products/activities the government wants to discourage; tax exemptions for actions it wants to encourage; tax cuts to stimulate spending during a recession.) Federal government collected $2.2 trillion in revenues in 2010.

4. Types of Taxes

5. Progressive Tax – based on the taxpayers ability to pay; the higher a person’s taxable income, the higher the tax rate. (income tax) Regressive Tax – tax in which lower incomes pay a larger portion of their income. (i.e., sales tax)

6. Individual Income Tax Nearly 50 cents of every dollar the government collects in revenues comes from income taxes. Taxable Income – the total income of an individual minus certain deductions and personal exemptions. Dependent – one who depends primarily on another person for such things as food, clothing, and shelter

7. 2013 Federal Tax Bracket (Single) (Couple) (Head of Household) Marginal Tax Rate $0+ 10% $8,700+$17,400+$12,400+15% $35,350+$70,700+$47,350+25% $85,650+$142,700+$122,300+28% $178,650+$217,450+$198,050+33% $388,350+ 35%

8. Tax Credits Federal government provides tax credits generally to people in lower income brackets Tax Credits – allow taxpayers to reduce their income tax liability

9. Income Tax Withholding – the money an employer withholds from worker’s paycheck for anticipated income tax Self-employed people are expected to file estimates of their income four times a year. Internal Revenue Service (IRS) – bureau of the US Treasury Department, collects taxes through regional standards

10. Payroll Taxes Social Insurance Taxes – money collected by the federal government from employees and employers to pay for major social programs such as Social Security, Medicare, and unemployment compensation. Fastest-growing source of federal income Unlike other taxes, social insurance taxes do not go into the government’s general fund; instead they go to Treasury Department special trust accounts. Congress then appropriates money from these accounts to pay out benefits

11. Estate and Gift Taxes An estate tax is collected on the assets (property and money) of a person who dies. Federal exemption (2013): $5.25 million Federal tax rate: 35% A gift tax is levied on gifts of money from a living person. Current exclusion: $14,000 ( State taxes may apply as well)

12. Excise Taxes Excise Tax – tax on the manufacture, transportation, sale, or consumption of certain items such as gasoline, liquor, or cigarettes Some excise taxes are called luxury taxes because they are levied on goods not considered to be necessities, or sin taxes if levied on products like tobacco, alcohol, or gambling. Contribute about $70 billion a year to the federal government

13. Customs Duties Customs Duties – taxes levied on goods imported into the United States Raise revenue and help protect the nation’s industries, businesses, and agriculture from foreign competition

14. Protective Tariff Protective Tariff – a high customs duty Many businesses, labor, and farm groups support protective tariffs because they raise the price of foreign goods, making them less competitive compared to American goods on the domestic market

15. Corporate Income Tax Tax that must be paid by a corporation based on the amount of profit generated.

16. Taxes and the Economy The federal government sometimes uses taxes to influence economic decisions Tax Loopholes – provisions, or tax exemptions, favoring certain groups that many people consider to be unfair

17. Tax Reforms  1985 – Ronald Reagan  Reforms meant to stimulate spending and boost the economy  2002—Ge0rge Bush  Tax cuts for all brackets

18. Government Borrowing 2002 – borrowed amount-$220 billion, or about 9 cents for every dollar the government raised 2012—federal budget deficit was $1.1 trillion National Debt currently over $16 trillion. http://www.usdebtclock.org

19. Military Medicare Social Security Medicaid Education Foreign Aid 19.3% 13.1% 20.4% 7.9% 2.7% 0.6% Budget 2010 Budget

20. Government Pensions Food Assistance Housing Assistance What to cut? What to increase/decrease? 3.5% 2.8% 1.7%