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Taxes and Spending Chapter 14.

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Presentation on theme: "Taxes and Spending Chapter 14."— Presentation transcript:

1 Taxes and Spending Chapter 14

2 What are Taxes? Chapter 14, Section 1

3 What are Taxes? Taxes are required to pay for local, state, and federal programs The income received from taxes is known as revenue The government has the power to tax under the Constitution Certain powers to the state and local Certain powers to federal All must be for the common defense and general welfare of the country

4 Tax Base The tax base is the income that is subject to tax. Made up of: Income tax Sales tax Property tax Corporate income tax

5 Tax Structure Proportional Tax…% of income…flat tax
Progressive Tax…% increases with income…income tax Regressive Tax…places a higher burden on those with less income…sales tax Usually on goods and services

6 What Makes a Good Tax Simplicity…laws are simple and easy to understand Efficiency…collect taxes without spending too much time or money Certainty…know what is due and when Equity…fair so there is not a heavier burden Fairness Benefit received approach Those receiving the benefits pay the tax (gas) Ability to pay principle People pay according to their ability to

7 Bearing the Burden Who actually pays?
The producer can easily shift the burden of the tax to the consumer Easier to shift it if there is inelastic demand! The final burden is known as the incidence of a tax

8 Federal Taxes Chapter 14, Section 2

9 Federal Taxes Individual Income Taxes 48% of federal revenue
Withheld from income File a tax return to balance what you owe Exemptions and deductions...reduce your taxable income Tax brackets...determine % you will pay Income tax is a progressive tax

10 Federal Taxes Corporate Income Tax
11% of revenue security, Medicare, unemployment 33% Other Taxes Excise...taxes on certain goods (gas, tobacco) Estate on the estate of someone who has died Gift Taxes...taxes on gifts above $10,000 Import on imports Tax incentives...used to encourage or discourage behavior

11 Review 1. Taking taxes out of an employee’s wages before he or she receives them is called (a) tax return. (b) social security. (c) FICA. (d) withholding. 2. How is the federal income tax a progressive tax? (a) The higher the income a person has, the higher the percentage that person pays as tax. (b) A person with a higher income pays more money in taxes, although the percentage he or she pays as tax is less. (c) Two married people who file their taxes together will pay more taxes than a single person will. (d) Children pay no taxes, regardless of whether they earn a large income.

12 Federal Spending Chapter 14, Section 3

13 Federal Spending The government uses tax revenue to fund the operations of the country Mandatory vs. Discretionary spending Mandatory...programs that need to be funded by law (interest on national debt and entitlement programs) Entitlement programs are those that people are entitled to and meet the requirements security, Medicare etc... Discretionary spending...programs that can be adjusted Defense, education, environment etc...

14 Federal Spending Much of the revenue collected by the federal government through taxation is also distributed to state and local governments


16 Review 1. All of the following are examples of mandatory spending except (a) defense spending. (b) Medicare. (c) Social Security. (d) Medicaid. 2. An entitlement program is (a) a program to provide benefits paid to everyone. (b) a program to provide benefits paid to government employees only. (c) a program to provide benefits to people who meet certain requirements. (d) a program to provide benefits to illegal aliens.

17 State and Local Taxes and Spending
Chapter 14, Section 4

18 State Taxation Like the federal government, state governments collect taxes to pay for their operating costs States have strict tax laws and are required to balance the budget Operating budget...pays for operation of state Capital budget...pays for upgrades and investments

19 Spending State Taxes Education Law enforcement Transportation
Public welfare Recreation

20 Sources of Income for States
Sales Tax State income taxes Business Taxes Fees and licenses

21 Local Government Like the state government, local governments need to tax to cover operating costs Schools Fire Law Transportation Elections Recreation

22 Local Government Revenue
Property Taxes...major source Other local taxes (sales tax, bed taxes, rental taxes etc...)

23 Review 1. For most state governments, the main source of revenue is a
(a) room tax. (b) property tax. (c) general excise tax. (d) statewide sales tax. 2. The main source of revenue for local governments is (a) a property tax. (b) an excise tax. (c) a sales tax. (d) an income tax.

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