1. Government Revenue & Spending Topic 9

2. What are Taxes? Required payment to local, state, or national gov’t Primary way the gov’t collects money Congress has the power to tax

3. 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.

4. Revenue Income received by a gov’t from taxes & other non tax sources Helps gov’t provide goods & services

5. Origins of Government Revenue

6. Income Taxes The largest source of government revenue is income taxes.

7. Limits on Taxes Purpose must be for the “common defense & general welfare” Federal taxes must be the same in every state

8. Types of Taxes Proportional Taxes Taxes that remain the same regardless of income. Example: 15 percent flat income tax for all Americans

9. Types of Taxes Progressive Taxes Taxes that increase as income increases. Income taxes are progressive taxes; the more you earn, the more you pay.

10. Types of Taxes Regressive Taxes Taxes that decrease in proportion to income. Has a greater burden on lower income-earners than higher-income earners. Example: Sales Tax: Paying a seven percent tax on a cup of coffee hurts me more than in hurts Bill Gates.

11. Types of Taxes TypeDescription Proportional Ex. Property taxes The percentage of income paid in taxes remains the same for all income levels. “Flat tax”. The more you make the more you pay. The more you spend the more you pay. Progressive Ex. Income The percentage of income paid in taxes increases as income increases Ex. Income rises, taxes rise Regressive Ex. Sales Tax The percentage of income paid in taxes decreases as income increases

13. Progressive Taxes Taxes that increase in proportion to increases in income. Income taxes are progressive taxes because as you earn more, you pay more in taxes.

14. Sources of Government Revenue Individual & corporate income taxes Social insurance taxes Excise taxes Estate & gift taxes Taxes on imports

15. Taxes Taxes are often used by the government to change people’s behavior. Raise on cigarettes to stop people from smoking. Lower taxes on business to stimulate economic activity. Give homeowners a tax cut to encourage homeownership. Cut capital gains taxes to encourage investments.

16. Taxable Income Person’s gross (or total) income minus exemptions & deductions Includes salaries, wages, tips, and commissions Includes income from investments

17. Taxable Income 1.Wages, tips, and salaries 2.Interest and dividend income 3.Unemployment 4.Alimony 5.Other (self-employment, rent)

18. Non-taxable Income 1.Child support 2.Gifts 3.Veterans benefits 4. Social Security

19. Misc. Definitions Personal Exemptions Personal Exemptions: Set amounts that you subtract from your gross income for yourself, your spouse, and any dependents Deductions Deductions: variable amounts that you can subtract, or deduct, from your gross income Ex. Interest on mortgage, donations to charity, state & local tax payments

20. Other Sources of Gov’t Revenue Social Security TaxTaxes to FICA that go to the Social Security Administration to fund old age, survivors, & disability insurance MedicareNational health insurance program that helps pay for health care for people over the age of 65 Property Taxes/Estate TaxesTax on total value of the money & property of a person who has died Excise TaxesTax on the sale & manufacture of a good Gift TaxesTax on money or property that one living person gives another

21. Ways Taxing Influences Economic Behavior Tax Incentive: use of taxation to encourage or discourage behavior Sin taxes: federal taxes on tobacco and alcohol Certain tax deductions encourage energy conservation

22. The Flow of Taxes Money is collected from people and businesses then redistributed in the areas where the government sees need.

23. Your Pay Check HOURS AND EARNINGS HoursEarnings TAXES AND DEDUCTIONS DescriptionAmount 20200.00FICAFederalStateCity Total Taxes 15.2010.255.101.0031.55 TOTAL Taxable Wages 200.00 Less Taxes 31.55 Net Pay 168.45

24. Where do my taxes go? The federal government will spend a $2.5 trillion in 2006.The federal government will spend a $2.5 trillion in 2006. $2,500,000,000,000$2,500,000,000,000 The federal government will spend a $2.5 trillion in 2006.The federal government will spend a $2.5 trillion in 2006. $2,500,000,000,000$2,500,000,000,000 (Taxes 5:10)

25. Topic 9-Spending Federal, State, & Local Governments Mrs. Cohen

26. Federal Spending How does the federal government make money & what is it spent on? Two Main Categories: Mandatory Spending Discretionary Spending

27. Federal Spending Mandatory Spending- Spending on certain programs that is mandated, or required by existing law. Examples: transportation, agriculture, energy, social security, etc.

28. Discretionary Spending- Spending category about which government planners can make choices. –Examples: Defense, education, training, student loans, environment, technology, etc. Federal Spending

29. Entitlement Programs (Sub-category of Mandatory Spending) Social welfare program that people are “entitled to” of they meet certain eligibility requirements. Examples: Social Security Medicare (Over 65 yrs.) Medicaid (low income families)

30. How are state taxes spent? Education, Public Safety, Highways & Transportation, Public Welfare, Recreation, Administration (State Workers) State Tax Revenue How does the state make money? Income taxes, Corporate Income Tax, Sales Tax, & Excise Tax

31. Local Government Revenue How does the local government make money? Property taxes, school taxes, other local taxes Local Spending What are local taxes spent on? Public schools, roads, libraries, jails, salaries (teachers and administrators)