1. Bell Ringer “In this world nothing can be said to be certain, except death and taxes.” –Benjamin Franklin “The only difference between death and taxes is that death doesn't get worse every time Congress meets.” –Will Rogers What comes to mind when you think of “taxes”? What images, words, emotions, etc. do you associate with taxes?

2. Objectives 1. Identify the sources of the government’s authority to tax. 2. Describe types of tax bases and tax structures. 3. Identify who bears the burden of a tax.

3. Government’s Authority to Tax Where does the federal government get its authority to tax? U.S. Constitution, Article 1, Section 8: ◦ “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”

4. The Purpose of Taxation Why does the government tax its citizens? Taxes give the government the money it needs to operate. Taxation is the primary mean through which the government collects money. ◦ Individual Income Tax accounts for nearly 50% of total federal revenue!

5. Limits on the Government There are also limits on the government’s power to tax. ◦ The purpose of a tax must be “for the common defense and general welfare.” A tax cannot bring in money that goes to individual interests. ◦ Federal taxes must be the same in every state. ◦ The government can tax imports, not exports.

6. Progressive Tax A progressive tax is a tax for which the percentage of income paid in taxes increases as income increases. In other words, the more you make, the higher the percentage of your income that is paid in taxes. The U.S. has had a progressive tax system since 1913.

8. http://money.cnn.com/interactive/pf/taxes/income-tax-rates/

9. Proportional Tax (Flat Tax) A proportional tax (or flat tax) is a tax for which the percentage of income paid in taxes remains the same at all income levels. A salesperson making $25,000/year pays the same percentage of their income as a lawyer making $250,000/year. Pros: Simplicity, “fairness” Cons: Heavier burden on low earners

10. Regressive Tax A regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases. ◦ Uncommon for income tax ◦ Sales and excise taxes are regressive because higher income households spend a lower proportion of their incomes on taxable goods and services.

13. Tax Bases Tax Base Individuals Corporate Property Sales Tax is based on… …people’s earnings …company profits …real estate …goods and services

14. Key Terms tax: a required payment to a local, state, or national government revenue: the income received by a government from taxes and other nontax sources progressive tax: a tax for which the percentage of income paid in taxes increases as income increases proportional tax: a tax for which the percentage of income paid in taxes remains the same at all income levels regressive tax: a tax for which the percentage of income paid in taxes decreases as income increases

15. Key Terms, cont. tax base: the income, property, good, or service that is subject to a tax individual income tax: a tax based on a person’s earnings corporate income tax: a tax based on a company’s profits property tax: a tax based on real estate and other property sales tax: a tax based on goods or services that are sold

16. Bell Ringer What types of taxes do you currently pay or expect to pay when you enter the job market?

17. Objectives 1. Describe the process of paying individual income taxes. 2. Identify the basic characteristics of corporate income taxes. 3. Explain the purpose of Social Security, Medicare, and unemployment taxes. 4. Identify other types of taxes.

18. Individual Income Taxes The government’s main source of revenue comes from individual federal tax income payments.

20. “Pay-As-You-Earn” Taxation To lessen the burden that one large yearly tax would place on an individual and to make it possible for the government to meet its regular expenses, federal income tax is collected in a “pay-as-you-earn” system. This means that individuals usually pay most of their income tax throughout the year as they earn income.

21. Tax Brackets The federal income tax is a progressive tax, which rises with the amount of taxable income. Your range of income puts you in a specific tax bracket.

23. Withholdings and Tax Returns Employers help collect taxes by withholding money from your paycheck based on an estimate of how much you will owe in federal income tax for that year. You can adjust the percentage that your employer takes out for federal taxes with a W-4 form, and for AZ state taxes with an A-4 form.

24. Sample W-4 & A-4

25. Withholdings and Tax Returns After the calendar year ends, employers give their employees a report of how much income tax has already been paid. ◦ These are usually issued in the form of a W-2 tax statement.

26. Sample W-2

27. Corporate Income Taxes Like individual income taxes, corporate income taxes are progressive. Determining corporate income taxes can be more difficult than determining an individual’s because businesses can take many deductions.

28. Corporate Income Taxes Also, many loopholes exist in the current tax system which allow companies to pay low taxes, zero taxes, or even get a tax return. CEO pay at Boeing, Ford exceeds companies’ tax bill CEO pay at Boeing, Ford exceeds companies’ tax bill

30. Social Security and Medicare Employees also withhold money to help fund Social Security, Medicare, and unemployment insurance under the Federal Insurance Coalition Act (FICA). ◦ Most of the FICA taxes you pay go to Social Security benefits for retired people, surviving members of wage earners, and disabled people. ◦ The Medicare tax helps pay for health insurance for people over 65.

31. Other Types of Taxes Unemployment taxes—pays for “unemployment compensation” that people can receive when they are laid off. Excise taxes—a general revenue tax on the sale or manufacture of a good or service such as gasoline, cigarettes, and other items Estate taxes—a tax on the total value of the money and property of a person who has died (aka, “Death tax”)

32. Other Types of Taxes, cont. Gift taxes—a tax on the money or property that one living person gives to another Import taxes—Tariffs, or import taxes, are taxes placed on imported goods.

33. What other taxes does the federal government collect? Create a table like the one at the top of page 369 Fill it in as you read pg. 372-374

34. Key Terms withholding: taking tax payments out of an employee’s pay before he or she receives it tax return: a form used to file income taxes tax deduction: a variable amount that taxpayers may subtract from their gross income estate tax: a tax on the total value of the money and property of a person who has died gift tax: a tax on the money or property that one living person gives to another

35. Bell Ringer The U.S. government’s budget for Fiscal Year 2013 was $3.45 trillion. How much do you think it spent on the military? How much do you think it spend on Social Security? How much do you think it spent on education?

36. Bell Ringer How much do you think it spent on the military? $625 billion (18%) How much do you think it spend on Social Security? $808 billion (23%) How much do you think it spent on education? $89 billion (2.5%)

37. Objectives 1. Distinguish between mandatory and discretionary spending. 2. Describe the major entitlement programs. 3. Identify categories of discretionary spending.

38. Federal Spending There are two types of government spending: ◦ Mandatory spending ◦ Discretionary spending

39. Mandatory Spending Mandatory spending is money that Congress is required by law to spend on certain programs or to use for interest payments on the national debt.

40. Entitlement Programs Most of the mandatory spending items are for entitlement programs, which fund social welfare programs (aka, the “Safety Net”). Entitlements are a largely unchanging part of government spending. ◦ Congress can only change the eligibility requirements or reduce benefits if there is a change in the law.

41. Entitlement Programs Social Security is a huge portion of federal spending. ◦ About 55 million Americans receive monthly benefits from the Social Security Admin- istration. This number grows each day. Medicare and Medicaid are the other major entitlement programs. ◦ About 45 million Americans receive Medicare benefits. ◦ About 55 million low income Americans receive Medicaid.

43. Unsustainable Spending? https://www.youtube.com/watch?v=pfZyffw7U6E

44. Other Mandatory Programs Other means-tested entitlements benefit people and families with low incomes. These entitlements include: ◦ Food stamps and child nutrition programs ◦ Veterans’ pensions ◦ Unemployment insurance

45. Discretionary Spending Discretionary spending is spending about which lawmakers are free to make choices.

46. Discretionary Spending Defense spending accounts for about half of the government’s discretionary spending. The remaining discretionary funds go to pay for the following: ◦ Education and training ◦ Scientific research ◦ Student loans ◦ Law enforcement ◦ Environmental cleanup ◦ Disaster relief ◦ …and everything else!

49. http://nationalpriorities.org/cost-of/

50. Key Terms mandatory spending: spending that Congress is required by existing law to do discretionary spending: spending about which Congress is free to make choices entitlement: social welfare program that people are “entitled to” benefit from if they meet certain eligibility requirements