1. Taxes and the Economy

2. Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay

3. Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay – Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on

4. Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay – Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on Ability to pay principle – those who have the greatest income should pay the highest tax rates

5. Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay – Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on Ability to pay principle – those who have the greatest income should pay the highest tax rates – Ex. Our income tax system

6. Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle

7. Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment

8. Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment Because the gov’t creates the taxes, they try to be hush-hush

9. Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment Because the gov’t creates the taxes, they try to be hush-hush – They will pass taxes upon those who are least likely to be offended

10. Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment Because the gov’t creates the taxes, they try to be hush-hush – They will pass taxes upon those who are least likely to be offended – Ex. Taxes on sale of alcohol and liquor “sin taxes”

11. The Burden of Taxes Three ways to classify taxes

12. The Burden of Taxes Three ways to classify taxes – Progressive – more you make, the more they take

13. The Burden of Taxes Three ways to classify taxes – Progressive – more you make, the more they take – Regressive – less you make the more they take

14. The Burden of Taxes Three ways to classify taxes – Progressive – more you make, the more they take – Regressive – less you make the more they take – Proportional – all pay the same percentage of their income

15. Types of Taxes Personal income tax, there are 3 brackets in this progressive system

16. Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31%

17. Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31% – Greatest source of income

18. Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31% – Greatest source of income Social Insurance Taxes, proportional tax is the 2 nd greatest source of income

19. Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31% – Greatest source of income Social Insurance Taxes, proportional tax is the 2 nd greatest source of income Corporate income tax, 3 rd greatest, range up to 36% of profits

20. State and Local Taxes Sales tax is most important for the state

21. State and Local Taxes Sales tax is most important for the state Property tax for the local

22. Where does the money go?

23. Remember, the gov’t is not out to turn a profit

24. Where does the money go? Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters (what is good politically is not always good economically)

25. Where does the money go? Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters (what is good politically is not always good economically) About $1 out of $5 of the GDP is spent by the gov’t

26. Where does the money go? Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters (what is good politically is not always good economically) About $1 out of $5 of the GDP is spent by the gov’t Graphs pg. 251

27. President and the Budget President prepares and delivers the budget to Congress

28. President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed

29. President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed Problem: In the 20 th century, the gov’t generally spent more money that it took in (deficit)

30. President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed Problem: In the 20 th century, the gov’t generally spent more money that it took in (deficit) – Now they must collect more in taxes to begin to pay off debts

31. President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed Problem: In the 20 th century, the gov’t generally spent more money that it took in (deficit) – Now they must collect more in taxes to begin to pay off debts – However, we have problems meeting the budget each year (war on terror)