Chapter 9 Sources of Government Revenue 15 Vocabulary

Chapter 9 Sources of Government Revenue 15 Vocabulary words

Who and what should be taxed? 1966 “The Taxman” The Beatles

School House Rock Tax Man

Economics of Taxation • Taxes Why do we pay them? • Govt. tries to Raise Revenue by- income, sales, and property taxes are the main categories • Other ways- college tuitions, social security tax, unemployment, insurance contributions, and drivers license fees.

What is the economic impact of taxes? • Resource Allocation: Taxes increase the prices of goods. • Behavior Adjustment: Sin Tax is levied against people who buy cigarettes to discourage smoking. • Productivity and Growth: Do taxes encourage or discourage people to make money? Not sure.

CRITERIA FOR EFFECTIVE TAXES • 1. Equitable: It must be fair • 2. Simplicity: The taxpayer and tax collector must be able to understand the laws. • 3. Efficiency: It should be easy to administer and effective in generating revenue.

2 Principles of Taxation: What do you think? • Benefit Principal: Those who BENEFIT from the government goods and services should pay in proportion to the amount they receive. • IE: What about immigrants? • Ability to Pay Principal: the belief that people should be taxed according to their ABILITY to pay, regardless of the benefits they receive.

What types of taxes are there? • 1. Proportional Tax: it proposes the same proportion of taxation on everyone, regardless of income. IE: 20% for everyone. • 2. Progressive Tax: is a tax that imposes a higher % rate of taxation on persons with higher incomes. IE: 10, 20, and 30% of income. • 3. Regressive Tax: is a tax that imposes a higher % of taxation on low incomes than on high incomes. IE: It pays to make more. • (see graph on page 228)

The Federal Tax System Section 2 • AS: In 2001 the US collected $11, 800 for every man woman and child in the US. • How many people live in the US and how much money is that? • 350 million people • 4. 13 TRILLION DOLLARS!!!! WHOA!

Income Taxes: • In 1913 the 16 th Amendment was ratified allowing the government to levy an income tax. • This is a tax on peoples earnings to finance its operations. • The federal government has collected nearly 50% of its total revenue from taxes.

TAXES: • IRS (Internal Revenue Service): This is who receives the tax and it is done through a payroll withholding system. • On April 17 th (usually 15 th) you file a tax return which is an annual report of total income and deductions. • If for some reason you cannot file you must file an extension.

OUR TAX SYSTEM IS PROGRESSIVE 2011 This is for a single individual • • • 10% is paid on income up to $8, 500. 00 15% is paid on income $8500 -34, 500 25% is paid on income $34500 -83, 600 28% is paid on income $83600 -174, 400 33% is paid on income $174, 400 -379, 150 35% is paid on income over $379, 150

OUR TAX SYSTEM IS PROGRESSIVE 2011 This is for a Married individual filing Joint • • • 10% is paid on income up to $17000. 00 15% is paid on income $17000 -69, 000 25% is paid on income $69000 -139, 350 28% is paid on income $139, 350 -212, 300 33% is paid on income $212, 300 -378, 150 35% is paid on income over $379, 150

FICA TAXES What is a FICA tax? • Federal Insurance Contributions Act tax • Levied on employers and employees • Pays for Social Security and Medicare What is the % of Social Security and Medicare(started in 1965)? • Social Security is 6. 2 it is capped at $84, 900 • Medicare is 1. 45% no cap.

Corporate Income Taxes 2011 • CORPORATE INCOME TAX: • 15% of all income under 50, 000 • 25% of all income between 50000 -75000 • 34% of all income between 75000 -100, 000 • 39% of all income between 100, 000 -335, 000 • 34% of all income between 335, 000 -10 million • 35% of all income between 10 mill-15 mill • 38% of all income between 15 mill-18. 333333 mill • 35% of all income between 18. 333333 mill -

Excise Tax: • A tax on the manufacture or sale of selected items, such as gasoline, and liquorthis is the 4 th largest revenue maker for the US.

Estate and Gift Taxes: • Estate tax: is a tax on the transfer of property when a person dies. Estate taxes can range from 18 -50% of the value of the estate. • Estates worth less than $675, 000 were exempt in 2002, although this limit will soon be raised to 1 million. • You must QUIT CLAIM the house to your children 3 years prior to their death to avoid the tax. (see ehow: get the form get it notarized)

GAMBLING and GREED • "Las Vegas was built for people who are really bad at math. . ". . . Penn Jillette • • Casino gambling: $50 billion business 20 % comes from Nevada 1/3 of all tax is generated by gambling (NV) Taxes: 25% is withheld if you win over 1200 -. • If you are foreign 30% is withheld. • http: //lasvegas 4 newbies. com

Customs and Duties • Customs: A charge levied on goods brought from another country. • The President has the ability to raise or lower the customs tax by as much as 50% • Customs taxes produce very little revenue although prior to 1913 it was the highest.

User Fees • President Ronald Reagan made a huge push for USER fees. • The fees would include entrance charges you pay to visit national parks, fees that ranches pay to graze on federal land. (125 - / yr. 10 -/day) • These are taxes based on the benefit principal. See page 232, and 239.

State taxes Section 3 • Intergovernmental Revenues: Revenues collected by one level of government that are distributed to another level for expenditures. • Taxes and Fees: (7. 0% “state” tax + 0. 25% “county” tax + “combined state and local” tax of 1. 0% = 8. 25% CA. ) • Only 5 states have no sales tax. Alaska, Oregon, New Hampshire, Montana, and Delaware. • The choice of tax: Lotteries, the states spend ½ the money on prizes and 6% on administration. #1 money maker.

Local Government Taxes Section 3 • Intergovernmental Revenues: Transfers from state governments. 1 st and largest. • Property Taxes: 2 nd largest revenue. 1. 2 -2. 0% of the price of the home. • Public Utilities: This is the 3 rd largest contributor.

Current Tax Issues Section 4 • Tax Reform 1986, 1993: • Surcharge: 5% or additional tax above and beyond the base rate for the companies in the top 31%. • Taxes: Either a 15% tax or 28% tax. • Tax Reform 1997: • Capital gains: Tax on the sale of an asset held for 12 months was reduced from 28% to 20%. • Tax reform 2001: • Refunds for Individual/married couples of $300/$600. Also higher child tax credits.

THE END The nation should have a tax system that looks like someone designed it on purpose. ~William Simon Taxes: Of life's two certainties, the only one for which you can get an automatic extension. ~Author Unknown Indoors or out, no one relaxes in March, that month of wind and taxes, the wind will presently disappear, the taxes last us all the year. ~Ogden Nash It's income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta. ~Dave Barry Man is not like other animals in the ways that are really significant: animals have instincts, we have taxes. ~Erving Goffman

Are Taxes Voluntary?

• 2009 Federal Tax Laws • 2009 State Tax Changes • Create your own tax system see www. mrpillsbury. com click here