Chapter 14 Government Revenue & Spending

1. Chapter 14 Government Revenue & Spending

2. Sec 1. How Taxes Work

3. Government Revenue • Street lighting, highways, law enforcement, & the court system • Government also provides aid for people in need

4. Government Revenue • Where does the money come from to pay for such goods and services?

5. Government Revenue • Borrowing & lotteries • Rights to tax are set in the U.S. Constitution and in state constitutions

6. Principles of Taxation • Benefits taxpayers receive from taxes • Their ability to pay

8. Question 1 • Can you explain why a worker earns $264 but receives a paycheck for less than $264?

9. Question 2 • What happens to the amount earned not received by the employee? Meaning where did the $30.84 that the employee go to?

10. Benefits-Received Principle • Financing of road construction & maintenance through gasoline • Difficult for governments to asses exactly how much different taxpayers benefit from services like national defense, national parks, local police, fire protection, and public education

11. Ability-to-Pay Principle • People with higher incomes will pay more than people of lower incomes • The level of benefits is not a consideration

12. Ability-to-Pay Principle • Questions to Consider • Should everyone pay the same percentage of income? • Should those with higher incomes pay a higher percentage of their income in taxes?

13. Criteria for Taxation • Equity, Simplicity, & Efficiency

14. Equity • Requires people in similar situations pay a similar amount of taxes • Example • Everyone pays the same price for tax • Some believe • Equity requires that people with higher incomes pay more than people with lower incomes

15. Simplicity • Should be NO confusion bout the time the tax is due and the amount to be paid • Sales tax meets the criterion of simplicity

16. Efficiency • Taxpayers’ view • Tax efficiency can be judged by the amount of effort and expense it takes to pay the tax • Individual income tax best meets the criterion efficiency

17. Tax Base & Structures • Tax base, each type of wealth is subject to taxes • Individual income, corporate income, sales, and property

18. Individual Income Tax • Wages, interests, dividends, and tips • All taxes are ultimately paid from Income, but using income as a tax base means that the amount of tax is directly linked to a person’s earnings

19. Corporate Income Tax • From savings & investment in the form of interests & dividends

20. Sales Tax • Generally imposed on a wide range of goods or services • Percentage of the posted price of the good or service • Included in the final price the buyer pays • The seller then passes the tax revenue collected from customers on to the government that has imposed the tax

21. Property Tax • Generally real estate • Pay on the values of their buildings and the land • Property tax is generally included in rent charges • Can be imposed on other assets like automobiles

22. If overall personal income rises, the individual income tax base grows • If there are fewer homes or businesses in a certain locality or if the value declines, the property tax base shrinks

23. Tax Structures • The way in which taxes are imposed on the different tax bases gives rise to three different tax structures • These tax structures are distinguished from one another

24. Proportional Tax • Flat tax, rate of the tax is the same for all taxpayers • Example • All taxpayers in a given state might be charged a flat 15% tax on the income • No matter a person’s income is

25. Progressive Tax • Income increases so does your tax rate • United States • Federal income tax = progressive tax • Tax rate increases as income increases

26. Taxable income of $40,000Page 413

29. Regressive Tax • Income paid in taxes decreases as income increases • Sales tax

30. Incidence of a Tax

31. Resource Allocation

32. Productivity & Growth

33. Economic Behavior

34. Section 2 Federal Taxes

35. Individual Income Tax • The federal government takes in around $2.5 trillion in revenue each year • Individual income tax , Social insurance taxes, Corporate income taxes, Estate taxes, Gift taxes, Excise taxes, & Customs taxes • Largest source of taxes = individual income tax • Government uses income tax • 16 Amendment to the US Constitution in 1913

36. Withholding

37. Taxable Income

38. Tax Return

39. Indexing

40. Federal Insurance Contribution Act

41. Social Secuity

42. Medicare

43. Unemployment Taxes

44. Corporate Income Taxes

45. Estate Tax

46. Gift Tax

47. Excise Tax

48. Customs Duty

49. User Fee