Taxes – Chapter 14. FYI: These NoTES ARE NOT IN YOUR TEXTBOOK!

Taxes – Chapter 14.FYI: These NoTES ARE NOT IN YOUR TEXTBOOK!

Quote By Mark Twain: • “Although everyone complains about the weather, nobody does anything about it.” • How does this relate to taxes?

Questions we will answer • What kind of taxes do people in the United States pay? • Why do we pay taxes? • How do we determine who pays taxes? • What effect does a tax have on taxpayers? • Who really pays taxes?

Kinds of Taxes Americans Pay • Tax: Is a payment to govt. that is required by law • Income tax: tax on the earnings of an individual and a corporation. • Can be federal, state and city • Excise Tax: tax on a manufacture or sale of a specific good or service. • Tobacco, alcohol, cosmetics, travel and gasoline

Sales Tax: Is a levy on the selling price of most goods and services in a particular state, county or city • McHenry County • Lake County • Dupage County • Wisconsin • Payroll Tax: Finance govt. S.S program • Employer pays to the government an equal amount to the employee’s contribution • 6.2% of income

Property Tax: Tax is based upon the value of taxpayer’s possessions. • Home and land • Sometimes boats and automobiles • Estate Tax: inheritance or large gifts • User Fees: Admission into a state park or obtaining a passport

Why Do We Pay Taxes? • Help pay for government expenses and services • Redistribution of wealth • Takes money from one group and transfers it to another group • Food Stamps: Tax money is used to fund this program.

Aid to certain regions and industries • Tax relief for opening new businesses • Protective Tariff: Raises the price of the imported good to discourage purchasing • Revenue Tariff: Generate Income • Change Behavior • Discourage people from buying products that the government considers harmful. • Improve the Nation’s Economy

How Do We Determine Who Pays Taxes? • 2 approaches • Benefits Received Principle: • Only those who gain from a government service. • EX: Toll ways, Gasoline • Ability to pay Principle: • People who earn more, or can afford to pay more than others. • People with higher incomes are in a higher tax bracket.

What Effect Does A Tax Have On Taxpayers? • 3 Types • Progressive: • take a large percent of a person’s TOTAL INCOME as that income increases. • Use of brackets- Between X and X has ___% of a tax rate • Proportional: • All persons to pay the same % of their income tax • EX: Self Employment Tax- 15.3% • Income: $8000.00 = $1224.00 in taxes • Income : $72,000 = $11016.00 in taxes

Regressive Tax Sales Tax: Taking a larger portion from a taxpayer with a lower income than from a taxpayer with a higher income • EX: Buyer A, Buyer B • Both buy a $9,000.00 car • Both paid 8% sales Tax = $720.00 • Buyer A earns $7200.00 a year = 10% of income • Buyer B earns $72,000.00 a year = 1% of income

Who Really Pays Taxes? • Indirect Taxes • Is one that can be passed on, or shifted to someone other than the person making the payment to the government • EX: Family rents an apartment • Use of rent to help pay property tax • Property tax goes to govt. • Part of rent goes to pay that tax

Direct Tax: • Paid directly by the tax payer • They know how much they are paying • Ex: • Sales Tax • Income Tax

Taxes – Chapter 14. FYI: These NoTES ARE NOT IN YOUR TEXTBOOK!