Raising Revenue AKA Fiscal Policies

1. Raising RevenueAKA Fiscal Policies • The federal government can’t develop and sustain its programs without revenue • The income the government collects from us.

2. How does the Federal government make revenue? • Taxes • Charges laid on individuals and businesses by a government. • THIS IS THE FEDERAL GOVERNMENTS PRIMARY SOURCE OF REVENUE!!

3. Federal Taxes • How does the federal government collect taxes from an individual? • Income taxes!!

4. Individual Income Tax • Makes up the federal government’s largest source of revenue. • Around 70% of all federal revenue comes from personal income tax. • What does this include? • Wages and salaries • Business profits • Tips • Dividends • Payments received as a return on an investment

5. Personal income tax is based on a progressive tax Larger percentages of income are taken from people with higher incomes. Table 1 [Income Tax Paid to Federal Government] Individual Tax Payer 10% on income between $0 and $8,025 15% on the income between $8,025 and $32,550 25% on the income between $32,550 and $78,850 28% on the income between $78,850 and $164,550 33% on the income between $164,550 and $357,700 35% on the income over $357,700 Individual Income Tax, cont.

6. What is taxable income? • Taxable income = sum of all sources of a person’s income minus deductions and exemptions • Math Equation: • All Personal Income – (Deductions + Exemptions) = Taxable Income

7. What are deductions and exemptions? • Deductions: • Money that the government allows you to subtract from your taxable income. • School loan interest • Mortgage interest • Donations • Exemptions: • Money that can not be taxed at all. • Given to people who have children.

8. So how does this all add up? • Personal Income • $40,000 • Deductions • $3,000 mortgage interest • $650 school loan interest • $750 donations • Total = $4,400 deductions • Exemptions • $3,500 for one child • Total taxable income = $32,100 • WHY IS THIS IMPORTANT???

9. Original Personal Income $40,000 Taxed at 25% Should have paid $10,000 in taxes! True taxable income $32,100 Taxed at 15% Only have to pay $4,815 in taxes. Refund = $5,185 Table 1 [Income Tax Paid to Federal Government] Individual Tax Payer 10% on income between $0 and $8,025 15% on the income between $8,025 and $32,550 25% on the income between $32,550 and $78,850 28% on the income between $78,850 and $164,550 33% on the income between $164,550 and $357,700 35% on the income over $357,700 You get a refund!!

10. Trip to Bahamas

11. Or Cavs floor seats Season Tickets

12. Or rent your own castle for a day!

13. When do you have to pay your taxes? • April 15th of every year! • If you do not pay by then, you have to: • File for an extension • Pay fines • Go to jail!

14. What if I own a business? • If you own a business, • You must pay a corporate income tax. • Based on a business’s net income. • What is net income? • Revenue (Money made) – Expenses (Money spent). • Makes up the 3rd largest source of revenue for the federal government. • Example: • Apple Computers paid $1,580,000,000 in 2008

15. How much did Apple make in 2008? • $6,210,000,000 in revenue!