Taxation and Budget

1. Taxation and Budget Ch. 25

2. Personal income: Tax on an individual’s yearly income. • Granted by the 16th amendment • April 15th is income tax day. • Corporate income: Tax on a corporation’s profit. • Social Insurance: Social security tax. (FICA). • Excise: Special tax on alcohol, tobacco, and gasoline. • Estate: Tax on the assets of the deceased. • Inheritance: Tax paid on anything person inherits. • Gift: Tax paid on the value of an expensive gift received. • Sales: Tax paid on all purchases made by people who work. • Property: Tax on the value of property. Can include buildings, stocks, bonds, cars. Major United States Taxes

3. Example of a Paycheck

4. Revenue: Money the government receives. • Expenditures: Money the government spends. • 60 to 80 percent of state and local government revenue comes from taxation. • Intergovernmental Revenue: Money received from other governments. • Example: States receive a big chunk of money from the Federal Government. Local governments then can get some of that money from the state. • Nearly 100 percent of federal government revenue comes from taxes. Taxation

5. NC 2005

6. The economy expands • Unemployment rises • Prices are inflated • The economy suffers a recession What happens when the real GDP goes up?

7. The government sometimes abuses its power to tax which leads to revolts. • Stamp Act (1765): British tax on virtually all goods. • Tea Act (1773): British tax on tea. Led to the Boston Tea Party. • British taxes lead to the American Revolution where the United States became a free country after defeating England. Taxation Problems

8. Shay’s Rebellion (1786): Heavy state taxes in Massachusetts put many farmers in debt. Daniel Shay led a group of 1,200 farmers in a revolt. The revolt was put down. • Tariff of 1828: High tariff on imports. Hurt the southern states because of lack of industries. Secession was openly discussed in South Carolina. • Tariff: Tax on imports. • Secession: Separate from the nation. United States Taxation Problems

9. The Federal Deposit Insurance Corporation • The Bank of the District of Columbia • The Federal Reserve • The 2nd Bank of the US The Glass-Steagall Banking Act established which federal institution?

10. 1. What is a revenue? • 2. List and explain 3 major types of U.S. taxes. • 3. How did the Stamp Act of 1765 and the Tea Act of 1773 lead to the American Revolution? • 4. What was granted by the 16th amendment? • 5. What are intergovernmental revenues? Warm - up

11. The first government of the United States was the Articles of Confederation. • The national government could not tax under the Articles. • Under the Constitution, the government is given a limited power to tax to keep it from abusing its power. Taxation Powers

12. The Constitution gives the government the power to tax. • All appropriations bills (tax bills) are introduced in the House of Representatives. • Appropriations bills are laws that allow spending for a particular activity • All national taxes are the same throughout the country. • The 14th amendment says all groups must be taxed equally. Limits on Taxation

13. Progressive tax: Based on income. Higher taxes on those with higher incomes. Those who make less than a certain minimum pay no taxes. • Regressive tax: People pay the same amount with no consideration of income. • Effects people with lower incomes because it’s a larger percentage of their total income. • Proportional tax: Takes the same percentage of all incomes. Tax Classifications

14. Which type of tax classification could have the greatest impact on those with higher incomes? Why? • Which type classification could have the greatest impact on those with lower incomes? Why?

15. Tax on income • 16th amendment (1913): Gave the government the power to collect income tax. • Personal income and corporate income are the two types. Income Tax

16. Tax Burden on Income Levels

17. 2010 Income Tax Brackets

18. Minimal government interference • Minimal legal ground rules • Minimal private ownership • Minimal competition between businesses Which of the following is essential to the success of a free enterprise system?

19. The deadline is April 15th. • All taxpayers fill out a tax return form and send it to the Internal Revenue Service (IRS). • An exemption is a portion of income that is not taxed. • Deductions are for medical expenses and charitable contributions. They are not taxed. • Everything else is taxable income. Tax Return

20. Natural resources • Labor • Capital • entrepreneurs The forklifts that are used to load semis would be classified under which of the following 4 “factors of production”?

21. Tax paid at the time of purchase. • The revenue is sent to state and local governments. • Many state governments exclude necessary items from the sales tax. • North Carolina is the 1st Friday in August Sales Tax

22. Employers withhold funds from checks to pay the state and national government. • Because of this, taxpayers do not pay as much at the end of the year. • Some taxpayers receive a refund. Paying Income Tax

23. People with higher incomes pay a higher percentage in taxes. • There are tax percentage rates of 10%, 15%, 25%, 28%, 33%, and 35%. • The belief is that people with less money need more for necessities. Income tax is a Progressive Tax

24. The property is examined to asses the value. • Local governments set the tax rate. • Property taxes have increased steadily over the years. Property Tax

25. Designed to raise revenue and protect American businesses. • Products are made cheaper in other countries and brought to America. • When America charges a tariff, the other country charges a tariff on American goods. • Tariffs have caused many problems in U.S. history. Tariffs

26. The government will sell and rent land. • The government will charge tolls for the use of roads and canals. • The government will charge fees for driving, hunting, fishing, and getting married. • Charge fines (traffic). • Government run lotteries to provide revenue, but they are controversial. Non-Tax Revenue

27. In 1-2 paragraphs, explain which tax classification you feel is the most fair? Give at least 3 reasons why.

28. If the federal government needed to increase their revenue, which kind of tax (ex. Sales, excise, estate, income…..) do you think it should increase? Why? Exit Ticket

29. Budget: Plan for managing and spending money. • Governments create budgets to help them make decisions because of limited resources. • Two parts: Revenue and Expenditures. (look on page 679) • Runs on a fiscal year: October 1-September 30. • The Office of Management and Budget (OMB) asks each federal department to estimate the amount of money they will need. • The OMB estimates the government’s revenue. • The completed budget is about 1000 pages long. Budget

30. Mandatory spending – spending that does not need annual approval; has to be paid regardless Ex. Social Security, interest payments on the national debt • Discretionary spending – spending that must be authorized each year. Ex. Space exploration, national defense, agriculture. Budget (cont.)

31. Changes in Personal Budgets

32. Federal Revenue 2007

33. 2006 Government Expenditures

34. Revenue vs. Expenditures

35. Estate taxes • Excise tax • Income tax • Payroll tax Which form of tax revenue accounts for the highest percentage of federal income?

36. The President sends the budget to Congress. • Appropriations bills must be passed by the House of Representatives • Congress frequently changes the budget. • The budget is always filled with compromises. • State budgets follow the same process as the national budget. (look on page 683) • Budgets change from year to year because of different political philosophies. Passing the Budget

37. Deficits occur when expenditures exceed revenue. • The U.S. budget had a deficit from 1968-1996. • Look on page 690 • Governments are expected to do more without raising taxes. • This forces them to borrow money. Budget Deficits

38. Expenditures on Elementary and Secondary Education

39. The economy is booming and spending needs to decrease • The FED is encouraging the national government to borrow money from private banks • The FED is attempting to loosen the money supply to encourage more borrowing by individuals • Businesses are experiencing record losses in sales What conclusion can be reached in why the Federal Reserve Board would lower interest rates?

40. The government borrows money to make up for a deficit. • Most borrowing comes from the sale of government bonds. • The government pays off the bonds as they come due. • China owns a great amount of the US bonds. Estimated $900 billion. Borrowing Money

41. Percentage of Foreign Holder of US Bonds

42. The total amount the government owes on the money it has borrowed. • Goes up with each deficit and accumulated interest. • Interest: Fee paid for the use of money. • 1996: Interest was $345 billion. They borrow to pay off the interest. National Debt

43. National Debt in the Future

44. Money is more easily accessible with CD’s • Savings accounts do not accumulate interest • A person receives greater tax benefits with CD’s • CD’s accumulate higher interest compared to savings accounts Why would a person put money into a Certificate of Deposit (CD) instead of a regular savings account?

45. Balanced Budget: Expenditures do not exceed revenue. • In 1995, Republicans introduced the Balanced Budget Amendment. It called for a balanced budget by 2002. It did not pass. • Many state constitutions require balanced budgets with no borrowing. • Rely on the emergency funds to pay off debts when state economy is struggling Balancing the Budget

46. Programs to automatically stimulate the economy as soon as they are needed • Unemployment insurance • Income tax Automatic Stabilizers

47. Part of the government’s budget process involves planning projects that are dependent on taxpayer money. • In groups of 3-4, create a proposal for a class trip to Washington D.C. • You will create a poster to represent your planned trip. • Posters should have labels describing the trip and images that represent the trip highlights. • How many days? You should have 1-2 events for each day we are in DC. Activity - Part 1

48. In order for governments to budget wisely they must keep track of expenditures. Part of that is to determine the cost of proposed programs. • Each group will research and create a chart outlining trip expenses. Charts should include costs of – transportation, attraction ticket prices, meals, housing, and any other expenses. • Brainstorm possible unexpected costs or changes of plans. Activity - Part 2

49. Overestimated income and unforeseen expenses can spoil the most carefully drawn budget. • Using your expense chart – you will each deal with a deficit in revenues. • Brainstorm a plan for dealing with the deficit. Activity – Part 3

50. Ch. 26Section 1 International Trade and Its Benefits