El Dorado High School Spring 2015

1. El Dorado High SchoolSpring 2015 Taxe$and Government $pending

2. Objectives Understandhow government uses taxes to fund programs Identify the roots of the concept of taxation in the United States Constitution Describe types of tax bases and tax structures List the characteristics of a good tax Identifywho bears the burden of a tax

3. Questions to consider Why do we have taxation? Is taxation done fairly? How much of our pay should go to taxes? Do we benefit from taxes?

4. Funding Government Programs Tax: A required payment to a local, state, or national government. Taxation is the primary way governments collect monies they need to operate Without thisrevenue( income from taxes and non-tax sources), governments could not provide the goods and services that its people expect like: Defense- Armed forces Education- Schools, buildings, and libraries Law enforcement- Federal, state, and local Highways- Roads and connecting infrastructure

5. Taxes and the Constitution The framers of the Constitution gave careful consideration when granting the new government the power to tax. The Constitution outlines the taxation powers that are given to Congress in: Article 1, Section 8, Clause1: To lay and collect taxes, duties, imposts and excises, to pay the debt, and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniforms throughout the United States.

6. Limits on the Power to Tax The Constitution specifically places provisions and limits certain kinds of taxes: The purpose of the tax must be for the,” common defense and general welfare.” (i.e. Taxes cannot be used for individual interests) Federal taxes must be the same in every state Cannot tax church services because it would violate the 1st Amendments stand on freedom of religion. Government cannot tax exports

7. Tax Bases Tax Base: A tax base is the : Income Property Good Service (That is subject to a tax) Example: A person can be taxed from their earnings (individual income tax) Example: Property taxes are accessed according to the value of one’s home and/or belongings. Example: The dollar value of any good or service you purchase is subject to SALES TAX( From buying a car to getting a car wash)

8. Tax Structures Once tax bases are set, economists consider three(3) different tax structures: Proportional Taxes (Flat tax) Progressive Taxes Regressive Taxes A tax in which the percentage of income paid remains the same for all income levels,( 6% tax on $250,000 and $50,000; whether income goes up/down the tax % stays the same) A tax in which the tax percentage increases as income increases.( 10% at $20,000 and 30% at $55,000) A tax for which the percentage of income paid decreases as income increases( Households with higher incomes pay proportionally less than lower-income households)

9. Characteristics of a Good TaxFour (4) characteristics are considered Simplicity: They should be simple and easy to understand( people/ businesses should be able to fill-out their own forms and and pay on predictable schedules Efficiency: Taxpayers and government administrators should not have to spend to much time or money to get their taxes paid and collect. Certainty: The taxpayer should have clarity on when the tax is due, how much is due, and how it should be paid Equity: Finally, the tax system should be fair.

10. Who Bears the Burden of a Tax?

11. Chapter 14Section Two Federal Taxes

12. Describethe process of paying individual income taxes Explainbasic characteristics Understandpurpose of Social Security, Medicare, and Unemployment taxes Identifyother types of taxes Objectives

13. How does the federal government affect our bottom line?

14. Individual income taxes make up the federal government’s main source of revenue (About 49%). The amount of income tax a person owes is determined annually. Pay –as-you-earn system-People usually pay most of their income tax throughout the year as they earn it to: Alleviate the burden of large sum payments Assure that the government can cover its periodic payments during the year Individual Income Taxes

15. Tax Withholdings: Taking tax payment s out of an employee’s pay before he or she receives it. Employers carry a primary responsibility in federal income tax withholdings of their employees. The amount withheld depends on how much an individual is estimated to own for the whole year. Tax Brackets: As a progressive tax, the federal income tax rises with the amount of taxable income. Filing a Tax Return: At years end employees receive a report (W-2) indicating how much income tax has already been withheld. The employee then files a tax return This return is used to assess your taxable income ( a persons total or gross income minus exemptions and deductions) Exemptions: yourself, spouse, dependents Deductions: interest on mortgage, medical expenses, and donations KEY: If you have paid more than you owe the govt. you get a return On the other hand, if you paid less then you owe , you must pay the balance to the govt. Individual Income Taxes (cont.)

16. Corporate Income Tax • Like people, corporations must pay taxes; however, corp. can take numerous deductions like their employees’ health care and numerous other costs of doing business. • Corporate income tax is also progressive Social security , Medicare, and unemployment taxes • Other taxes authorized by the Federal Insurance Contributions Act (FICA) include: • Social Security: Old age, survivors, and disability insurance • Medicare: National health insurance program that helps pay for healthcare for people over 65 or w/ certain disabilities • Unemployment Taxes: Paid for by employers, this tax pays for an insurance policy for workers (unemployment compensation)

17. Other Types of Taxes • Excise Taxes: • A general revenue tax on the sale or manufacture of a good • Ex.: Gasoline, alcohol, cigarettes, telephone, and cable • Estate Taxes: • A tax on the estate , or total value of the money and property of a person who has died • Ex.: Money, real estate, cars, jewelry, investments, and furniture • Gift Taxes: • A tax on money or property that one living person gives to another. • Import Taxes: • Taxes on imported goods. • Also called tariffs, these are intended to protect farmers and industry from foreign competitors rather than raise revenue.

18. Chapter 14Section Three: Federal Spending

19. Mandatory and Discretionary Spending • Mandatory spending: • Spending on certain programs that is mandated or required by existing law. • Social Security, medicare • Discretionary Spending: • Spending category about which government planners can make choices. • Defense, Education

20. Entitlement Programs • Entitlement programs are social welfare programs that people are entitled to if they meet certain eligibility requirements ( income, age) • Programs: • Social Security • Medicare • Medicaid • Food Stamps • Supplemental Security Income • Veteran’s pensions • Unemployment insurance (Worker’s Comp.)

21. Discretionary Spending • One primary example of discretionary spending is defense spending • Other Discretionary Spending: • Education • Training • Student Loans • Technology • Law enforcement • Scientific research • Housing • Environment • Parks • Foreign aid • Disaster aid

22. CHAPTER 14SECTION FOUR:STATE AND LOCAL TAXES AND SPENDING

23. Like the federal, State and local governments use the revenues from taxes to pay for a variety of programs and services. States make use of the following two(2) budgets: Operating budgets These types of budgets pay for day-to-day expenses. ( including: salaries of state employees, facility maintenance, and supplies) Capital budgets These types of budgets pay for major capital/ or investment spending. ( include: building new state bridges and/or buildings; usually satisfied with long term borrowing or the sale of bonds) State Budgets

24. Where are States Taxes Spent? • Spending policies are different among the states; however, spending normally encompasses the following areas: • Education • Public Safety • Highways and Transportations • Public Welfare • Arts and Recreation • Administration

25. State Tax Revenue • For every dollar a state spends, it must take in a dollar in revenue. • The bulk of this revenue comes from sales taxesand individual income taxes. • Limits on State Taxation: • States cannot import or exports (this is a federal concern) • States cannot tax goods sent between states. • States cannot tax federal property (military bases) • Tax Exemptionsare also offered to nonprofit organizations, religious groups, and charities.

26. FIN