Taxing and Spending. Chapter 20 Section 1 Pgs. 555-559. Taxes as a Source of Revenue. “ In this world, nothing is certain but death and taxes .” – Benjamin Franklin Taxes – payments by individuals and businesses to support the activities of the government
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Chapter 20 Section 1
“In this world, nothing is certain but death and taxes.” – Benjamin Franklin
Taxes – payments by individuals and businesses to support the activities of the government
Article I, Section 8 of the Constitution – Pg. 555
Levying and collecting taxes is a concurrent power (belongs to both state and federal governments.)
Taxation is the government’s chief source of revenue (income).
Governments may use taxation as a means of manipulating the economy (i.e., higher taxes for products/activities the government wants to discourage; tax exemptions for actions it wants to encourage; tax cuts to stimulate spending during a recession.)
Federal government collected $2.2 trillion in revenues in 2010.
Progressive Tax – based on the taxpayers ability to pay; the higher a person’s taxable income, the higher the tax rate. (income tax)
Regressive Tax – tax in which lower incomes pay a larger portion of their income. (i.e., sales tax)
Nearly50 cents of every dollar the government collects in revenues comes from income taxes.
Taxable Income – the total income of an individual minus certain deductions and personal exemptions.
Dependent – one who depends primarily on another person for such things as food, clothing, and shelter
Federal government provides tax credits generally to people in lower income brackets
Tax Credits – allow taxpayers to reduce their income tax liability
Withholding – the money an employer withholds from worker’s paycheck for anticipated income tax
Self-employed people are expected to file estimates of their income four times a year.
Internal Revenue Service (IRS) – bureau of the US Treasury Department, collects taxes through regional standards
Social Insurance Taxes – money collected by the federal government from employees and employers to pay for major social programs such as Social Security, Medicare, and unemployment compensation.
Fastest-growing source of federal income
Unlike other taxes, social insurance taxes do not go into the government’s general fund; instead they go to Treasury Department special trust accounts. Congress then appropriates money from these accounts to pay out benefits
An estate tax is collected on the assets (property and money) of a person who dies.
Federal exemption (2013): $5.25 million
Federal tax rate: 35%
A gift tax is levied on gifts of money from a living person.
Current exclusion: $14,000
(State taxes may apply as well)
Excise Tax – tax on the manufacture, transportation, sale, or consumption of certain items such as gasoline, liquor, or cigarettes
Some excise taxes are called luxury taxes because they are levied on goods not considered to be necessities, or sin taxes if levied on products like tobacco, alcohol, or gambling.
Contribute about $70 billion a year to the federal government
Customs Duties – taxes levied on goods imported into the United States
Raise revenue and help protect the nation’s industries, businesses, and agriculture from foreign competition
Protective Tariff – a high customs duty
Many businesses, labor, and farm groups support protective tariffs because they raise the price of foreign goods, making them less competitive compared to American goods on the domestic market
Tax that must be paid by a corporation based on the amount of profit generated.
The federal government sometimes uses taxes to influence economic decisions
Tax Loopholes – provisions, or tax exemptions, favoring certain groups that many people consider to be unfair
2002 – borrowed amount-$220 billion, or about 9 cents for every dollar the government raised
2012—federal budget deficit was $1.1 trillion
National Debt currently over $16 trillion.
What to cut? What to increase/decrease?