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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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taxing and spending

Taxing and Spending

Chapter 20 Section 1

Pgs. 555-559

taxes as a source of revenue
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

Article I, Section 8 of the Constitution – Pg. 555

taxes and the economy
Taxes and the Economy

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.

types of taxes1
Types of Taxes

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)

individual income tax
Individual Income 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

tax credits
Tax Credits

Federal government provides tax credits generally to people in lower income brackets

Tax Credits – allow taxpayers to reduce their income tax liability

income tax
Income Tax

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

payroll taxes
Payroll Taxes

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

estate and gift taxes
Estate and Gift Taxes

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 taxes
Excise Taxes

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
Customs Duties

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
Protective Tariff

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

corporate income tax
Corporate Income Tax

Tax that must be paid by a corporation based on the amount of profit generated.

taxes and the economy1
Taxes and the Economy

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


Tax Reforms

    • 1985 – Ronald Reagan
      • Reforms meant to stimulate spending and boost the economy
    • 2002—Ge0rge Bush
      • Tax cuts for all brackets
government borrowing
Government Borrowing

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.


2010 Budget



Social Security



Foreign Aid








Government Pensions

Food Assistance

Housing Assistance

What to cut? What to increase/decrease?