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TAXES. Chapter 14. Federal Power to Tax. Article I, Section 8, Clause 1 Congress shall lay and collect taxes, duties, imposts Article I, Section 9, Clause 4 No capitation or other direct tax Sixteenth Amendment Power to lay and collect taxes on incomes Ratified 1913. State Power to Tax.

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taxes

TAXES

Chapter 14

federal power to tax
Federal Power to Tax
  • Article I, Section 8, Clause 1
    • Congress shall lay and collect taxes, duties, imposts
  • Article I, Section 9, Clause 4
    • No capitation or other direct tax
  • Sixteenth Amendment
    • Power to lay and collect taxes on incomes
      • Ratified 1913
state power to tax
State Power to Tax
  • State Constitutions
  • Citizens of the state
    • Ballot Issues
local power to tax
Local Power to Tax
  • State
    • Charter
    • Constitution
  • People
    • Local
    • Levy
limitations for taxation
Limitations for Taxation
  • Federal only
    • Same in every state
    • No religious establishments
    • No exports
    • Individual personal benefit
incidence of a tax
Incidence of a tax
  • Who has the final burden
  • Who actually pays the bill
    • elastic/inelastic
good taxes
Good Taxes
  • Simple
    • easily understood, easily recorded
  • Efficient
    • no time or money wasted in collection
  • Certain
    • clear to tax payer, predictable
  • Equitable
    • fair, burden is shared
tax structures
Tax Structures
  • Proportional
    • % of tax is the same for all incomes
      • “flat tax” FICA
  • Progressive
    • % goes up when income goes up
      • Federal income tax
  • Regressive
    • % goes up when income goes down
      • Sales tax
graduated income tax
Graduated Income Tax
  • Tax Schedule uses a multiplier to adjust for each “bracket” people should pay from
    • First part of income not taxed
    • Each additional amount taxed by increasing percentages
      • Almost 50% of Americans pay no federal income tax
      • Highest level is around 35%
single filing status 2012
Single Filing Status - 2012
  • 10% on taxable income from $0 to $8,700
  • 15% on taxable income over $8,700 to $35,350
  • 25% on taxable income over $35,350 to $85,650
  • 28% on taxable income over $85,650 to $178,650
  • 33% on taxable income over $178,650 to $388,350
  • 35% on taxable income over $388,350.
sales tax
Sales Tax

Person A

Person B

  • $30,000 income
  • $20,000 purchases
  • 10% sales tax
  • $2000 taxes
  • 6.7%
  • $100,000 income
  • $60,000 purchases
  • 10% sales tax
  • $6000
  • 6.0%
federal taxes
Federal Taxes
  • Corporate
    • Paid on income earned by companies
  • FICA
    • Federal Insurance Contribution Act
  • Import
    • Tariff – tax on goods coming into country
  • Income
    • Graduated, pay-as-you-earn tax on income
federal income tax
Federal Income Tax
  • Pay-as-you-earn
    • Paid on every paycheck
    • Ease burden and regular revenues
  • Withholding
    • Taken out of employees pay
  • Exemptions
    • Amount subtracted from gross income
  • Deductions
    • Variable amounts subtracted from gross income
  • Taxable Income
    • Amount on which tax must be paid
    • Gross income – (exemptions+deductions)
tax freedom day
Tax Freedom Day
  • Economists began keeping track of the number of days it would take the average worker to pay off his/her taxes if they had to pay the government first
    • The % of federal income tax to the % of days/year
    • 1913 – January 30
    • Latest – May 9
    • Today?
federal spending
Federal Spending
  • Mandatory
    • Required by existing law
    • Entitlements
      • Programs people automatically qualify for when they meet eligibility
  • Discretionary
    • Planners can make choices
    • 30% of budget
      • $1,200,000,000,000
state spending
State Spending
  • Balanced Budget
    • Revenues = Spending
  • Operating Budget
    • Day-to-day expenditures
      • supplies, salaries, equipment
  • Capital Budget
    • One time investment
      • construction, infrastructure, investment
examples
Examples
  • State
    • Taxes
      • Sales, Income, Intergovernmental
    • Spending
      • Public Welfare, Education
  • Local
    • Taxes
      • Sales, Property, Income
    • Spending
      • Education, Public Safety