Bell RingerBell Ringer“In this world nothing can be said to be

certain, except death and taxes.” –Benjamin Franklin

“The only difference between death and taxes is that death doesn't get worse every time Congress meets.”

–Will Rogers

What comes to mind when you think of “taxes”? What

images, words, emotions, etc. do you associate with taxes?

ObjectivesObjectives

1. Identify the sources of the government’s authority to tax.

2. Describe types of tax bases and tax structures.

3. Identify who bears the burden of a tax.

Government’s Authority to TaxGovernment’s Authority to Tax

Where does the federal government get its authority to tax?

U.S. Constitution, Article 1, Section 8:◦“The Congress shall have Power To lay

and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”

The Purpose of TaxationThe Purpose of Taxation

Why does the government tax its citizens?

Taxes give the government the money it needs to operate.

Taxation is the primary mean through which the government collects money. ◦Individual Income Tax accounts for

nearly 50% of total federal revenue!

Limits on the GovernmentLimits on the GovernmentThere are also limits on the

government’s power to tax.◦The purpose of a tax must be “for the

common defense and general welfare.” A tax cannot bring in money that goes to individual interests.

◦Federal taxes must be the same in every state.

◦The government can tax imports, not exports.

Progressive TaxProgressive TaxA progressive tax is a tax for

which the percentage of income paid in taxes increases as income increases.

In other words, the more you make, the higher the percentage of your income that is paid in taxes.

The U.S. has had a progressive tax system since 1913.

http://money.cnn.com/interactive/pf/taxes/income-tax-rates/

Proportional Tax (Flat Tax)Proportional Tax (Flat Tax)A proportional tax (or flat tax) is a

tax for which the percentage of income paid in taxes remains the same at all income levels.

A salesperson making $25,000/year pays the same percentage of their income as a lawyer making $250,000/year.

Pros: Simplicity, “fairness”Cons: Heavier burden on low earners

Regressive TaxRegressive TaxA regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases.◦Uncommon for income tax◦Sales and excise taxes are regressive because higher income households spend a lower proportion of their incomes on taxable goods and services.

Tax BasesTax Bases

Tax Base

Individuals

Corporate

Property

Sales

Tax is based on…

…people’s earnings

…company profits

…real estate

…goods and services

Key TermsKey Termstax: a required payment to a local, state, or

national governmentrevenue: the income received by a

government from taxes and other nontax sources

progressive tax: a tax for which the percentage of income paid in taxes increases as income increases

proportional tax: a tax for which the percentage of income paid in taxes remains the same at all income levels

regressive tax: a tax for which the percentage of income paid in taxes decreases as income increases

Key Terms, cont.Key Terms, cont.tax base: the income, property, good,

or service that is subject to a taxindividual income tax: a tax based

on a person’s earningscorporate income tax: a tax based

on a company’s profitsproperty tax: a tax based on real

estate and other propertysales tax: a tax based on goods or

services that are sold

Bell Ringer

What types of taxes do you currently pay or expect to pay when you enter the job market?

Objectives

1. Describe the process of paying individual income taxes.

2. Identify the basic characteristics of corporate income taxes.

3. Explain the purpose of Social Security, Medicare, and unemployment taxes.

4. Identify other types of taxes.

Individual Income TaxesThe government’s main source

of revenue comes from individual federal tax income payments.

“Pay-As-You-Earn” TaxationTo lessen the burden that one large

yearly tax would place on an individual and to make it possible for the government to meet its regular expenses, federal income tax is collected in a “pay-as-you-earn” system.

This means that individuals usually pay most of their income tax throughout the year as they earn income.

Tax BracketsThe federal income tax is a

progressive tax, which rises with the amount of taxable income.

Your range of income puts you in a specific tax bracket.

Withholdings and Tax ReturnsEmployers help collect taxes by withholding

money from your paycheck based on an estimate of how much you will owe in federal income tax for that year.

You can adjust the percentage that your employer takes out for federal taxes with a W-4 form, and for AZ state taxes with an A-4 form.

Sample W-4 & A-4Sample W-4 & A-4

Withholdings and Tax ReturnsAfter the calendar year ends, employers give their employees a report of how much income tax has already been paid. ◦These are usually issued in the form of a W-2 tax statement.

Sample W-2Sample W-2

Corporate Income TaxesLike individual income taxes,

corporate income taxes are progressive.

Determining corporate income taxes can be more difficult than determining an individual’s because businesses can take many deductions.

Corporate Income TaxesAlso, many loopholes exist in

the current tax system which allow companies to pay low taxes, zero taxes, or even get a tax return.

CEO pay at Boeing, Ford exceeds companies’ tax bill

Social Security and MedicareEmployees also withhold money to

help fund Social Security, Medicare, and unemployment insurance under the Federal Insurance Coalition Act (FICA).◦Most of the FICA taxes you pay go to

Social Security benefits for retired people, surviving members of wage earners, and disabled people.

◦The Medicare tax helps pay for health insurance for people over 65.

Other Types of TaxesUnemployment taxes—pays for

“unemployment compensation” that people can receive when they are laid off.

Excise taxes—a general revenue tax on the sale or manufacture of a good or service such as gasoline, cigarettes, and other items

Estate taxes—a tax on the total value of the money and property of a person who has died (aka, “Death tax”)

Other Types of Taxes, cont.Gift taxes—a tax on the money or

property that one living person gives to another

Import taxes—Tariffs, or import taxes, are taxes placed on imported goods.

What other taxes does the federal government collect?Create a table like the one at the top of page 369

Fill it in as you read pg. 372-374

Key Termswithholding: taking tax payments out of an

employee’s pay before he or she receives ittax return: a form used to file income taxestax deduction: a variable amount that

taxpayers may subtract from their gross income

estate tax: a tax on the total value of the money and property of a person who has died

gift tax: a tax on the money or property that one living person gives to another

Bell Ringer

The U.S. government’s budget for Fiscal Year 2013 was $3.45

trillion.

How much do you think it spent on the military?

How much do you think it spend on Social Security?

How much do you think it spent on education?

Bell RingerHow much do you think it spent

on the military?$625 billion (18%)

How much do you think it spend on Social Security?$808 billion (23%)

How much do you think it spent on education?

$89 billion (2.5%)

Objectives

1. Distinguish between mandatory and discretionary spending.

2. Describe the major entitlement programs.

3. Identify categories of discretionary spending.

Federal SpendingThere are two types of

government spending: ◦Mandatory spending◦Discretionary spending

Mandatory SpendingMandatory spending is money

that Congress is required by law to spend on certain programs or to use for interest payments on the national debt.

Entitlement ProgramsMost of the mandatory spending

items are for entitlement programs, which fund social welfare programs (aka, the “Safety Net”).

Entitlements are a largely unchanging part of government spending.◦Congress can only change the eligibility

requirements or reduce benefits if there is a change in the law.

Entitlement ProgramsSocial Security is a huge portion

of federal spending.◦About 55 million Americans receive

monthly benefits from the Social Security Admin-istration. This number grows each day.

Medicare and Medicaid are the other major entitlement programs.◦ About 45 million Americans receive

Medicare benefits.◦ About 55 million low income Americans

receive Medicaid.

Unsustainable Spending?https://www.youtube.com/watch?v=pfZyffw7U6E

Other Mandatory ProgramsOther means-tested entitlements

benefit people and families with low incomes. These entitlements include:◦Food stamps and child nutrition

programs◦Veterans’ pensions◦Unemployment insurance

Discretionary SpendingDiscretionary spending is

spending about which lawmakers are free to make choices.

Discretionary SpendingDefense spending accounts for about

half of the government’s discretionary spending.

The remaining discretionary funds go to pay for the following:◦ Education and training◦ Scientific research◦ Student loans◦ Law enforcement◦ Environmental cleanup◦ Disaster relief◦ …and everything else!

http://nationalpriorities.org/cost-of/

Key Termsmandatory spending: spending

that Congress is required by existing law to do

discretionary spending: spending about which Congress is free to make choices

entitlement: social welfare program that people are “entitled to” benefit from if they meet certain eligibility requirements