Chapter 9 Sources of Government Revenue

15 Vocabulary words

Who and what should be taxed? 1966 “The Taxman” The Beatles

School House Rock Tax Man

Economics of Taxation

• Taxes Why do we pay them?

• Govt. tries to Raise Revenue by- income, sales, and property taxes are the main categories

• Other ways- college tuitions, social security tax, unemployment, insurance contributions, and drivers license fees.

What is the economic impact of taxes?

• Resource Allocation: Taxes increase the prices of goods.

• Behavior Adjustment: Sin Tax is levied against people who buy cigarettes to discourage smoking.

• Productivity and Growth: Do taxes encourage or discourage people to make money? Not sure.

CRITERIA FOR EFFECTIVE TAXES

• 1. Equitable: It must be fair

• 2. Simplicity: The taxpayer and tax collector must be able to understand the laws.

• 3. Efficiency: It should be easy to administer and effective in generating revenue.

2 Principles of Taxation:What do you think?

• Benefit Principal: Those who BENEFIT from the government goods and services should pay in proportion to the amount they receive.

• IE: What about immigrants?

• Ability to Pay Principal: the belief that people should be taxed according to their ABILITY to pay, regardless of the benefits they receive.

What types of taxes are there?

• 1. Proportional Tax: it proposes the same proportion of taxation on everyone, regardless of income. IE: 20% for everyone.

• 2. Progressive Tax: is a tax that imposes a higher % rate of taxation on persons with higher incomes. IE: 10,20, and 30% of income.

• 3. Regressive Tax: is a tax that imposes a higher % of taxation on low incomes than on high incomes. IE: It pays to make more.

• (see graph on page 228)

The Federal Tax SystemSection 2• AS: In 2001 the US collected $11,800 for

every man woman and child in the US.

• How many people live in the US and how much money is that?

• 350 million people

• 4.13 TRILLION DOLLARS!!!! WHOA!

Income Taxes:

• In 1913 the 16th Amendment was ratified allowing the government to levy an income tax.

• This is a tax on peoples earnings to finance its operations.

• The federal government has collected nearly 50% of its total revenue from taxes.

TAXES:

• IRS (Internal Revenue Service): This is who receives the tax and it is done through a payroll withholding system.

• On April 17th (usually 15th) you file a tax return which is an annual report of total income and deductions.

• If for some reason you cannot file you must file an extension.

OUR TAX SYSTEM IS PROGRESSIVE 2011

This is for a single individual

• 10% is paid on income up to $8,500.00

• 15% is paid on income $8500-34,500

• 25% is paid on income $34500-83,600

• 28% is paid on income $83600-174,400

• 33% is paid on income $174,400-379,150

• 35% is paid on income over $379,150

OUR TAX SYSTEM IS PROGRESSIVE 2011

This is for a Married individual filing Joint

• 10% is paid on income up to $17000.00

• 15% is paid on income $17000-69,000

• 25% is paid on income $69000-139,350

• 28% is paid on income $139,350-212,300

• 33% is paid on income $212,300-378,150

• 35% is paid on income over $379,150

FICA TAXES

What is a FICA tax?

• Federal Insurance Contributions Act tax

• Levied on employers and employees

• Pays for Social Security and Medicare

What is the % of Social Security and Medicare(started in 1965)?

• Social Security is 6.2 it is capped at $84,900

• Medicare is 1.45% no cap.

Corporate Income Taxes 2011

• CORPORATE INCOME TAX:

• 15% of all income under 50,000

• 25% of all income between 50000-75000

• 34% of all income between 75000-100,000

• 39% of all income between 100,000-335,000

• 34% of all income between 335,000-10 million

• 35% of all income between 10 mill-15 mill

• 38% of all income between 15 mill-18.333333 mill

• 35% of all income between 18.333333 mill -

Excise Tax:

• A tax on the manufacture or sale of selected items, such as gasoline, and

liquor- this is the 4th largest revenue maker for the US.

Estate and Gift Taxes:

• Estate tax: is a tax on the transfer of property when a person dies. Estate taxes can range from 18-50% of the value of the estate.

• Estates worth less than $675,000 were exempt in 2002, although this limit will soon be raised to 1 million.

• You must QUIT CLAIM the house to your children 3 years prior to their death to avoid the tax. (see ehow: get the form get it notarized)

GAMBLING and GREED

• "Las Vegas was built for people who are really bad at math...." ...Penn Jillette

• Casino gambling: $50 billion business• 20 % comes from Nevada• 1/3 of all tax is generated by gambling (NV)• Taxes: 25% is withheld if you win over 1200-.

• If you are foreign 30% is withheld.

• http://lasvegas4newbies.com

Customs and Duties• Customs: A charge levied on goods brought

from another country.

• The President has the ability to raise or lower the customs tax by as much as 50%

• Customs taxes produce very little revenue although prior to 1913 it was the highest.

User Fees

• President Ronald Reagan made a huge push for USER fees.

• The fees would include entrance charges you pay to visit national parks, fees that ranches pay to graze on federal land. (125- / yr. 10-/day)

• These are taxes based on the benefit principal. See page 232, and 239.

State taxesSection 3

• Intergovernmental Revenues: Revenues collected by one level of government that are distributed to another level for expenditures.

• Taxes and Fees: (7.0% “state” tax + 0.25% “county” tax + “combined state and local” tax of 1.0% = 8.25% CA.)

• Only 5 states have no sales tax. Alaska, Oregon, New Hampshire, Montana, and Delaware.

• The choice of tax: Lotteries, the states spend ½ the money on prizes and 6% on administration. #1 money maker.

Local Government TaxesSection 3• Intergovernmental Revenues: Transfers

from state governments. 1st and largest.

• Property Taxes: 2nd largest revenue. 1.2-2.0% of the price of the home.

• Public Utilities: This is the 3rd largest contributor.

Current Tax IssuesSection 4

• Tax Reform 1986, 1993:

• Surcharge: 5% or additional tax above and beyond the base rate for the companies in the top 31%.

• Taxes: Either a 15% tax or 28% tax.

• Tax Reform 1997:

• Capital gains: Tax on the sale of an asset held for 12 months was reduced from 28% to 20%.

• Tax reform 2001:

• Refunds for Individual/married couples of $300/$600.00. Also higher child tax credits.

THE END

The nation should have a tax system that looks like someone designed it on purpose.  ~William Simon

Taxes:  Of life's two certainties, the only one for which you can get an automatic extension.  ~Author Unknown

Indoors or out, no one relaxes in March, that month of wind and taxes, the wind will presently disappear, the taxes last us all the year.  ~Ogden Nash

It's income tax time again, Americans:  time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.  ~Dave Barry

Man is not like other animals in the ways that are really significant:  animals have instincts, we have taxes.  ~Erving Goffman

Are Taxes Voluntary?

• 2009 Federal Tax Laws

• 2009 State Tax Changes

• Create your own tax system see www.mrpillsbury.com click here