How can the U.S. significantly decrease the deficit

1)2)3)4)

Taxes

Spending

Tax Rate IntroductionU.S. Federal Income Tax System

3 Types of Taxes

• Progressive-– Tax rate increase as income increases– Example: Income Taxes

• Regressive-– Consumes larger % of lower income worker’s salary– Example: Gasoline Tax, Bridge Tax

• Flat– Same % for everyone– Example: Sales Tax, Some State income taxes

Purpose/Goalsof an INCOME TAX

Tax Worksheet

• History of Income Taxes

• Taxes people pay

Federal Income Tax

• Progressive Income Tax

As income % Tax Bracket

Tax Rate

SingleMarried Filing

Jointly

10% $0 – $8,350 $0 – $16,700

15% $8,351– $33,950 $16,701 – $67,900

25% $33,951 – $82,250 $67,901 – $137,050

28% $82,251 – $171,550 $137,051 – $208,850

33% $171,551 – $372,950 $208,851 – $372,950

35% $372,951+ $372,951+

EVERY taxpayer pays10% on first $8,350 of income

Example: If you Earn $100,00 (single)($ 8,350   -   0 )  x .10 :      $   835(33,950   -   8,351)  x .15 : 3,840(82,250   -   33,951)  x .25 : 12,075(100,000   -   82,251 )  x .28 : 4,970  Total:   $ 21,720 or 21.7%

http://www.paycheckcity.com/calculator/netpay/us/california/calculator.html

2 Wage Earners

John earns $360,000 Mary earns $60,000

Federal TaxesSocial Security MedicareCalifornia Tax

Take Home PayPay Per MonthTotal Taxes Paid

Overall Tax % Rate

$91,025$4,485$5,220$32,123

$226,965$18,913$133,035

37.0%

$5,855$2,520$870$1,617

$49,137$4,094$10,863

18.0%

Numbers to Know for Exam

• Top 1% of Taxpayers ($343,000 + Up)

– Pay 38% of all taxes

– Earn 20% of all income (1.4 million households)

• Top 10% of Taxpayers ($115,000 + Up)

– Pay 70% of all income taxes

– Earn 46% of income

• Bottom 50% of Taxpayers ($33,000 + Below)

– Pay 3% of Income Taxes

– Earn 13% of Income

Top 1% pay more taxes but

The income Gap has

widened last30-Years

EQUAL % tax cuts

What best stimulates economic growth?

Equal % Tax Cuts

• Example: 10% tax cut for ALL taxpayers

• Who gets more nominal dollars (money)

Earn $120,000 Taxes $36,000 Refund $3,600

Earn $24,000 Taxes $3,000 Refund $300

Fiscal Cliff December 2012

2013 Federal Tax Rate Brackets

Tax Rate Single Married filing Jointly or Qualifying Widow(er)

10% Up to $8,925 Up to $17,850

15% $8,926 – $36,250 $17,851 – $72,500

25% $36,251 – $87,850 $72,501 – $146,400

28% $87,851 – $183,250 $146,401 – $223,050

33% $183,251 – $398,350 $223,051 – $398,350

35% $398,351 – $400,000 $398,351 – $450,000

39.6% $400,001 + $450,001 +

Standard Deduction $6,100 $12,200

New top bracket

Bush Tax cuts are now permanent