J. Johnson1 Unit 3: Taxes & Employment. J. Johnson2 Bell Ringer Criteria for Taxes

J. Johnson 1

Unit 3: Taxes & EmploymentUnit 3: Taxes & Employment

J. Johnson 2

Bell RingerBell Ringer

Criteria for Taxes

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Chapter 9: Economic Taxation

Chapter 9: Economic Taxation

Explain the economic impact of taxes.

List three criteria for effective taxes.

Understand the two primary principles of taxation.

Understand how taxes are classified.

Explain the economic impact of taxes.

List three criteria for effective taxes.

Understand the two primary principles of taxation.

Understand how taxes are classified.

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Economic Impact of TaxesEconomic Impact of Taxes

• A taxes• placed on a good raise the factors of

production!• Revenue for the gov and influences our

behavior, productivity, and resource allocation.

• Resource Allocation:• Passed on to consumers • Buy more or buy less

• Productivity:• Work or not to work?• incentives to save, invest, and work.

• A taxes• placed on a good raise the factors of

production!• Revenue for the gov and influences our

behavior, productivity, and resource allocation.

• Resource Allocation:• Passed on to consumers • Buy more or buy less

• Productivity:• Work or not to work?• incentives to save, invest, and work.

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• Behavior:• Sin tax

• is a high-percentage tax that raises revenue while reducing consumption of a socially undesirable product.

• Cigarettes and alcohol.

Incidence of TaxWho pays the final burden of a tax

• Behavior:• Sin tax

• is a high-percentage tax that raises revenue while reducing consumption of a socially undesirable product.

• Cigarettes and alcohol.

Incidence of TaxWho pays the final burden of a tax

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Criteria for Effective TaxesCriteria for Effective Taxes• 1: Equity or fairness

• fairness is subjective, but taxes are considered fairer if they have fewer loopholes—exceptions, deductions, and exemptions.

• 2: Simplicity• tax laws should be easy to understand. • Income Tax: paid based on earnings • Sales Tax: tax on purchased items

• 3: Efficiency: • which means it is easy to administer and is

successful at generating revenue.• Employers take money away.

• 1: Equity or fairness• fairness is subjective, but taxes are

considered fairer if they have fewer loopholes—exceptions, deductions, and exemptions.

• 2: Simplicity• tax laws should be easy to understand. • Income Tax: paid based on earnings • Sales Tax: tax on purchased items

• 3: Efficiency: • which means it is easy to administer and is

successful at generating revenue.• Employers take money away.

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Two Principles of Taxation Two Principles of Taxation

• Benefit Principle:• Those who benefit from Gov goods should

pay a proportion of those benefits.• EX> Gas Tax• Problem: Those who get Gov subsides don’t pay!

• Ability-to-pay Principle• is the belief that people should be taxed

according to their ability to pay, regardless of the benefits they receive.

• Benefit Principle:• Those who benefit from Gov goods should

pay a proportion of those benefits.• EX> Gas Tax• Problem: Those who get Gov subsides don’t pay!

• Ability-to-pay Principle• is the belief that people should be taxed

according to their ability to pay, regardless of the benefits they receive.

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Types of TaxesTypes of Taxes

• Proportional tax • is one that imposes the same percentage

on everyone, regardless of income.

• Progressive tax• is one that imposes a higher percentage

of tax on persons with higher income.

• Regressive tax • is one that imposes a higher percentage

on low incomes than on high incomes.

• Proportional tax • is one that imposes the same percentage

on everyone, regardless of income.

• Progressive tax• is one that imposes a higher percentage

of tax on persons with higher income.

• Regressive tax • is one that imposes a higher percentage

on low incomes than on high incomes.

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Types of Taxes, contTypes of Taxes, cont

Marginal Tax RateLike Average Tax rate, but the

percentage increases as income increases.

Average Tax:Pay the same amount regardless of income.

Marginal Tax RateLike Average Tax rate, but the

percentage increases as income increases.

Average Tax:Pay the same amount regardless of income.

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9.1 Quiz9.1 Quiz

1) ____ _____ says those who benefit from Gov goods should pay a proportion of those benefits.

2) _____ ____ is the belief that people should be taxed according to their ability to pay, regardless of the benefits they receive.

3) ____ ___ is a high-percentage tax that raises revenue while reducing consumption of a socially undesirable product.

4) Income tax is an example of which of the 3 criteria?

5) ____ of ____ is who pays the final burden of a tax.

1) ____ _____ says those who benefit from Gov goods should pay a proportion of those benefits.

2) _____ ____ is the belief that people should be taxed according to their ability to pay, regardless of the benefits they receive.

3) ____ ___ is a high-percentage tax that raises revenue while reducing consumption of a socially undesirable product.

4) Income tax is an example of which of the 3 criteria?

5) ____ of ____ is who pays the final burden of a tax.

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2

FederalFederalRevenue SourcesRevenue Sources

9.2 Bell Ringer9.2 Bell Ringer

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9.2 Federal Tax System9.2 Federal Tax System

1616thth Amendment (1913) allows Amendment (1913) allows congress to levy income taxes.congress to levy income taxes.

50% of Gov budget50% of Gov budgetIRS receives the payments IRS receives the payments

Income TaxIncome TaxPayroll Withholding SystemPayroll Withholding SystemTax Period ends Dec. 31Tax Period ends Dec. 31stst

We file a tax return before April We file a tax return before April 1515thth

Deductions and expenses can lower the amount owed.Deductions and expenses can lower the amount owed.

Self-employed do not withholdSelf-employed do not withhold

1616thth Amendment (1913) allows Amendment (1913) allows congress to levy income taxes.congress to levy income taxes.

50% of Gov budget50% of Gov budgetIRS receives the payments IRS receives the payments

Income TaxIncome TaxPayroll Withholding SystemPayroll Withholding SystemTax Period ends Dec. 31Tax Period ends Dec. 31stst

We file a tax return before April We file a tax return before April 1515thth

Deductions and expenses can lower the amount owed.Deductions and expenses can lower the amount owed.

Self-employed do not withholdSelf-employed do not withhold

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Progressive Income TaxProgressive Income TaxUnder 7K= 10% taxUnder 7K= 10% taxMarginal rate over 7KMarginal rate over 7K

The more you make, the more you The more you make, the more you pay!pay!

FICA Taxes (Payroll Tax)FICA Taxes (Payroll Tax)Medicare (health for Seniors)- Medicare (health for Seniors)-

1.45 %1.45 %Social Security (6.2 % in ’03)Social Security (6.2 % in ’03)

Progressive Income TaxProgressive Income TaxUnder 7K= 10% taxUnder 7K= 10% taxMarginal rate over 7KMarginal rate over 7K

The more you make, the more you The more you make, the more you pay!pay!

FICA Taxes (Payroll Tax)FICA Taxes (Payroll Tax)Medicare (health for Seniors)- Medicare (health for Seniors)-

1.45 %1.45 %Social Security (6.2 % in ’03)Social Security (6.2 % in ’03)

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Other Taxes! (OMG!)Other Taxes! (OMG!)

Corporate TaxCorporate Tax Tax on profits- marginal Tax on profits- marginal

The more they make, the more they payThe more they make, the more they pay Excise TaxExcise Tax

Tax on the manufacture or sale of Tax on the manufacture or sale of certain goods. Ie> Gas (4certain goods. Ie> Gas (4thth largest), largest), tobacco, alcohol, phone, tires, coal. tobacco, alcohol, phone, tires, coal.

Estate-Gift TaxEstate-Gift Tax Tax on the transfer of property after Tax on the transfer of property after

deathdeath Gift- Tax on donations of moneyGift- Tax on donations of money

Customs DutiesCustoms Duties A charge levied on goods brought from A charge levied on goods brought from

other countriesother countries

Corporate TaxCorporate Tax Tax on profits- marginal Tax on profits- marginal

The more they make, the more they payThe more they make, the more they pay Excise TaxExcise Tax

Tax on the manufacture or sale of Tax on the manufacture or sale of certain goods. Ie> Gas (4certain goods. Ie> Gas (4thth largest), largest), tobacco, alcohol, phone, tires, coal. tobacco, alcohol, phone, tires, coal.

Estate-Gift TaxEstate-Gift Tax Tax on the transfer of property after Tax on the transfer of property after

deathdeath Gift- Tax on donations of moneyGift- Tax on donations of money

Customs DutiesCustoms Duties A charge levied on goods brought from A charge levied on goods brought from

other countriesother countries

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State and Local TaxState and Local Tax

Sales tax, property tax, utility Intergovernmental RevenuesIntergovernmental Revenues

Funds collected by 1 level of gov to another level

Fed’l= Edu, welfare, highways, health, hospital

Sales TaxTax levied on consumer products at

time of purchase2nd largest revenue source for state

Sales tax, property tax, utility Intergovernmental RevenuesIntergovernmental Revenues

Funds collected by 1 level of gov to another level

Fed’l= Edu, welfare, highways, health, hospital

Sales TaxTax levied on consumer products at

time of purchase2nd largest revenue source for state

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Other TaxesRetirement/PensionSchools, colleges, hospital fees,

income, lotteryLocal GovLocal Gov

State gov gives revenue to local gov EDU & WELFARE

Property TaxProperty TaxTax on tangible & intangible possessions

Cars, house, property, farm animals, furniture, stocks, bonds, bank accounts, etc

Other TaxesRetirement/PensionSchools, colleges, hospital fees,

income, lotteryLocal GovLocal Gov

State gov gives revenue to local gov EDU & WELFARE

Property TaxProperty TaxTax on tangible & intangible possessions

Cars, house, property, farm animals, furniture, stocks, bonds, bank accounts, etc

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Examine Your PaycheckExamine Your PaycheckExamine Your PaycheckExamine Your Paycheck

Your check contains a Payroll Withholding Statement>Summary of income, tax

withholdings, deductions, etc.

Your check contains a Payroll Withholding Statement>Summary of income, tax

withholdings, deductions, etc.

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9.2 & 9.3 Quiz9.2 & 9.3 Quiz

1) A tax levied at the time of purchase.2) Give the 2 types of FICA taxes.3) ______ ______ are funds collected by

1 level of gov to another level.4) ___ Amendment gave congress the

ability to levy taxes on income.5) A tax levied on property after death.

1) A tax levied at the time of purchase.2) Give the 2 types of FICA taxes.3) ______ ______ are funds collected by

1 level of gov to another level.4) ___ Amendment gave congress the

ability to levy taxes on income.5) A tax levied on property after death.

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Chapter 8.1Chapter 8.1

Read and complete Assessment on 198 Q’s 3-6!

Explain influences on personal economic decision making choices.

Read and complete Assessment on 198 Q’s 3-6!

Explain influences on personal economic decision making choices.

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Early Union DevelopmentEarly Union

Development• 2 types of unions developed during

Col-CW era—• the trade union and the industrial union.

• Unions use strikes, pickets, and boycotts to help members get better pay, better hours, and job security.

• Employers resisted unions through lockouts, firings, and even setting up company unions.

• 2 types of unions developed during Col-CW era—• the trade union and the industrial union.

• Unions use strikes, pickets, and boycotts to help members get better pay, better hours, and job security.

• Employers resisted unions through lockouts, firings, and even setting up company unions.

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Labor Since World War IILabor Since World War II

• Right to Work Law:• State law making it illegal to force

workers to join a union

• The AFL-CIO was created when two powerful unions joined forces.

• Independent unions are those that do not belong to the AFL-CIO.

• Right to Work Law:• State law making it illegal to force

workers to join a union

• The AFL-CIO was created when two powerful unions joined forces.

• Independent unions are those that do not belong to the AFL-CIO.

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Contrast the costs and benefits of the American Government’s economic policies.

Contrast the costs and benefits of the American Government’s economic policies.

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Kinds of Union ArrangementsKinds of Union Arrangements

• Closed shop• the employer agrees to hire only union

members.

• Union shop• most workers belong to a union.

• Modified union shop• workers cannot be made to join the union.

• Agency shop• workers must pay union dues, whether or

not they are union members.

• Closed shop• the employer agrees to hire only union

members.

• Union shop• most workers belong to a union.

• Modified union shop• workers cannot be made to join the union.

• Agency shop• workers must pay union dues, whether or

not they are union members.

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Collective BargainingCollective Bargaining• Labor and management agree to

mediation, a neutral person helps settle the dispute.

• Arbitration• labor and management agree to abide by a

third party’s decision.

• Disputes also can be resolved through fact-finding, in which a neutral third party presents non-binding recommendations.

• The government also can get involved in labor disputes by issuing injunctions or resorting to seizures.

• Labor and management agree to mediation, a neutral person helps settle the dispute.

• Arbitration• labor and management agree to abide by a

third party’s decision.

• Disputes also can be resolved through fact-finding, in which a neutral third party presents non-binding recommendations.

• The government also can get involved in labor disputes by issuing injunctions or resorting to seizures.

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• The president can intervene by publicly appealing to both parties to resolve their differences, by firing federal workers who have broken their oath not to strike (1981 air traffic controllers), and in some cases by using emergency powers (1997 American Airline pilots).

• The president can intervene by publicly appealing to both parties to resolve their differences, by firing federal workers who have broken their oath not to strike (1981 air traffic controllers), and in some cases by using emergency powers (1997 American Airline pilots).

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Identify four main categories of labor.

Explain the importance of noncompeting labor grades.

Describe three different approaches to wage determination.

Identify four main categories of labor.

Explain the importance of noncompeting labor grades.

Describe three different approaches to wage determination.

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Categories of LaborCategories of Labor

Unskilled laborers Lacks specific skills

Semiskilled workers Minimal skills

Skilled workersOperate complex equipment w/o supervision

Professional workers Highest level of knowledge based on education

Unskilled laborers Lacks specific skills

Semiskilled workers Minimal skills

Skilled workersOperate complex equipment w/o supervision

Professional workers Highest level of knowledge based on education

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Noncompeting Labor Grades

Noncompeting Labor Grades

• People = ability, the initiative, and the money to obtain additional education and training.

• Lack of opportunity? Initiative?

• People = ability, the initiative, and the money to obtain additional education and training.

• Lack of opportunity? Initiative?

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Wage DeterminationWage Determination

• The traditional theory:• that supply and demand together will

determine the equilibrium wage rate.

• The theory of negotiated wages:• uses organized labor’s bargaining strength

to help explain wage differentials.

• signaling theory:• employers are willing to pay more for

those people with certain indicators of superior ability.

• The traditional theory:• that supply and demand together will

determine the equilibrium wage rate.

• The theory of negotiated wages:• uses organized labor’s bargaining strength

to help explain wage differentials.

• signaling theory:• employers are willing to pay more for

those people with certain indicators of superior ability.

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Regional Wage Differences

Regional Wage Differences

• Wages can vary when demand for certain skilled positions exceeds supply.

• Employers tend to offer higher wages in areas where the cost of living is higher than normal.

• Wages can vary when demand for certain skilled positions exceeds supply.

• Employers tend to offer higher wages in areas where the cost of living is higher than normal.

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Explain why union membership has declined.

Describe reasons for the discrepancy in pay between men and women.

Explain why union membership has declined.

Describe reasons for the discrepancy in pay between men and women.

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Decline of Union InfluenceDecline of Union Influence

unfriendly businesses, new workers with little loyalty to organized labor, and cutbacks in production by unionized companies

unfriendly businesses, new workers with little loyalty to organized labor, and cutbacks in production by unionized companies

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Lower Pay for WomenLower Pay for Women

less experience and education to bring to the working world.

The Equal Pay Act and the Civil Rights Act both work to prevent wage and salary discrimination.

less experience and education to bring to the working world.

The Equal Pay Act and the Civil Rights Act both work to prevent wage and salary discrimination.

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Part-Time WorkersPart-Time Workers

COST LESS MONEY!!NO BENFITS! NO OVERTIME!ONLY HAVE TO PAY MINIMUM

WAGE

COST LESS MONEY!!NO BENFITS! NO OVERTIME!ONLY HAVE TO PAY MINIMUM

WAGE

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– Describe five kinds of unemployment.

– Describe five kinds of unemployment.

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Use 14.2 to answerUse 14.2 to answer

Structural Unemployment

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Measuring Unemployment

Measuring Unemployment

• The unemployment rate = % of unemployed people/ the total # of people in the civilian labor force.

• does not include “discouraged” workers or people who are working part-time because they cannot find full-time work.

• The unemployment rate = % of unemployed people/ the total # of people in the civilian labor force.

• does not include “discouraged” workers or people who are working part-time because they cannot find full-time work.

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Kinds of UnemploymentKinds of Unemployment

• Frictional unemployment• Structural unemployment • Cyclical unemployment• Seasonal unemployment• Technological unemployment

• Frictional unemployment• Structural unemployment • Cyclical unemployment• Seasonal unemployment• Technological unemployment

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The Concept of Full Employment

The Concept of Full Employment

• Full employment is lowest possible rate when the economy is growing and all factors of production are being used as efficiently as possible.

• Full employment is achieved when the unemployment rate falls below 4.5 percent.

• Full employment is lowest possible rate when the economy is growing and all factors of production are being used as efficiently as possible.

• Full employment is achieved when the unemployment rate falls below 4.5 percent.

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Explain how inflation is measured.

Discuss five causes of inflation.

Explain how inflation is measured.

Discuss five causes of inflation.

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Inflation in the United States

Inflation in the United States

The inflation rate is determined by comparing the price level at the beginning and end of a period.

• deflation can occur when there is a decrease in the general price level.

• Creeping inflation is inflation in a range of 1 to 3 percent annually.

• Galloping inflation is when inflation can go as high as 100 to 300 percent annually.

• Inflation of more than 500 percent a year is known as hyperinflation.

The inflation rate is determined by comparing the price level at the beginning and end of a period.

• deflation can occur when there is a decrease in the general price level.

• Creeping inflation is inflation in a range of 1 to 3 percent annually.

• Galloping inflation is when inflation can go as high as 100 to 300 percent annually.

• Inflation of more than 500 percent a year is known as hyperinflation.

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Causes of InflationCauses of Inflation

Demand-pull inflation occurs when all sectors of the economy try to buy more goods and services than the economy can produce.

• Cost-push inflation occurs when input costs, especially labor, drive production costs up.

• The wage-price spiral occurs when higher prices force workers to demand higher wages, forcing producers to raise their prices even more.

Demand-pull inflation occurs when all sectors of the economy try to buy more goods and services than the economy can produce.

• Cost-push inflation occurs when input costs, especially labor, drive production costs up.

• The wage-price spiral occurs when higher prices force workers to demand higher wages, forcing producers to raise their prices even more.

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Consequences of Inflation

Consequences of Inflation

dollar buys lesshurts people with fixed

incomes.change their spending habits,

which disrupts the economy.• alters the distribution of

income.

dollar buys lesshurts people with fixed

incomes.change their spending habits,

which disrupts the economy.• alters the distribution of

income.

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QuizQuiz

1) _____ ______ is lowest possible rate when the economy is growing and all factors of production are being used as efficiently as possible.

2) ______ unemployment is caused when you quit a job to find a better one.

3) _____ unemployment is caused when people are replaced with machines.

4) _____ unemployment is caused by a change in the seasons.

5) When your dollar buys less it is caused by ______. `

1) _____ ______ is lowest possible rate when the economy is growing and all factors of production are being used as efficiently as possible.

2) ______ unemployment is caused when you quit a job to find a better one.

3) _____ unemployment is caused when people are replaced with machines.

4) _____ unemployment is caused by a change in the seasons.

5) When your dollar buys less it is caused by ______. `

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Starting Your Own Company

Starting Your Own Company

Choose a name. Choose a product/service. How much money are you going

allocate to rent, utilities, equipment, advertising.

Determine the # and kinds of employees. (USE 4 Categories Ch.8.)

Determine Salaries and wages. Prepare a plan for hires/layoffs. Union/Non-union Will the Civil Rights Act of 1964 apply to

your business? Why or why not?

Choose a name. Choose a product/service. How much money are you going

allocate to rent, utilities, equipment, advertising.

Determine the # and kinds of employees. (USE 4 Categories Ch.8.)

Determine Salaries and wages. Prepare a plan for hires/layoffs. Union/Non-union Will the Civil Rights Act of 1964 apply to

your business? Why or why not?

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ResumeWhat should be on it?

ResumeWhat should be on it?

Name, address, phone number, email

Career objective/PhilosophyEducation/TrainingWork ExperienceStrengths

Name, address, phone number, email

Career objective/PhilosophyEducation/TrainingWork ExperienceStrengths

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After TestAfter Test

Complete Q’s pg 402Key Terms: 4,5,6,7,9,11,15,16Reviewing Facts 4-9

Complete Q’s pg 402Key Terms: 4,5,6,7,9,11,15,16Reviewing Facts 4-9

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J. Johnson1 Unit 3: Taxes & Employment. J. Johnson2 Bell Ringer Criteria for Taxes