TAXESChapter 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

•State Constitutions•Citizens of the state

▫Ballot Issues

Local Power to Tax

•State▫Charter▫Constitution

•People ▫Local▫Levy

Limitations for Taxation

•Federal only▫Same in every state▫No religious establishments▫No exports▫Individual personal benefit

Incidence of a tax

•Who has the final burden •Who actually pays the bill

▫elastic/inelastic

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•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

•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

•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 TaxPerson 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

•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• 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

•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

•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

•Balanced Budget▫Revenues = Spending

•Operating Budget▫Day-to-day expenditures

supplies, salaries, equipment•Capital Budget

▫One time investment construction, infrastructure, investment

Examples •State

▫Taxes Sales, Income, Intergovernmental

▫Spending Public Welfare, Education

•Local▫Taxes

Sales, Property, Income▫Spending

Education, Public Safety