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Economics CP
Depending on the elasticity of an item, different groups pay the tax
Taxes cause the cost of supplying a good to increase, therefore supply decreases
The supply/ demand graph tells us:
Inelastic supply: consumer pays most of the tax
Elastic supply: business pays most of the tax
Tax = payment to gov’t
Personal Income Tax◦ “pay as you earn” –
gov’t constantly has bills to pay & lump sum difficult to pay
◦ Therefore, tax money “withheld” – takenbefore you can spend it
Tax Return determines income tax◦ Taxable income =
income – (exemptions (b/c of dependents) + deductions (amts. you can subtract)
◦ Deductions used as incentive (ex. Purchasing a house; purchasing an energy efficient car)
◦ Due to IRS April 15!
Corporate Income Tax◦ Complicated although progressive!
Social Insurance Tax◦ FICA (Federal Income
Contribution s Act) funds Social Security, Medicare, & unemployment
Excise Tax◦ Tax on certain goods
◦ Sometimes used as “sin tax” to discourage behavior or gain revenue from nonessentials
Estate & Gift Tax◦ Estate – what deceased left behind; progressive; for
the wealthy
◦ Gift – created so estate tax could not be avoided; tax on items given
Import Taxes/ tariff
Gov’t has taxes and revenue ($ from non-tax sources) to spend
Gov’t Spending Divided Among 2 Categories
Mandatory (has to) Entitlement programs
– benefits people receive b/c they qualify
(Don’t write) Entitlements are like MC Hammer’s song … you can’t touch this!
Discretionary (optional)
½ available does to defense
Examples: education, research, student loans, national parks/ monuments, law enforcement, disaster aid, foreign aid, farm subsidies, civilian workers
Operating: day to day expenses (MUST BE BALANCED)
Capital: major investments & spending (FINANCED BY MUNICIPAL BONDS)
Education! Biggest expense b/c federal gov’t doesn’t
Public safety
Highways & transportation
Public Welfare
Arts & Recreations
Administrator’s salaries
Has to be creative◦ Can’t tax imports/ exports
◦ Federal Gov’t has a large income tax
◦ Solution = sales tax!
Sales tax
Income tax – varied in handling by state; less than Fed. Tax
Corporate income tax – low to entice corp.
Other – licenses, fines
towns, cities, townships, school districts, counties