Tax Collection Unit 5 Macroeconomics “An ARTFUL taxman so plucks the goose as to obtain the most feathers for the least hissing.” Jean-Baptiste Colbert, treasurer to Louis XIV

Equality--the state of being equal, especially in status, rights, and opportunities. Equity--the quality of being fair and impartial. Need--circumstances in which something is necessary, or that require some course of action; necessity

How to get the most feathers with least hissing? Three Types of Tax Structures: 1.Proportional Tax or “Flat Tax” 2.Progressive Tax 3.Regressive Tax I've been rich and I've been poor. Rich is better. Sophie Tucker

1. Proportional Tax Proportional Tax “Flat Tax” is a tax for which the percentage of income paid in taxes remains the same for all income levels % rich income = % poor income 15% = 15% EOC study guide Macroeconomics #4

2. Progressive Tax Progressive Tax is a tax for which the percentage of income paid in taxes increases as income increases % income rich > % income poor 30% > 15% EOC study guide Macroeconomics #2

Federal-Individual-Individual-Income-Tax-Rate-Adjusted-for-Inflation

3. Regressive Tax Regressive Tax is a tax for which the percentage of income paid in taxes decreases as income increases % as income EOC study guide Macroeconomics #3

Regressive fines In Idaho going 45 mph in a 30 mph zone is a $90 ticket If you made $7.25 an hour you would need to work 12 hours to pay the fine If you made $20 an hour you would only need to work 4.5 hours

Driving 45 mph in a 30 mph zone

Finland’s Progressive Fines Finland’s system for calculating fines is relatively simple: estimate of the amount of spending money a Finn has for one day, and then divides that by two—the resulting number is considered a reasonable amount of spending money to deprive the offender of. based on the severity of the crime, the system has rules for how many days the offender must go without that money. Going about 15 mph over the speed limit gets you a multiplier of 12 days, and going 25 mph over carries a 22-day multiplier.

Which Type is Most Fair? Benefits-received principle A person should pay taxes based on the level of benefits he or she expects to receive People who drive should pay a gas tax that is used to build and maintain highways ID Hunting and fishing licenses would amount to the $77,253,271 it takes to run ID fish and game, not just $25,692,000 they take in EOC study guide Macroeconomics #7

Which Type is Most Fair? Ability-to-pay principle People should pay taxes according to their ability to pay This is the idea behind the progressive tax—the more you make the higher the percentage you should pay EOC study guide Macroeconomics #6

Where Does the Gov Get its $$? 1.Individual income tax 2.Payroll (withholding) taxes—Social Security, Medicare and Unemployment taxes 3.Corporate income tax Other taxes

EOC study guide Macroeconomics #1 Top Revenue Sources of Federal Government:

1. Individual Income Tax Biggest source of revenue$$ Employers must take out FIT (Federal Income Tax) and in some states SIT (State Income Tax) At the end of the year employers give employees a W-2 Form that shows how much income tax has been withheld and sent to the federal government

There are 3 types of “withholding” taxes that are taken out before you get your paycheck: 1.Federal Income Taxes (FIT) 2.State Income Taxes (SIT) 3.Social Security and Medicare(FICA) EOC study guide Personal Finance #4

2. Social Security/Payroll/Withholding Taxes Employers must take out FICA (Federal Insurance Contributions Act )taxes include Social Security and Medicare Both employers and employees share FICA payments 12.4% of income for the first $120,000 Employers may take out for health insurance, retirement, etc.

Pay-as-you-earn system means how much you will owe the federal government is estimated and divided among your paychecks

3. Corporate Income Tax Corporations must pay federal income tax on their income Businesses can take many deductions so determining a corporation’s tax income is complicated Corporate income tax rates are progressive and range from 15%-34%

4. "Other Taxes”? 1.Excise tax Gasoline, alcohol, tobacco, gambling 2.Estate tax A tax on the value of the money and property of a person who has died exemption amount $5,340,000 3.Gift tax A person can give up to $14,000 a year tax-free to each of several people 4.Import tax Tariffs