What Are Taxes? (14) Topic: Taxes Vocabulary work Next Time: Ch vocab quiz Next Test over 14, 15, 16 (Multiple Choice) Not open book…Sayyyy whaaatttt? Final exam will not be open book. It will consist of questions over the entire course

Funding Government Programs Citizens of the United States authorize the government, through the Constitution and elected officials, to raise money through taxes. A tax is a required payment to a local, state, or national government. Taxation is the primary way that the government collects money. Without revenue, or income from taxes, government would not be able to provide goods and services.

Income Redistribution Sin tax: high tax to raise revenue while decreasing consumption. Income redistribution: the way in which income is allocated to groups, families, individuals Tax incidence: the final burden of a tax Tax loophole: exceptions in the tax law allowing taxpayers to avoid taxes.

Principles of Taxation Benefits principle: those who benefit from government goods and services should pay in proportion to the amount of benefits received (Ability to pay)

Characteristics of a Good Tax A good tax has the following characteristics: –Simplicity Tax laws should be simple and easily understood. (individual income tax) (IRS) (sales tax) –Efficiency Government administrators should be able to collect taxes without spending too much time or money. (tax return) –Equity The tax system should be fair, so that no one bears too much or too little of the tax burden. (tax loopholes)

Tax Bases and Tax Structures A tax base is the income, property, good, or service that is subject to a tax. (not in Ch. 14) Proportional Taxes –A proportional tax is a tax for which the percentage of income paid in taxes remains the same for all income levels. (average tax rate) Progressive Taxes –A progressive tax is a tax for which the percent of income paid in taxes increases as income increases. (marginal tax rate) Regressive Taxes –A regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases.

Individual Income Taxes Tax Withholding –Withholding is the process by which employers take tax payments out of an employee’s pay before he or she receives it. Tax Brackets –The federal income tax is a progressive tax. There are five rates, each of which applied to a different range of income.

Filing a Tax Return A tax return is a form on which you declare your income to the government and determine your taxable income. Taxable income is a person’s total (or gross) income minus exemptions and deductions. Exemptions are set amounts that you subtract from your gross income for yourself, your spouse, and any dependents. Deductions are variable amounts that you can subtract from your gross income. HOURS AND EARNINGS HoursEarnings TAXES AND DEDUCTIONS DescriptionAmount FICA Federal State City Total Taxes TOTAL Taxable Wages Less Taxes Net Pay

Capital gains Value added tax Alternative minimum tax Flat tax

Social Security, Medicare, and Unemployment Taxes Social Security Taxes –This program is funded by the Federal Insurance Contributions Act (FICA). Most of the FICA taxes you pay go to Social Security, or Old-Age, Survivors, and Disability Insurance (OASDI) Medicare Taxes –Medicare is a national health insurance program that helps pay for health care for people over 65 and for people with certain disabilities. Medicare is also funded by FICA taxes.

Other Types of Taxes Excise Taxes –An excise tax is a tax on the sale or production of a good. Federal excise taxes range from gasoline to telephone services. Estate Taxes –An estate tax is a tax on the estate, or total value of the money and property, of a person who has died. Estate taxes are paid before inheritors receive their share. Property Taxes –A property tax is a tax on the value of a property. Gift Taxes –A gift tax is a tax on the money or property that one living person gives to another. Import Taxes –Taxes on imported goods are called tariffs.

Stossel Taxes Stossel Money Hole