Taxing and Spending Chapter 14. So what are the major taxes and what do they pay for? Personal Income Tax Corporate Income Tax Social Security Sales.

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Presentation transcript:

Taxing and Spending Chapter 14

So what are the major taxes and what do they pay for? Personal Income Tax Corporate Income Tax Social Security Sales Excise Property

Personal Income Tax Federal and most states Largest revenue source for federal government

Who Pays the Most Taxes?

Who has the Highest Effective Tax Rate?

Corporate Paid on profits Does a high corporate tax rate create any incentives for corporations?

Social Security (OASDI) Old age, survivors, and disability insurance Tax is capped at $118k (2016) Benefits are capped

Sales Paid at the time of purchase for certain goods and services No federal sales tax in the US, state or local only

Excise A specific tax on a specific good

Property Local tax for local needs – Schools – Local roads – City services

What is the Alternative Minimum Tax? A tax on top of income taxes Why? Some people were using (legal) tax deductions, reducing their taxable income, allowing them to minimize their tax burden The AMT ensures that they pay a minimum tax The AMT was not indexed for inflation so more people are now paying it

Proportional, Progressive, and Regressive How much you pay compared to your income. Which is the best? Fairest? Most efficient?

Proportional Tax The tax rate (10%) is the same, but the dollar amount paid is not. Who pays the most? Is this tax fair?

As income goes up you pay a higher percentage. Does this tax structure create any disincentives? Is it fair?

Regressive Tax Does the high income earner pay a lower rate? Dollar amount? Is this tax fair?

Who Pays the Most Federal Taxes? The highest income earners by far. Do they pay enough? Too much? Not enough?

Some Questions What is fair? Who decides what is fair? Does tax policy create incentives/disincentives? Is your income your property? What societal obligations do you have? Do others have a right to tell you how much of your income you get to keep? How far should the government go when decided what is for the “common good”?

Benefits Received Principle A person should pay in taxes an amount equal to the benefits he/she receives. Those that use a service pay for it, those that do not use it do not pay for it. Question: do we all receive a benefit, even if indirectly? Example: good schools.

Ability to Pay Principle (Progressive Tax Structure)

Budgets

Balanced, Surplus, and Deficits Balanced-expenditures equal revenues Surplus-revenues exceed expenditures Deficit-expenditures exceed revenues

Do Deficits Matter? YES!!! Deficits mean we must pay back borrowed money plus interest. -Higher future taxes (crowding out) -Less spending on other programs (opportunity costs)