Taxes Matter

Kickoff Activity What do you know about taxes? How many different types of taxes can you list?

Why do taxes matter? Who pays taxes? What are taxes for? Who collects taxes? How do you feel about taxes?

Definition of Tax A fee charged by a government on a product, income or activity. Taxes are income for our government. Taxes have been used throughout history to carry out many functions. Often they are used to provide individuals with services such as education, or health care or public parks and roads.

Tax Video Watch We the Economy – Taxation nationTaxation nation

Tax Systems RegressiveProgressiveProportional Takes a smaller share or percentage as income rises. Example: sales tax is charged regardless of a person’s income level: lower income individuals pay a higher percentage for sales taxed items such as fast food items. Takes a larger share of income as income rises (opposite of Regressive). The intention is that higher income people are taxed at higher rates and pay a higher percent of their income to taxes. Example: Our current Income tax system. Everyone pays the same tax rate regardless of income. This is also known as a “Flat Tax.” Example: User Fees (Fishing/Hunting license) rates are the same for everyone.

Tax Systems RegressiveProgressiveProportional Income Tax Rate Tax Tax Rate Tax Tax Rate Tax $10,00020%$2,00010%$1,00020%$2,000 $50,0004%$2,00020%$10,00020%$10,000 $100,0002%$2,00030%$30,00020%$20,000

Three Major Federal Taxes Personal Income Tax Corporate Income Tax Social Security Tax

Types of Taxes What other types of taxes exist? Some examples are: – Sales Tax – Property Tax – User fees (Car, Hunting Licenses, Sin Tax, etc.) – Payroll Tax – Income Tax

Sales Tax Sales tax is a tax, usually paid by the consumer at the point of purchase, for certain goods and services. Tax*No Tax* EntertainmentClothing ElectronicsGroceries Car Purchase and RepairsPrescription Drugs Lodging *Specific to Minnesota In most of Minnesota, the sales tax is 6.875%. This excludes purchases of unprepared food, clothing, shoes and medicine. Counties can add additional taxes as well. Hennepin County, for example, has an additional “stadium” tax for Target Field (.15%) plus a “transit” tax for light rail, commuter rail and express bus (.25%) for a total of 7.275%.

Effects of Sales Tax ItemPriceTax*Total Dollar Menu Hamburger$1$0.07$ ” LCD TV$1,499$103$1,602 Car$10,000$688$10,688 *Assumes a 6.875% MN sales tax rate.

Which type of tax is SALES tax? Hold up Tax System One finger Regressive Two fingersProgressive Three fingersProportional

Property Tax Property tax is a tax on the assessed value of property that the owner is required to pay. Homeowners pay property taxes (also called real estate taxes) based on the value of the property. Renters pay a portion of the landlord’s property tax in their rent payments. In Minnesota, some homeowners and renters can get a property tax refund depending on their income level and the amount of tax paid.

Property Tax Statement Actual 2011 Property Tax Proposed 2012 Property Tax Percentage of Change Total$1,292.76$1, % Hennepin County School District 999 Voted Approved Levy: Other Local Levies: School District Total: Metro Special Taxing District Metropolitan Council $ $ $ $ $28.59 $ $ $ $ Nov. 29, :00 PM Commissioner Board Room Dec. 16, :00 PM School Conference Center Anytown Community Center 5678 Main Highway Anytown, MN

Which type of tax is PROPERTY tax? Hold up Tax System One fingerRegressive Two fingersProgressive Three fingersProportional

User Fees People pay user fees for the use of many public services and facilities. User fees can also influence behavior. Why might be taxed that influences behavior? Alcohol Cigarettes

MN taxes are estimated to yield revenues of $614 million in FY 2015 Minnesota has higher excise tax rate than the neighboring states

Which type of tax a USER fee? Hold up Tax System One fingerProgressive Two fingersRegressive Three fingersProportional

Payroll Tax These are taxes withheld from (taken out of ) employees’ pay by their employers. – Social Security, and Medicare taxes. – You do not get these taxes back at “tax time” – when you file your annual income taxes.

Paycheck Social Security (FICA) tax rate is 6.2% Medicare tax is 1.45% TOTAL = 7.65% paid by EACH the employer and the employee. The total paid into Social Security and Medicare is 15.3% of your payroll.

Income Tax Income tax is also withheld by employers throughout the year. – Federal – State (not all states charge income tax) Unlike payroll tax, depending on the amount withheld and your tax liability, you may get some back at tax time! Each year, people living in the U.S. must file taxes for their income.

Federal Income Tax: The United States What is the range for income tax rates in the United states? % Wage earners really pay between %.

Global Perspective of Income Tax: Europe Source: Creditloan.com| International Tax Rate Comparison

Federal (U.S.A.) Revenues by Source Source: Heritage.org| Budget Chart Book: Federal Revenues by Source 2010

State Income Tax The tax rate range for MN is %

Income Tax State Comparison Source: Bankrate.com| State Tax Rates Hawaii and Oregon have the highest income tax rate at 11% Nevada and South Dakota are 2 of 7 states without income taxes. Others are….Alaska, Florida, Texas, Washington & Wyoming

Federal Spending in 2014

State of MN Spending in 2015

-Education -Health Care -Unemployment Benefits -Public Transportation -Parks and recreation -Social Services -Public Utilities (energy, water and waste) -Law Enforcement -Defense/Military What services do taxes provide?

Services Do you value the services provided to society by taxes? – Which ones? – Are there any you could live without?

Who decides?

Why do Taxes Matter? Taxes affect… Our paychecks What we pay for goods and services Which services are provided by the Federal and State government Taxes are important to understand as voters decide the representatives who make these decisions.