Taxes and Government Spending Chapter 14 Taxes and Government Spending

Funding Gov’t Programs: Citizens authorize the govt. to levy taxes through the Constitution Taxation is the primary way that the govt collects money. Without revenue, or income from taxes, the govt wouldn’t be able to provide goods & services.

The Constitution: Limits on the Power to Tax Article 1, Section 8, Clause 1 of the Constitution grants Congress the power to tax. The 16th Amendment gives Congress power to levy an income tax. Limits on the Power to Tax The power to tax is also limited through the Constitution: Purpose of the tax must be for “the common defense and general welfare.” Federal taxes must be the same in every state. The govt. may not tax exports.

Individual Income Tax: Peoples earnings Largest source of revenue for Federal Govt Sales Tax: Dollar value of good or service being sold .

Types of Tax Structures: Proportional Tax: AKA: “flat tax” Percentage of income paid in taxes remains the same for all income levels Everyone pays 10% of their income regardless if poor or a millionaire Property taxes are good example Social Security up to $100k

Types of Tax Structures: Progressive Tax: Tax for which the percentage of income paid in taxes increases as income increases. Takes a larger %of a larger income & a smaller %of a smaller income. Ex. US Federal Income Tax luxury cars.

Types of Tax Structures: Regressive Taxes % of income paid in taxes decreases as income increases. sales tax (especially on necessities) gas tax

progressive tax- takes a larger % of income from high-income groups than from low-income groups. proportional tax- takes the same % of income from all income groups. regressive tax- takes a larger & of income from low-income groups than from high-income groups.

Is there a good tax? A good tax has the following characteristics: Simplicity Tax laws should be simple and easily understood. Economy(Efficiency) Should be able to collect taxes w/out spending too much time or money. Certainty Should be clear to taxpayer when the tax is due, how much is due, and how it should be paid. Equity Tax system should be fair, so that no one bears too much or too little of the tax burden.

Who Bears the Burden of a Tax? To fully evaluate the fairness of a tax, it is important to think about who bears the burden of the tax. If demand is inelastic, a tax will increase the price of a good and consumers will bear a large burden of the tax. If demand is elastic, the opposite is true.

Federal Taxes: Individual Income Tax: tax on an individual’s income 45% of Federal Revenue comes from payments of individual income taxes MAIN SOURCE OF FEDERAL REVENUE! Collected as “pay–as-you-earn” system - Individuals pay taxes throughout year. In April: they pay any additional income tax they owe Withholding: employers taking payments out of your paycheck for taxes

What is Taxable Income?: total income minus exemptions & deductions. Includes salaries, wages, tips, commissions, & income from investments (Interest on Savings Accounts & Dividends from stocks)

$ 346 Billion in Federal Money given to states Federal Spending: Mandatory Spending: - Is required by existing laws. Entitlement Programs: FICA (Federal Insurance Contributions Act) Social Security, Medicare, Medicaid Discretionary Spending: - Govt. planners can make choices. Education, scientific research, national parks & monuments, law enforcement, environmental cleanup, housing, transportation, disaster aid, foreign aid, farm subsidies. $ 346 Billion in Federal Money given to states

WHERE DO OUR TAX DOLLARS GO?

State & Local Taxes and Spending: Most of $$ comes from Property taxes! Local Govt. Taxes Spent: Public School system Law enforcement Fire protection Public facilities, Parks & recreation Public health Public transportation Elections Record Keeping Social Services Where are State Taxes Spent? Education Public Safety Highways & Transportation Public Welfare Arts and Recreation Administration Schools by State: http://www.npr.org/2016/04/18/474256366/why- americas-schools-have-a-money-problem

NYS Tax Table http://www.tax.ny.gov/pdf/current_forms/it/it201i_nys_tax_table.pdf http://ny.rand.org/stats/govtfin/salestax.html

Other types of taxes: Excise taxes: general revenue tax on sale or manufacture of a good Federal excise taxes apply to gasoline, cigarettes, alcoholic beverages, telephone services, cable tv, & airline tickets Estate taxes: tax on the estate (total value of money and property) of a person’s estate http://www.econlife.com/highway-trust-fund-problems-and-the-transportation-infrastructure/ http://www.econlife.com/who-will-pay-for-our-roads/

Soda pop taxes http://www.mercurynews.com/my-town/ci_28141086/berkeley-soda-tax-first- months-take-116-00

https://www.youtube.com/watch?v=aYVdsV055DE