Taxes & Government

What are the 3 types of activities that government performs? Government’s Role What are the 3 types of activities that government performs?

Public Services What are some examples?

Example of Public Services National Defense Police & Fire Health Services Street & Park Maintenance Sanitation Highway & Bridge Construction Public Education Public Transportation Water, Gas, & Electrical Systems

Economic Regulation Government prevents certain companies from raising their prices and draining our economy. Regulations need to be set for what type of companies?

Example of Economic Regulation Credit Card Companies USPS (Postage Price) Safety Codes Product Disclosures Utility Service (Cost of Electric, Gas, & Sewer)

Redistribution of Income What are some other examples of how government helps re-circulate money back into the economy? 8.3% of America is unemployed I am not included in this %.

Examples of Redistribution Welfare Social Security Unemployment Benefits Financial Aid Debts to other countries Assisted Living Retirements

Government Spending Who pays for public services & national defense? Who pays outstanding debts to other countries?

Look in the mirror! You Do!

In 1789, Acts of Congress designated what department to manage government’s revenue & spending?

It is known as the U.S. Department of Treasury

Internal Revenue Service Who are they and what do they do? What department of government do they fall under?

Internal Revenue Service Definition: The federal agency responsible for administering and enforcing the U.S. Treasury Department's revenue laws Collects individual income taxes Collects employment taxes Determines pension plans Handles corporate, excise, gift, & estate taxes

Principles of Taxation Benefit Principle vs. Ability-to-Pay Principle

What is the Benefit Principle?

Benefit Principle Concept People who benefit from a public service should PAY FOR IT! Examples include: Toll Roads (PA Turnpike) Parks & Recreation College Tuition Health Services

Define Ability-To-Pay Principle

Ability-To-Pay People with higher incomes and more possessions will pay more in taxes.

Proportional Tax How does it work? What is an example of proportional tax?

Proportional Tax Definition – a tax that remains the same even if the purchase price increases. Our state sales tax is 6% on purchases If we buy something for $14.00 or $1,000, the sales tax does not change

What is Progressive Tax?

Progressive Tax Definition: a tax rate that increases as the amount being taxed increases. An example will be income tax we pay to the government You may work “overtime” hours for some extra cash, but you will also pay more in progressive tax

Regressive Tax Definition: a tax whose rate decreases as the amount being taxed increases. Linked to proportional tax and effects lower- level income families

Flat Tax A system that applies the same tax rate to every taxpayer regardless of income bracket. A flat tax applies the same tax rate to all taxpayers, with no deductions or exemptions allowed.

Only 5 More Types Left to Go! http://www.youtub e.com/watch?v=qsc ED3psy_U

Sales Tax Definition – taxes added to the price of goods and services at the time of purchase. Mostly your everyday purchases add sales tax but why is there no tax on gasoline?

Excise Tax Taxes are built into price Definition: tax collected on the sale of specific goods and services. Tobacco Gasoline Alcohol Cigarettes Firearms Air Travel Taxes are built into price

Property Tax Definition: Taxes paid on the value of real property. Typically paid to local governments & school districts

Gift Tax Gift taxes are taxes that the giver of gifts may pay. The maximum value of untaxed gifts in 2014 is $14,000. Each parent can gift that amount ($14,000

What are the rules on giving a gift? If you give jewelry, property, stocks or anything else of monetary value to anyone besides your spouse (has to be a US citizen) and NOT received full market value and have NO expectation of getting it back then… That gift may be subject to federal gift tax

Who pays the Gift tax? The person giving the gift is responsible for the gift tax – Unless they received full value for the gift (then it becomes possibly capital gains tax, state sales tax etc…) What about the receiver of the gift? Could possibly have to pay capital gains tax when and if the item is sold for more than you got it for.

Does anyone not pay taxes? Yes, well kinda – As you know there are a million different taxes. Federal Income tax though currently about 47% of all Americans do not pay income tax. Why? Many reasons… They make too little (ability to pay principal) They have an enormous amount of write offs to make their AGI to low to tax. Health expenses / kids / investment losses / Charitable donations

Believe it or not Millionaires may not be paying any federal income tax… How you say? They may be living off investments only If they can show investment losses for that year they can write down their AGI. Remember just because they have $300,000,000.00 in investments does not make it income. They would have to sell for it to be income or receive dividends to be considered income. Some have investments in foreign companies and pay those rates to those governments.

Capital Gains Tax Taxed on the sale of assets According to the IRS “almost everything you own or use for personal or investment purposes is a capital asset”. When an item is sold the difference between the basis (cost) of the item and the sale is what is taxable.

Short term and long term There is short term capital gain and long term capitol gain. Short term = hold it for less than one year Could be taxed at income tax rate Long term = hold it for more than one year Could be taxed at 0 – 28% depending on what it is. (art, coins, small business stock)