Quiz Answers 1. Discretionary 2. Outlays 3. Social Security 4. Debt 5. Deficit 6. Federal Budgets 7. Office of Management and Budget

Free Ride Problem Goods and Services that are accessible and beneficial to all Things that you could benefit from, whether or not you paid Why we have taxes! The government provides the goods and services to all but can’t afford to have “free riders” Privatization: handing over control of public functions to private companies. Can refer to goods or services Public Sector: part of the economy concerned with providing basic government services Includes such services as the police, military, public roads, public transit, primary education and healthcare for the poor

Today’s Agenda Objective: To be able to explain the difference between progressive, regressive, and flat rate taxes. Essential Skill: Explicitly assess information and draw conclusions

Background on Federal Taxes Levied and established by Congress Collected by the Internal Revenue Service (IRS) Tax returns due by April 15th!

Forms of Taxation Find a partner Use your notes to complete the definition column of the sheet and the progressive/regressive section if you can find the information Also fill in the rates for the first 4 taxes

Limits on Federal Taxation Have to tax on public concerns No taxation of exports Direct taxes have to be applied equally amongst the states (except income tax) Hasn’t been used since the Civil War All indirect taxes set at the same rate Can’t tax state government functions that provide for the public (education, transportation, etc.)

Progressive Tax The more you earn the higher the rate you pay. Not everyone pays the same percentage of taxes https://www.splitwise.com/taxes/#/brackets/0|196|353|432|479|543/10.1|14.9|25.0|28.1|33. 0|35.1/params/1|1|1|0|1|15/name/Current%20tax%20code%20%282012%29 Why? What’s the rationale? https://www.youtube.com/watch?v=1hhCs9r33tM Example

Regressive Tax TEXTBOOK DEFINITION IS WRONG! Proportional flat tax Regressive Taxes= taxes which affect lower income earners at a higher rate and higher income earners at a lower rate (cap on the amount you can be taxed on) =Taxes levied at a fixed rate, without regard to the level of the taxpayers income or his/her ability to pay them ( no cap)

As income increases, the share of it paid on cigarette tax decreases

Regressive: Payroll Tax Income Amount Taxed @ 4.2% Tax paid in $ % of Income 42K $1,764 4.2% 85K $3,570 110K $4,620 300K 1.5% 2 M 0.2% 50 M 0.00009%

Sample Pay Stub Using your notes complete the tax deductions on Chris’s earnings statement The write his net pay in the check

Overall, which tax system do you think is the most fair? Why? Progressive Regressive Flat Tax