Government Sources of Revenue Taxes AGENDA (Wednesday: April 26th) Taxes Questions Taxes – Notes Evaluate two families and the taxes they pay STUDENTS CAN… Identify the principles of taxation; Identify the three types of taxes; and apply concepts of taxation to analyze two different families experiences with taxes

What have you heard about taxes? Too High? Too Low? Not “Fair”? Not Efficient? Confusing? WHAT KIND OF TAXES HAVE YOU PAID?

AGREE OR DISAGREE? “People with higher incomes should pay a higher percentage of their income in taxes than people with lower incomes.” STRONGLY STRONGLY Disagree Agree

Fiscal Policy: Taxing and Spending to stimulate economic growth Producing more public goods Hire more labor,  Households get more income Buy more goods/services BOOST the economy. THINK about the “Circular Flow Chart”

Justification for types of taxes (IS IT A JUSTIFIED TAX?) 2 justifications for taxes: Raising revenue to provide the service demanded A fee you pay to the government for something you demand EXAMPLES: Post office  Mail Gas Tax  Roads

Justifications for Types of Taxes 2. Influence the behavior of citizens (“sin” taxes”) NEGATIVE Examples: Tobacco and Alcohol have proven to be detrimental to health. You don’t HAVE to smoke! Those who smoke and drink get sick more often and don’t have health insurance to pay for medical bills. OR POSITIVE (Tax Breaks/incentives): Home interest The government wants people to own homes for economic growth

“Principles of Taxation” (Who pays the tax and How much?) 2 Ways to decide: Ability to Pay (pay tax because you can afford to pay) People taxed on their ability to pay, regardless of benefits received Examples: Property Tax, Income Tax

“Principles of taxation” Benefits Received (pay tax or fee in direct exchange for something provided by the government) Whoever benefits from a good/service pays in proportion to the benefit received EXAMPLE: Gasoline Tax, Tobacco Tax, User Fee, Toll Road Government built the road, you only pay for it if you use it. Seems more fair, BUT could every single good be done this way? NO! How about Food Stamps????

Category/Types of Taxes 3 Different Types of Taxes Progressive Tax: The more money you make, the higher (more) tax you pay (typically a percentage) Example: U.S. Income Tax Matches up with ABILITY TO PAY Different “Tax Brackets” People try to have “write offs” to get a lower percentage PEOPLE at the bottom have more money to spend, people at the top still have plenty of money to spend.

Category/Types of Taxes Regressive Tax: The lower the income/wealth you have, the higher tax you pay. Everyone pays the SAME Dollar amount: Drivers license fee (FLAT RATE) Sin taxes are Regressive Taxes Lottery: Flat $ fee Low income people PLAY THE LOTTO! They beg for it! BENEFIT RECEIVED A chance to win!!! $

Category/Types of Taxes % Proportional Tax: Everyone pays the same % in taxes Does NOT mean the same dollar amount EXAMPLE: Sales tax, State income tax, FICA: Medicare/social security (Payroll taxes)

What makes a GOOD TAX? Simple: enough for people, businesses and tax-collectors to understand Efficient: Should be easy to administer and successful at GENERATING REVENUE Equity: Should be Fair and Just

Let’s evaluate two families “the Millers and the Carpenters” What type of tax are they paying? Progressive, Regressive, or Proportional What principle is the tax representing? Benefit Received or Ability to Pay Evaluate the fairness, effectiveness, and simplicity of each tax Then work on the “Types of Taxes Chart”

Government Sources of Revenue Taxes AGENDA (THURSDAY: April 27th) Graphing Taxes (Notes) Incidence of the tax – graphing questions Discuss Millers/Carpenters and Tax Assignment (chart) Finish CH 9.1 and 9.2 reading guide STUDENTS CAN… Identify the principles of taxation; Identify the three types of taxes; and illustrate graphically the incidence of the tax

EXCISE TAXES An excise tax is a tax on sales of a good or service. Per Unit Tax AND INCLUDED in the price… Excise taxes: raise the price paid by buyers. reduce the price received by sellers.

Incidence of the Tax… who pays?

Deadweight Loss Caused by a Tax SUPPLY with TAX Price SUPPLY = MSC 2.50 Per-unit Tax 2.00 1.50 1.00 0.50 DEMAND = MSB 0 10 20 30 Quantity of Soda 53

Graphing Activity WHO PAYS? How much?

Taxation Videos https://www.youtube.com/watch?v=-o-zPXB_F6Y How Companies avoid taxes https://www.youtube.com/watch?v=ozMpjCSUuWk Robert Reich (Raising Taxes on the wealthy) https://www.youtube.com/watch?v=junBJZRDFzk Is America’s tax system fair? https://www.youtube.com/watch?v=S6HEH23W_bM Tale of three brothers