Taxes and Fiscal Policy Why do we pay taxes? What gives the government the right to tax us? What are the different types of taxes that we pay? What does our tax money support?

Types of Taxes Progressive: people with higher incomes pay a higher percentage of their income in taxes Regressive: people with lower incomes pay a higher percentage of their income in taxes Proportional: everyone pays the same percent of their income in taxes What type of tax is income tax? Sales tax? Property tax? Ad Valorem tax? Customs duty? Other taxes? How can an increase in sales tax affect different income groups? What is the “Fair Tax” proposal?

Progressive Income Tax Rates 2015 10% Up to $9225 of taxable income* 15% $9226 to $37,450 25% $37,451 to $90,750 28% $90,751 to $189,300 33% $189,301 to $411,500 35% $411,501 to $413,200 39.6% $413,201 and over *There is a standard deduction up to $6300 for single taxpayers—no tax is owed up to this amount 10%

Progressive Tax Rates 2014 Option A: Progressive Income Tax—People with higher incomes pay a higher marginal tax rate. John earns $75,000 a year. Under a progressive tax rate: He pays 0% on the first $6200 he earns-- $6200 X .0 = $ 0 He pays 10% tax on the first $9,075 he earns-- $9,075 X .10 = $ 907.50 He pays 15% tax on the next $21,625 he earns-- $21,625 X .15 = $3243.75 He pays 25% tax on the next $38,100 he earns-- $38,100 X .25 = $9525.00 John’s total tax on $75,000 income is-- $907.50 + $3243.75 + $9525 = $13,676.25 Option B: Proportional, or flat, tax—Everyone who receives an income pays the same tax rate of 19.8% Under this plan, John would pay 19.8% of $75,000, which is ………….. $14,850

Taxes and Fiscal Policy Fiscal Policy: the effort by the government to use their taxing and spending decisions to stabilize the economy. How can fiscal policy be used to promote price stability, full employment, and economic growth?

Taxes and Fiscal Policy What is the difference between a deficit and a debt? 2011 deficit: $1.5 Trillion or $1,500,000,000,000 2012 deficit: $1.1 Trillion 2013 deficit: $680 Billion 2014 deficit: $483 Billion 2015 deficit: $439 Billion Why does the federal government have a debt? 2011 federal debt: $14 trillion ($14,000,000,000,000) 2012: $16,811,057,483,068 2013: $17,000,000,000,000 2014: $18,000,000,000,000 2015: $19,200,000,000,000

U.S. Federal Debt To whom is the debt owed? 43%-U.S. individuals and institutions 16%-Social Security Trust Fund 16%-China, Japan, and Great Britain 16%-all other nations --------($6.06T owed to foreign entities) 9%-government retirement funds Source: U.S. Treasury Dept., 2012

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