Topic 7: Government Revenue & Spending

Lesson Title: Government Revenue Warm-Up: What do you believe to be the major sources of government revenue? Why does the government require revenue?

What are Taxes? Required payment to local, state, or national government Primary way the government collects money

The Power to Tax Congress has the power to tax Article 1, Section 8, Clause 1 of the Constitution grants Congress the power to tax. The Sixteenth Amendment gives Congress the power to levy an income tax.

Revenue Income received by a government from taxes & other non tax sources Helps government provide goods & services

Origins of Government Revenue

Limits on Taxes Purpose must be for the “common defense & general welfare” Federal taxes must be the same in every state State taxes can and do vary

Types of Taxes Proportional Taxes Taxes that remain the same regardless of income. Example: Property taxes are an example of this. 2% property tax if you make $20,000 or $200,000.

Types of Taxes Progressive Taxes Taxes that increase as income increases. Example: Income taxes are progressive taxes; the more you earn, the more you pay.

Types of Taxes Regressive Taxes Taxes that decrease in proportion to income. Has a greater burden on lower income-earners than higher-income earners. Example: Sales Tax: Paying a seven percent tax on a cup of coffee hurts me more than in hurts Bill Gates.

Sources of Government Revenue Individual & corporate income taxes Social insurance taxes Excise taxes Estate & gift taxes Taxes on imports

Taxes Taxes are often used by the government to change people’s behavior. Raise on cigarettes to stop people from smoking. Lower taxes on business to stimulate economic activity. Give homeowners a tax cut to encourage homeownership. Cut capital gains taxes to encourage investments. Certain tax deductions encourage energy conservation Windows, Insulation, Hybrid Cars, etc.

Taxable Income Person’s gross (or total) income minus exemptions & deductions Includes salaries, wages, tips, and commissions Includes income from investments Unemployment Alimony Other (self-employment, rent)

Non-taxable Income Child support Gifts Veterans benefits Social Security

Misc. Definitions Personal Exemptions: Set amounts that you subtract from your gross income for yourself, your spouse, and any dependents Deductions: variable amounts that you can subtract, or deduct, from your gross income Ex. Interest on mortgage, donations to charity, state & local tax payments

Other Sources of Government Revenue Social Security Tax Taxes to FICA that go to the Social Security Administration to fund old age, survivors, & disability insurance Medicare National health insurance program that helps pay for health care for people over the age of 65 Property Taxes/Estate Taxes Tax on total value of the money & property of a person who has died Excise Taxes Tax on the sale & manufacture of a good Gift Taxes Tax on money or property that one living person gives another

The Flow of Taxes Money is collected from people and businesses then redistributed in the areas where the government sees need.

Your Pay Check 20 200.00 Hours Earnings TOTAL Description Amount HOURS AND EARNINGS Hours Earnings TAXES AND DEDUCTIONS Description Amount 20 200.00 FICA Federal State City Total Taxes 15.20 10.25 5.10 1.00 31.55 TOTAL Taxable Wages Less Taxes Net Pay 168.45

Where do my taxes go? (Taxes 5:10)

Activity: Filing a Tax Return

Spending-Federal, State, & Local Governments

Federal Spending Two Main Categories: How does the government make money and what does it get spent on? Two Main Categories: Mandatory Spending-Spending on certain programs that is mandated, or required by existing law, (transportation, agriculture, energy, social security, etc.) Discretionary Spending- Spending category about which government planners can make choices, (Defense, education, training, student loans, environment, technology, etc.)

Entitlement Programs (Sub-Category of Mandatory Spending) Social welfare program that people are “entitled to” of they meet certain eligibility requirements. Examples: Social Security, Medicare (Over 65 years), Medicaid (low income families)

State Tax Revenue How does the state make money? Income taxes, corporate income tax, sales tax, and excise tax Examples: education, public safety, highways & transportation, public welfare, recreation, administration (State workers)

Local Government Revenue How does the local government make money? Property taxes, school taxes, other local taxes like village taxes What are local taxes spent on? Public schools, roads, libraries, jails, salaries (teachers and administrators)

Activity: You Spend the Money

Additional Slides

Activity: Taxes Placemat Activity Directions: Complete the graphic organizer by reading each article and using your knowledge of government revenue and spending.