TAXES

Essential Standards The student will define progressive, regressive and proportional taxes. The student will explain how an increase in sales taxes affects different income groups.

What Are Taxes? A tax is a required payment to the government. Income received by governments is called revenue. Without revenue, governments cannot function.

Limits of the Power to Tax Taxes must be “for the common defense and the general welfare”… They cannot benefit single individuals. Federal taxes must be the same in every state… Congress cannot tax churches… Nor exports. The 16th Amendment allows Congress to tax incomes on an UNEQUAL basis. L. Ron Hubbard

Tax Structure Tax base—the income, property, good or service that is being taxed. Income tax—a tax on individual income… Sales tax—a tax on the dollar value of a sale… Property tax—a tax on the value of a property… Corporate income tax—a tax on the value of a company’s profits.

Proportional Taxes Proportional tax—a tax that is the same percentage for everybody. For example—a flat tax. A CEO earning $15,000,000/year pays 10 % in income tax… Tax = $1,500,000 And a fast-food worker earning $15,000/year pays 10 % in income tax. Tax = $1,500

Progressive Taxes The percentage of income paid in taxes INCREASES as income increases. Wealthy individuals might pay 30%... The middle class, 15%... Those with very low incomes might pay nothing at all.

Regressive Taxes The percentage of income paid in taxes DECREASES as income increases. A sales tax is regressive… A 6% tax on a $100.00 grocery bill would be… $6.00. But $6.00 is a small amount of money for a family that makes $200,000… And a larger amount of money for a family that makes $30,000.

Good Taxes Simplicity—taxes should be easily understood… Efficiency—government shouldn’t spend more money to collect than they receive. Certainty—when the tax is due, how much is due, how it should be paid. Equity—the system should be fair to all.

Federal Taxes Pay-as-you-earn—Americans pay taxes throughout the year… And then pay any additional taxes in April. Employers “withhold” money from your check… And forward it to the federal government. Employees then file a tax return before April 15 of that year.

FICA Taxes Employers also withhold money for taxes under the… FICA—Federal Insurance Contributions Act. Social Security—provides a government pension to Americans over 65… Disabled Americans… And surviving family of deceased wage-earners.

Medicare & Unemployment Also fall under FICA. Medicare—national health insurance for Americans over age 65… Unemployment taxes—if workers are laid off (through no fault of their own)… They can file for unemployment compensation… While they search for a new job.

Other Taxes Excise tax—a federal tax on the sale or manufacture of a good. Estate tax—a tax on the total value of the money and property of a deceased person. Estates valued at $1.5 million and more are taxed progressively. Gift tax—to prevent people from giving their estates away before death to avoid the estate tax. Tariffs—taxes on imported goods.