Intro to Taxes

I) Introduction A) What is a tax? 1) Defined: a) A mandatory payment to the government B) Taxes are the only way for the gov’t to receive revenue 2) They are needed to provide services and goods to the public that are not provided by the free market 3) Some of the goods and services include…

II) Types of Tax bases A) What is a tax base? 1) A form of wealth that is subject to being taxed by the government 2) Includes income, property, goods, or services B) Tax Base #1: Individual Income Tax 1) Tax based on how much money you earn from work C) Tax Base #2: Corporate Income Tax 1) Tax based on how much profit a company earns D) Tax Base #3: Sales Tax 1) Tax based on the value of a good or a service purchased by a consumer E) Tax Base #4: Property Tax 1) Tax based on the value of an individual or a business’ assets, primarily their real estate (homes, buildings, etc.)

II) Types of Tax bases F) Apply It: Which tax base is increasing or shrinking in each scenario? 1) Number of people living in Chico decreases 2) A man receives a 5% raise at work 3) The sticker price of the video game is $49.99, but you pay $53.75 at the register. 4) Microsoft reports a 25% increase in sales from the past year.

III) Who pays how much? A) Differing Ideas 1) Some believe all should pay the same percentage of their income 2) Some believe the more money you make, the greater percentage in tax you should pay 3) Some taxes take a greater percentage of income from a lower-income individual than a higher-income individual 4) There are three different types of tax structures

III) Who pays how much? B) Proportional Tax C) Progressive Tax 1) Each individual within this tax system pays the same percentage of their income a) This is also called a flat tax 2) Example: John makes $10,000 a year and Mark makes $100,000 a year. With a proportional tax rate of 5%, John would pay $500/year in taxes and Mark would $5,000/year in taxes C) Progressive Tax 1) The more wealthy you are, the larger proportion of your income is taken for taxes 2) The United States & the state of California has a progressive income tax structure 3) Example: John makes $10,000 a year and Mark makes $100,000 a year. With a progressive tax rate, Mark may pay 10% of his income in taxes, while John may pay just 2% of his income in taxes

III) Who pays how much? D) Regressive Tax 1) A tax that hits lower-income individuals moreso than higher-income individuals 2) This is because of the proportion of one’s income that goes towards taxes 3) Example: John makes $10,000/year and Mark makes $100,000/year. Mark and John both purchase a $1,000 flat screen TV and 5% for sales tax This ends up being $50 on sales tax Even though they’re both paying the same amount of sales tax, the $50 represents a larger percentage of John’s annual salary than it does of Mark’s annual salary For this reason, the tax hits a lower-income individual moreso than a higher-income individual In this example, the sales tax represents a regressive tax

Review: What the heck are taxes? A tax is a mandatory payment to the government Taxes are the only way for the gov’t to receive revenue They are needed to provide services and goods to the public that are not provided by the free market Some of the goods and services include schools, military, police, libraries, etc. A tax base is a form of wealth that is subject to being taxed by the government The following are tax bases that you or companies have to pay in order to keep the government afloat: Tax Base #1: Individual Income Tax Tax Base #2: Corporate Income Tax Tax Base #3: Sales Tax Tax Base #4: Property Tax