Taxes and Government

Classifying Taxes Every taxpayer should be treated equally under law America functions on the benefit principle The benefit principle is the idea that if you use a good or service provided by the government you should have to pay for it.

Taxes and Income Progressive Taxes take a larger share of higher incomes. Example = Federal Income Tax Regressive Taxes take a smaller share of higher incomes than of lower incomes. Example = State and Local Taxes Proportional Taxes take the same share of all incomes. If all people were taxed 10 percent of all their income, this would be the proportional tax.

Tax Classifications Progressive Higher income = higher taxes Ex. Federal Income Taxes

Purchase $50 shirt, 10% sales tax ($5 tax) Tax Classifications Regressive Everyone pays the same fixed amount Lower % of income from rich Higher % of income from poor Purchase $50 shirt, 10% sales tax ($5 tax) Person A (poor) Net Pay = $100/wk Spend 5% of income on sales tax ($5 of $100) Person B (rich) Net Pay = $1000/wk Spend 0.5% of income on sales tax ($5 of $1000)

How are taxes collected? Pay-As-you-Earn Taxes – Taxes that are paid as you earn income. (Example – Federal Withholding) Direct Indirect Taxes paid directly to the government Ex. Income and property taxes Taxes included in the cost of a good or service Ex. Sales tax

Other Taxes Property Taxes Estate Taxes Gift Taxes Business License Taxes Customs Duties or Tariffs Luxury Taxes

Types of Taxes Sales Taxes are taxes added to the price of goods and services at the time of purchase (some states don’t have sales tax) Property taxes are taxes on the value of real property Excise Tax is collected on the sale of specific goods and services.

Types of Taxes…. Estate Taxes are when a person dies and someone inherits their property they have to pay taxes on that property (separate from property taxes) Gift taxes are taxes that the giver of gifts may pay. A business tax is a fee paid for a license, permit, or stamp to operate certain kinds of businesses. License Tax

Customs Duties and Tariffs Taxes imposed on imported goods

Government Spending Government’s spending pays for goods and services that benefit all Americans Public goods include roads, schools, national defense, and services of various regulatory agencies. What State and Local Governments provide: Building and maintaining roads Operating police and fire protection services Maintaining a criminal justice service Schools, State colleges, and universities Constructing and operating sewage treatment plants Unemployment compensation programs