C9S2: The Federal Tax System Main Idea: – The federal government raises revenue from a variety of taxes.

C9S2: The Federal Tax System Key Terms: – Payroll withholding system – Internal Revenue Service (IRS) – Indexing – FICA – Payroll tax – Excise tax – Luxury good – Estate tax – Gift tax

C9S2: The Federal Tax System Individual Income Taxes – The 16 th Amendment allows the gov’t to collect income taxes – filed April 15, every year – These taxes make up most of the gov’ts budget

C9S2: The Federal Tax System Individual Income Taxes – Payroll Deductions Most income tax comes out of your paycheck before you even get it Every year you complete a tax return for the previous year’s earnings The tax return shows you the difference between what you should have paid and what you did pay

C9S2: The Federal Tax System Individual Income Taxes – Progressive Income Tax Tax rates go up as income goes up

C9S2: The Federal Tax System Individual Income Taxes – Indexing Tax brackets are adjusted for inflation so that a small raise doesn’t make you pay more

C9S2: The Federal Tax System FICA Taxes – Also deducted from your paycheck in the form of payroll taxes – Social Security Capped at 6.2% for an income of $87,000 (in 2003) Becomes a regressive tax

C9S2: The Federal Tax System FICA Taxes

C9S2: The Federal Tax System Corporate Income Taxes – Third largest category of taxes collected by the gov’t Other Federal Taxes – Excise Taxes – used to target activities and goods, become regressive because of who pays them – Estate and Gift Taxes – Attempt to target the wealthy in different ways

C9S2: The Federal Tax System Other Federal Taxes – Customs Duties Make sure that the US gets some money for American dollars spent in other countries while traveling