Chapter 9 Sources of Government Revenue 15 Vocabulary words

Who and what should be taxed? 1966 “The Taxman” The Beatles

School House Rock Tax Man

Economics of Taxation Taxes Why do we pay them? Govt. tries to Raise Revenue by- income, sales, and property taxes are the main categories Other ways- college tuitions, social security tax, unemployment, insurance contributions, and drivers license fees.

What is the economic impact of taxes? Resource Allocation: Taxes increase the prices of goods. Behavior Adjustment: Sin Tax is levied against people who buy cigarettes to discourage smoking. Productivity and Growth: Do taxes encourage or discourage people to make money? Not sure.

CRITERIA FOR EFFECTIVE TAXES 1. Equitable: It must be fair 2. Simplicity: The taxpayer and tax collector must be able to understand the laws. 3. Efficiency: It should be easy to administer and effective in generating revenue.

2 Principles of Taxation: What do you think? Benefit Principal: Those who BENEFIT from the government goods and services should pay in proportion to the amount they receive. IE: What about immigrants? Ability to Pay Principal: the belief that people should be taxed according to their ABILITY to pay, regardless of the benefits they receive.

What types of taxes are there? 1. Proportional Tax: it proposes the same proportion of taxation on everyone, regardless of income. IE: 20% for everyone. 2. Progressive Tax: is a tax that imposes a higher % rate of taxation on persons with higher incomes. IE: 10,20, and 30% of income. 3. Regressive Tax: is a tax that imposes a higher % of taxation on low incomes than on high incomes. IE: It pays to make more. (see graph on page 228)

The Federal Tax System Section 2 AS: In 2001 the US collected $11,800 for every man woman and child in the US. How many people live in the US and how much money is that? 350 million people 4.13 TRILLION DOLLARS!!!! WHOA!

Income Taxes: In 1913 the 16 th Amendment was ratified allowing the government to levy an income tax. This is a tax on peoples earnings to finance its operations. The federal government has collected nearly 50% of its total revenue from taxes.

TAXES: IRS (Internal Revenue Service): This is who receives the tax and it is done through a payroll withholding system. On April 17 th (usually 15th) you file a tax return which is an annual report of total income and deductions. If for some reason you cannot file you must file an extension.

OUR TAX SYSTEM IS PROGRESSIVE 2011 This is for a single individual 10% is paid on income up to $8, % is paid on income $ ,500 25% is paid on income $ ,600 28% is paid on income $ ,400 33% is paid on income $174, ,150 35% is paid on income over $379,150

OUR TAX SYSTEM IS PROGRESSIVE 2011 This is for a Married individual filing Joint 10% is paid on income up to $ % is paid on income $ ,000 25% is paid on income $ ,350 28% is paid on income $139, ,300 33% is paid on income $212, ,150 35% is paid on income over $379,150

FICA TAXES What is a FICA tax? Federal Insurance Contributions Act tax Levied on employers and employees Pays for Social Security and Medicare What is the % of Social Security and Medicare (started in 1965)? Social Security is 6.2 it is capped at $84,900 Medicare is 1.45% no cap.

Corporate Income Taxes 2011 CORPORATE INCOME TAX: 15% of all income under 50,000 25% of all income between % of all income between ,000 39% of all income between 100, ,000 34% of all income between 335, million 35% of all income between 10 mill-15 mill 38% of all income between 15 mill mill 35% of all income between mill -

Excise Tax: A tax on the manufacture or sale of selected items, such as gasoline, and liquor- this is the 4 th largest revenue maker for the US.

Estate and Gift Taxes: Estate tax: is a tax on the transfer of property when a person dies. Estate taxes can range from 18-50% of the value of the estate. Estates worth less than $675,000 were exempt in 2002, although this limit will soon be raised to 1 million. You must QUIT CLAIM the house to your children 3 years prior to their death to avoid the tax. (see ehow: get the form get it notarized)

GAMBLING and GREED "Las Vegas was built for people who are really bad at math...."...Penn Jillette Casino gambling: $50 billion business 20 % comes from Nevada 1/3 of all tax is generated by gambling (NV) Taxes: 25% is withheld if you win over If you are foreign 30% is withheld.

Customs and Duties Customs: A charge levied on goods brought from another country. The President has the ability to raise or lower the customs tax by as much as 50% Customs taxes produce very little revenue although prior to 1913 it was the highest.

User Fees President Ronald Reagan made a huge push for USER fees. The fees would include entrance charges you pay to visit national parks, fees that ranches pay to graze on federal land. (125- / yr. 10-/day) These are taxes based on the benefit principal. See page 232, and 239.

State taxes Section 3 Intergovernmental Revenues: Revenues collected by one level of government that are distributed to another level for expenditures. Taxes and Fees: (7.0% “ state ” tax % “ county ” tax + “ combined state and local ” tax of 1.0% = 8.25% CA.) Only 5 states have no sales tax. Alaska, Oregon, New Hampshire, Montana, and Delaware. The choice of tax: Lotteries, the states spend ½ the money on prizes and 6% on administration. #1 money maker.

Local Government Taxes Section 3 Intergovernmental Revenues: Transfers from state governments. 1 st and largest. Property Taxes: 2 nd largest revenue % of the price of the home. Public Utilities: This is the 3 rd largest contributor.

Current Tax Issues Section 4 Tax Reform 1986, 1993: Surcharge: 5% or additional tax above and beyond the base rate for the companies in the top 31%. Taxes: Either a 15% tax or 28% tax. Tax Reform 1997: Capital gains: Tax on the sale of an asset held for 12 months was reduced from 28% to 20%. Tax reform 2001: Refunds for Individual/married couples of $300/$ Also higher child tax credits.

THE END The nation should have a tax system that looks like someone designed it on purpose. ~William Simon Taxes: Of life's two certainties, the only one for which you can get an automatic extension. ~Author Unknown Indoors or out, no one relaxes in March, that month of wind and taxes, the wind will presently disappear, the taxes last us all the year. ~Ogden Nash It's income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta. ~Dave Barry Man is not like other animals in the ways that are really significant: animals have instincts, we have taxes. ~Erving Goffman

Are Taxes Voluntary?

2009 Federal Tax Laws 2009 State Tax Changes Create your own tax system see click hereclick here