TAXES Chapter 14

Federal Power to Tax Article I, Section 8, Clause 1 ▫Congress shall lay and collect taxes, duties, imposts Article I, Section 9, Clause 4 ▫No capitation or other direct tax Sixteenth Amendment ▫Power to lay and collect taxes on incomes  Ratified 1913

State Power to Tax State Constitutions Citizens of the state ▫Ballot Issues

Local Power to Tax State ▫Charter ▫Constitution People ▫Local ▫Levy

Limitations for Taxation Federal only ▫Same in every state ▫No religious establishments ▫No exports ▫Individual personal benefit

Incidence of a tax Who has the final burden Who actually pays the bill ▫elastic/inelastic

Good Taxes Simple ▫easily understood, easily recorded Efficient ▫no time or money wasted in collection Certain ▫clear to tax payer, predictable Equitable ▫fair, burden is shared

Tax Structures Proportional ▫% of tax is the same for all incomes  “flat tax” FICA Progressive ▫% goes up when income goes up  Federal income tax Regressive ▫% goes up when income goes down  Sales tax

Graduated Income Tax Tax Schedule uses a multiplier to adjust for each “bracket” people should pay from ▫First part of income not taxed ▫Each additional amount taxed by increasing percentages  Almost 50% of Americans pay no federal income tax  Highest level is around 35%

Single Filing Status % on taxable income from $0 to $8,700 15% on taxable income over $8,700 to $35,350 25% on taxable income over $35,350 to $85,650 28% on taxable income over $85,650 to $178,650 33% on taxable income over $178,650 to $388,350 35% on taxable income over $388,350.

Sales Tax Person APerson B $30,000 income $20,000 purchases 10% sales tax $2000 taxes 6.7% $100,000 income $60,000 purchases 10% sales tax $ %

Federal Taxes Corporate ▫Paid on income earned by companies FICA ▫Federal Insurance Contribution Act Import ▫Tariff – tax on goods coming into country Income ▫Graduated, pay-as-you-earn tax on income

Federal Income Tax Pay-as-you-earn ▫Paid on every paycheck ▫Ease burden and regular revenues Withholding ▫Taken out of employees pay Exemptions ▫Amount subtracted from gross income Deductions ▫Variable amounts subtracted from gross income Taxable Income ▫Amount on which tax must be paid ▫Gross income – (exemptions+deductions)

Tax Freedom Day Economists began keeping track of the number of days it would take the average worker to pay off his/her taxes if they had to pay the government first ▫The % of federal income tax to the % of days/year ▫1913 – January 30 ▫Latest – May 9 ▫Today?

Federal Spending Mandatory ▫Required by existing law ▫Entitlements  Programs people automatically qualify for when they meet eligibility Discretionary ▫Planners can make choices ▫30% of budget  $1,200,000,000,000

State Spending Balanced Budget ▫Revenues = Spending Operating Budget ▫Day-to-day expenditures  supplies, salaries, equipment Capital Budget ▫One time investment  construction, infrastructure, investment

Examples State ▫Taxes  Sales, Income, Intergovernmental ▫Spending  Public Welfare, Education Local ▫Taxes  Sales, Property, Income ▫Spending  Education, Public Safety