©2008. Oklahoma State Department of Education. All rights reserved.1 Taxes: Somebody has to Pay Standard 2.1

Differentiate between “ability to pay” and “benefits received” tax theories. Explain the differences between progressive and regressive taxes. Identify the role of public goods and services. Evaluate the costs and benefits of public goods and services. Payoff Payoff 2 ©2008. Oklahoma State Department of Education. All rights reserved.

Mario received $20 for his birthday. He wants to buy a new video game at Aim Videos. Mario heads to the game aisle. Sure enough, it is there, and the price is $ He heads to the cashier, who rings it up and says, “That will be $21.60.” Down Payment Down Payment 3 ©2008. Oklahoma State Department of Education. All rights reserved.

The cashier explains he has to pay the sales tax to get the game. “I am just a little kid. Why does the government want my money for taxes?” If Mario was your little brother, what would you tell him? Down Payment Down Payment 4 ©2008. Oklahoma State Department of Education. All rights reserved.

Ability to Pay Benefits-Received Principle Free Rider Progressive Tax Regressive Tax Taxes Cache Cache 5 ©2008. Oklahoma State Department of Education. All rights reserved.

Where does the money come from to pay for fire and police protection in your town? Is the method used for paying for these services “fair?” Why or why not? Building Interest Building Interest 6 ©2008. Oklahoma State Department of Education. All rights reserved.

Ability to Pay vs. Benefits Received Ability to Pay People who can afford to pay taxes should pay more than those with limited ability to pay. Taxing one group more than the other may decrease the incentive to earn more money. 7 ©2008. Oklahoma State Department of Education. All rights reserved.

Ability to Pay vs. Benefits Received Benefits Received: Theory: Government should only tax people who receive the goods and services Example: People who drive on toll roads pay fees, but if you do not use them, you do not pay. Problem: People who often benefit more from government programs have limited incomes. 8 ©2008. Oklahoma State Department of Education. All rights reserved.

Progressive and Regressive Taxes Progressive tax – proportion of income paid in taxes increases as income increases Regressive tax – proportion of income paid in taxes decreases as income decreases 9 ©2008. Oklahoma State Department of Education. All rights reserved.

Progressive Tax Bucket 10% $0 to $7,825 15% $7,825 to $31,850 25% $31850-$ % $160,850 to $349,700 38% $349,700 and above 28% $77,100 to $160,850 25% $31,850 to $77, ©2008. Oklahoma State Department of Education. All rights reserved. Bill’s Salary: $35,000 What will he pay?

Everyone benefits from the public goods and services provided by our tax dollars. How much we pay in taxes is frequently debated. Answer to public debate: continue paying taxes as long as benefits to society are greater than the cost. Earnings Earnings 11 ©2008. Oklahoma State Department of Education. All rights reserved.

Tell Mario paying sales tax is an important source of income for local government. Sales taxes provide parks, bike paths, roads, police, and fire safety. Everyone who buys goods and services pays sales taxes, regardless of age or income. Paid in Full Paid in Full 12 ©2008. Oklahoma State Department of Education. All rights reserved.

13 Taxes: Voluntary Compliance Standard 2.2

Recognize the moral and ethical reasons for paying taxes. Explain the legal and financial consequences of failing to pay taxes. Payoff Payoff 14 ©2008. Oklahoma State Department of Education. All rights reserved.

Down Payment Down Payment 15 ©2008. Oklahoma State Department of Education. All rights reserved. Ashlee and Brittany need to earn money for cheerleading camp. They start mowing lawns. They pay expenses first, then divide the rest of the money earned 50/50. Ashlee keeps a record of every lawn they mow, expenses paid, and personal income.

Brittany writes down: The checks they receive. The expenses they pay. Subtracts expenses from amount received in checks. Does not keep a record of any cash received because there is no record of the money. Which one of the girls is correct? Down Payment Down Payment 16 ©2008. Oklahoma State Department of Education. All rights reserved.

E thics Morals Standard of Living Quality of Life Voluntary Compliance Cache Cache 17 ©2008. Oklahoma State Department of Education. All rights reserved.

Tax Facts Our tax system operates on a principal called “voluntary compliance.” If you do not file a tax return you can: face criminal prosecution be heavily fined be imprisoned The Internal Revenue Service (IRS), a division of the U. S. Treasury, is responsible for the federal tax system. 18 ©2008. Oklahoma State Department of Education. All rights reserved.

Reporting Your Taxes According to law, everyone who receives a paycheck is required to submit a tax return to the IRS by April 15. You can use a variety of deductions and exemptions to reduce your tax bill. However, the law is very specific about what is legal. 19 ©2008. Oklahoma State Department of Education. All rights reserved.

Ethics and Moral Issues What are some reasons for being ethical in paying your taxes? What are some moral reasons for paying taxes? How do the reasons discussed affect your personal opinion about paying taxes? 20 ©2008. Oklahoma State Department of Education. All rights reserved.

Paying taxes is a moral and ethical responsibility of all U. S. citizens. Paying taxes helps us avoid being financially penalized or imprisoned by the IRS. Earnings Earnings 21 ©2008. Oklahoma State Department of Education. All rights reserved.

What are some of the reasons people pay taxes? If you knowingly underpay your taxes, what are some actions the IRS might enforce? What is voluntary compliance? What date are taxes due? What is the primary purpose for collecting taxes? Balance Sheet Balance Sheet 22 ©2008. Oklahoma State Department of Education. All rights reserved.

If you said Ashlee, then you are correct. Ashlee’s recordkeeping would allow her to report all of her income. Brittany’s behavior is also unethical and illegal. She runs the risk of being caught and penalized for her choices. Paid in Full Paid in Full 23 ©2008. Oklahoma State Department of Education. All rights reserved.

© Oklahoma State Department of Education, All rights reserved. 24 Standard 3. Finding Financial Services

Payoff Payoff Identify the most common types of financial service providers. Explain the services offered by different financial institutions. Determine which kinds of financial service providers and services are appropriate for different situations. Weigh the costs and benefits of using financial services. 25 © Oklahoma State Department of Education, All rights reserved.

Down Payment Down Payment Dorey has a checking account at a local bank: Uses her debit card and the bank’s online services to monitor her balance. Uses her debit card because her bank charges 20¢ for every check she writes, but has no charges for debit card transactions. 26 © Oklahoma State Department of Education, All rights reserved.

Down Payment Down Payment Mino has a checking account at a credit union: He prefers to write checks instead of using his debit card because it is easier to track his spending. The credit union has online banking, but Mino does not use it. 27 © Oklahoma State Department of Education, All rights reserved.

Down Payment Down Payment Martin does not like banks. He thinks they charge too much and is not sure that his money is safe there. He only has a part-time job and does not make a lot of money. He uses a check cashing service for cashing his check, money orders for payments, and cash for local purchases. 28 © Oklahoma State Department of Education, All rights reserved.

Cache Cache ATM Automatic Deposit and Payment Bank Check Cashing Service Checking Account Credit Card Credit Union Debit Card 29 © Oklahoma State Department of Education, All rights reserved.

Cache Cache Financial Services Financial Institution Insurance Company Investment Bank Money Transfer Mortgage Company Online Banking Overdraft 30 © Oklahoma State Department of Education, All rights reserved.

Cache Cache Overdraft Protection Safety Deposit Box Savings Account Stock Brokerage 31 © Oklahoma State Department of Education, All rights reserved.

Building Interest Building Interest Why are there so many types of financial institutions? How has technology affected the financial industry and its service offerings? What kind of financial services do you currently use? 32 © Oklahoma State Department of Education, All rights reserved.

Building Interest Building Interest What percentage of people in the U. S. have banking accounts of some type? What are some of the possible reasons people choose not to have a bank account? What is the difference between a bank and a credit union? 33 © Oklahoma State Department of Education, All rights reserved.

Financial Service Providers Financial Service Providers - Businesses providing services similar to banks. Banks, credit unions, credit card companies, insurance companies, stock brokerages, mortgage companies, and investment banks. Changes in customer needs and technology have increased the level of competition for gaining and retaining customers. 34 © Oklahoma State Department of Education, All rights reserved.

Choosing Financial Services Considerations should include: Fees Time Ability to access the services and your level of skills in using them 35 © Oklahoma State Department of Education, All rights reserved.

Progressive and Regressive Taxes Benefits of on-line banking: 24-hours a day access. Easy transfers of money between your checking and savings account. Electronic bill payments through the bank, saving you money on postage and envelopes. 36 © Oklahoma State Department of Education, All rights reserved.

Earnings Earnings Changes in technology and customer needs has caused the number of financial service providers to increase. Types of services offered have also increased. Being an informed consumer will help you find the types of services you want and need, while saving money in getting them. 37 © Oklahoma State Department of Education, All rights reserved.

Paid in Full Paid in Full Who is making the best decision? If you said Dorey or Mino, you are right! There is little difference between using a bank or a credit union. Having a checking or savings account helps to build a relationship with a financial service provider. Using check cashing services and money orders is costly. Keeping all of your money in cash is risky! 38 © Oklahoma State Department of Education, All rights reserved.