Taxes and the Economy

Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay

Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay – Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on

Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay – Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on Ability to pay principle – those who have the greatest income should pay the highest tax rates

Two Basic Principles of Taxation Benefits received principle – people benefit from the taxes they pay – Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on Ability to pay principle – those who have the greatest income should pay the highest tax rates – Ex. Our income tax system

Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle

Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment

Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment Because the gov’t creates the taxes, they try to be hush-hush

Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment Because the gov’t creates the taxes, they try to be hush-hush – They will pass taxes upon those who are least likely to be offended

Two Other Characteristics Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle – Ex. Gov’t will cut 10% of taxes if business upgrades equipment Because the gov’t creates the taxes, they try to be hush-hush – They will pass taxes upon those who are least likely to be offended – Ex. Taxes on sale of alcohol and liquor “sin taxes”

The Burden of Taxes Three ways to classify taxes

The Burden of Taxes Three ways to classify taxes – Progressive – more you make, the more they take

The Burden of Taxes Three ways to classify taxes – Progressive – more you make, the more they take – Regressive – less you make the more they take

The Burden of Taxes Three ways to classify taxes – Progressive – more you make, the more they take – Regressive – less you make the more they take – Proportional – all pay the same percentage of their income

Types of Taxes Personal income tax, there are 3 brackets in this progressive system

Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31%

Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31% – Greatest source of income

Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31% – Greatest source of income Social Insurance Taxes, proportional tax is the 2 nd greatest source of income

Types of Taxes Personal income tax, there are 3 brackets in this progressive system – 15%, 28%, and 31% – Greatest source of income Social Insurance Taxes, proportional tax is the 2 nd greatest source of income Corporate income tax, 3 rd greatest, range up to 36% of profits

State and Local Taxes Sales tax is most important for the state

State and Local Taxes Sales tax is most important for the state Property tax for the local

Where does the money go?

Remember, the gov’t is not out to turn a profit

Where does the money go? Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters (what is good politically is not always good economically)

Where does the money go? Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters (what is good politically is not always good economically) About $1 out of $5 of the GDP is spent by the gov’t

Where does the money go? Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters (what is good politically is not always good economically) About $1 out of $5 of the GDP is spent by the gov’t Graphs pg. 251

President and the Budget President prepares and delivers the budget to Congress

President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed

President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed Problem: In the 20 th century, the gov’t generally spent more money that it took in (deficit)

President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed Problem: In the 20 th century, the gov’t generally spent more money that it took in (deficit) – Now they must collect more in taxes to begin to pay off debts

President and the Budget President prepares and delivers the budget to Congress By October 1 st, that must be passed Problem: In the 20 th century, the gov’t generally spent more money that it took in (deficit) – Now they must collect more in taxes to begin to pay off debts – However, we have problems meeting the budget each year (war on terror)