CH9 Section 3: Intergovernmental revenue funds collected by one level of government that are distributed to other levels of government. Federal government to states.

Property tax a tax on possessions Tangible: real estate, buildings, furniture, automobiles, farm animals Intangible: stocks, bonds, bank accounts Tax assessor: Government person authorized to put a value on property for tax purposes. Must know “reasonable” value of property.

Payroll withholding statement summary statement attached to a paycheck, detailing – Two-weeks, month’s pay (gross income) – Withholding and deductions – Payments and deductions so far in the year – What employee is actually receiving (net income)

Section 4: Accelerated depreciation tax relief from the early 1980s allowing businesses to – Depreciate capital more than normal Allowing them to reduce their taxes substantially.

Investment tax credit a reduction in business taxes that are tied to investment in – New plants and equipment Business taxes went from 12.5% in 1980 to – 6.2% in 1983 Most ordinary citizens still pay an average of 15% of their income. – “Trickle-down economics”

surcharge additional tax above and beyond the base rate – 1986 tax restructuring intended to prevent rich from not paying taxes at all

Alternative minimum tax Personal income rate that applies whenever the amount of taxes paid falls below the designated level People at a prescribed income rate, have to pay a minimum tax of 20%, regardless of – Deductions – loopholes

Recent AMT ratesrates StatusSingleMarried JointMarried SeparateTrustCorporation Tax Rate: Low26% 20% Tax Rate: High28% 20% High Rate Starts$175,000 $87,500 n/a Exemption 2009$46,700$70,950$35,475$22,500$40,000 Exemption 2010$33,750$45,000$22,500 $40,000 Exemption phase out starts at$112,500$150,000$75,000 $150,000 Zero 2009 exemption at$299,300$433,800 *$216,000$165,000$310,000 Zero 2010 exemption at$247,500$330,000 *$165,000 $310,000 Capital gain rate25% 20%

Capital gains profits from the sale of an asset held for 12 months. – Long-term investments Republicans reduced this tax in 1997 – 28% to 20%

Value-added tax aka: VAT A tax placed on the value that manufacturers add at each stage of production Like a national sales tax – European Union – Japan US does not have one.

Flat tax proportional tax on individual income after a prescribed level has been reached. Advantages – Simple – Minimizes loopholes – Easy to prepare Disadvantages – Taxes used for incentive would disappear Charities, environment, investment/reinvestment, consumption – Difficulty in deciding the rate levels

Assessments: Checking for Understanding 1 Funds collected by one level of government that are distributed to other levels of government for expenditures.

Assessment 3 Sales tax Intergovernmental revenues Individual income taxes Employee retirement contributions Assessments levied on state employees

Assessment 4 State: – Collect from intergovernmental revenues – Sales taxes – Employee retirement contributions – Individual income taxes Local: – Collect from intergovernmental revenues – Property taxes – Public utilities and state liquor store sales – Sales taxes

Assessment 5 Federal income tax State income tax City income tax (not LA) FICA taxes

Assessments: Checking for Understanding 1 To influence and reward behavior – Investment/Reinvestment – Charity – Environment – Consumption

Assessment 3 (just list – review in text) Economic Recovery Tax Act of 1981 Tax reform act of 1986 Omnibus Budget Reconciliation Act of 1993 Taxpayer Relief Act of tax reform

Assessment 4 Advantages: – Hard to avoid – Widely spread tax incidence – Easy to collect – Encourages savings Disadvantages: – Invisible to consumers – Competes with state sales taxes

Assessment 5 Advantages – Simple – Minimizes loopholes – Easy to prepare Disadvantages – Taxes used for incentive would disappear Charities, environment, investment/reinvestment, consumption – Difficulty in deciding the rate levels

Assessment 6 Tax code is more complex now Record tax revenues of the 1990s Political power changes

image, p. 239 What are the two largest sources of state revenue? Intergovernmental revenue Sales taxes + which one(s) do you directly pay into at your age? – Sales tax – Hospital fees – Utility and liquor stores – Other

image, p. 240 Which states have the highest level of taxes? The lowest level? Highest: Hawai’i and New York Lowest: New Hampshire and South Dakota

image, p. 241 What percentage of this individual’s pay has been deducted from her paycheck? About 27%, +how did we get that number? (800 – ) ÷ 800

image, p. 243 Questions 1 How does Marriott benefit from investing in coal treatment machinery? By using credits to reduce its tax liability 2 Why do few corporations pay the 35% tax rate mandated by the federal government? Because they are able to take advantage of favorable tax rules and regulations – Most can afford expensive tax lawyers and accountants that ordinary cannot.

Image, p. 245 What tax credits were part of the Taxpayer Relief Act of 1997? Tax credits for children + Was the American Revolution about NOT having to pay taxes? No, it was about – Having the right to decide if a tax was necessary and proper. – Taxation WITH representation

How long will his tax reduction plan take to implement? 10 years Monday, November 15, 2010, the battle in the “Lame Duck: Congress begins….. – Conservatives want to make them permanent – Liberals want them to end, and the rich to pay their taxes….. Image, p. 246

Image, p. 247 Questions 1 What is measured in the graph? Tax revenues as a percentage of GDP 2 Describe the pattern for Canada from 1991 to 1996? Canada’s rate increased slightly throughout the period

Image, p. 248 Is VAT regressive, proportional, or progressive? Why? VAT tends to be regressive because – persons with lower and fixed incomes tend to spend a larger percentage of their incomes on tax.