How can the U.S. significantly decrease the deficit 1) 2) 3) 4) Taxes Spending

Tax Rate Introduction U.S. Federal Income Tax System

3 Types of Taxes Progressive- –Tax rate increase as income increases –Example: Income Taxes Regressive- –Consumes larger % of lower income worker’s salary –Example: Gasoline Tax, Bridge Tax Flat –Same % for everyone –Example: Sales Tax, Some State income taxes

Purpose/Goals of an INCOME TAX

Tax Worksheet History of Income Taxes Taxes people pay

Federal Income Tax Progressive Income Tax As income % Tax Bracket Tax Rate Single Married Filing Jointly 10%$0 – $8,350$0 – $16,700 15%$8,351– $33,950$16,701 – $67,900 25%$33,951 – $82,250$67,901 – $137,050 28%$82,251 – $171,550$137,051 – $208,850 33%$171,551 – $372,950$208,851 – $372,950 35%$372,951+ EVERY taxpayer pays 10% on first $8,350 of income Example: If you Earn $100,00 (single) ($ 8, ) x.10 : $ 835 (33, ,351) x.15 : 3,840 (82, ,951) x.25 : 12,075 (100, ,251 ) x.28 : 4,970 Total: $ 21,720 or 21.7%

2 Wage Earners John earns $360,000 Mary earns $60,000 Federal Taxes Social Security Medicare California Tax Take Home Pay Pay Per Month Total Taxes Paid Overall Tax % Rate $91,025 $4,485 $5,220 $32,123 $226,965 $18,913 $133, % $5,855 $2,520 $870 $1,617 $49,137 $4,094 $10, %

Numbers to Know for Exam Top 1% of Taxpayers ($343,000 + Up) –Pay 38% of all taxes –Earn 20% of all income (1.4 million households) Top 10% of Taxpayers ($115,000 + Up) –Pay 70% of all income taxes –Earn 46% of income Bottom 50% of Taxpayers ($33,000 + Below) –Pay 3% of Income Taxes –Earn 13% of Income

Top 1% pay more taxes but The income Gap has widened last 30-Years

EQUAL % tax cuts What best stimulates economic growth?

Equal % Tax Cuts Example: 10% tax cut for ALL taxpayers Who gets more nominal dollars (money) Earn $120,000 Taxes $36,000 Refund $3,600 Earn $24,000 Taxes $3,000 Refund $300

Fiscal Cliff December 2012

2013 Federal Tax Rate Brackets Tax RateSingle Married filing Jointly or Qualifying Widow(er) 10% Up to $8,925 Up to $17,850 15% $8,926 – $36,250 $17,851 – $72,500 25% $36,251 – $87,850 $72,501 – $146,400 28% $87,851 – $183,250 $146,401 – $223,050 33% $183,251 – $398,350 $223,051 – $398,350 35% $398,351 – $400,000 $398,351 – $450, % $400,001 + $450,001 + Standard Deduction $6,100 $12,200 New top bracket Bush Tax cuts are now permanent