Advanced American Government

THE POWER TO TAX  Fiscal Year: October 1 – September 30  Ex.—FY 2013 – Oct. 1, 2012-Sept. 30, 2013  FY 2008—Expenses $2.9 Trillion, Income $2.6 Trillion  Article I, Section 8, Clause 1  “…To lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States…”

 CONSTITUTIONAL LIMITATIONS  Tax laws must follow the Constitution  U.S.A. can’t tax church offering (violates Ist Amendment)  Four Expressed Limits on Direct Taxes  1) Taxes must be levied for public purposes  2) No taxes on items imported from any state  3) direct taxes must be equally distributed amongst the states

 Direct taxes must be distributed amongst the states according to population  4) All indirect taxes must be levied at the same rate throughout the country  Federal Government cannot tax States or Local governments that are exercising government functions.

CURRENT FEDERAL TAXES  Ex.—public education, furnishing healthcare, or building streets and highways  The Income Tax  Created by XVIth Amendment (1913)  Flexible tax – rates can be adjusted  PROGRESSIVE TAX—the higher one’s income, the higher the tax  Levied on individuals and corporations

 The Individual Income Tax  $1 Trillion collected  Normally due April 15 th  Tax return  2006—6 tax brackets (10% - 35%)  The Corporation Income Tax  Most complicated

 Churches and charitable organizations are exempt  Social Insurance Tax  1) Old-Age, Survivors, and Disability Insurance (OASDI) program (1935)  2) Medicare—health care for the elderly (added in 1965)  3) Unemployment compensation program (1935)

 OASDI and Medicare are supported by taxes imposed on businesses and individuals  Businesses and individuals pay 6.2% each of the person’s income  REGRESSIVE TAX—taxes levied at a flat (set) rate no matter what the income level.  Excise Taxes  Tax on the manufacture, sale, or consumption of goods and/or performance of services

 Ex.—gasoline, oil, tires, liquor, telephone, etc.  Estate and Gift Taxes  Estate Taxes—tax on assets of person who dies  Gift Tax—imposed on the making of a gift by a living person

 Customs Duties  Taxes laid on goods brought into the USA  Over 30,000 items included  Exempt—Bibles, coffee, bananas, and up to $800 of a tourist’s purchases abroad

TAXING FOR NONREVENUE PURPOSES TTaxes can be used to discourage activities that the government thinks is harmful. EEx.—licenses for drugs, certain firearms, gasoline TTHE END