Starter  How might taxes affect people's desire to work and save?  What goods and services do taxes make available?

Why do we have taxes?Why do we have taxes?  Government provides public goods; aid for people in need  Revenue--government income from tax and nontax sources  tax is mandatory payment to local, state, or national government –  nontax sources include borrowing and lotteries

Criteria for TaxationCriteria for Taxation  Equity--tax applied uniformly; people in same situations pay the same  Simplicity--easy for taxpayer to understand and government to collect  Efficiency--how well tax raises revenue with least administrative cost - also, how small the effort and expense required to pay the tax  Criteria sometimes conflict; a given tax may not meet all criteria

Tax BasesTax Bases  Individual income tax--on income from all sources  Corporate income tax--on corporation's profits  Sales tax--on value of product; a percentage of sale price  Property tax--on value of assets, generally real estate; part of rent  Growing, shrinking tax base means changes in amount of taxable wealth

Types of Federal Expenditures  Mandatory spending--required by current law - examples: Social Security, Medicare  Entitlements--social welfare programs with specific requirements  Social Security restrictions: former worker, age, extra income limit  Medicare provides hospital, other medical insurance; means tested  Medicaid is federal-state insurance program for low- income people  Other programs' funding based on number of people eligible

Types of Federal Expenditures  Discretionary spending--must be authorized each year - examples: highway construction, maintenance of national parks  Defense includes salaries, weapons, military bases, homeland security  Interstate highway system and other transportation  Natural resources, environment includes parks, pollution clean up  Education; science, space, technology; other research  Justice administration includes enforcement agencies, federal courts

State and Local Expenditures  Education--community colleges, state universities, local school aid  Public safety--state police, crime labs, correctional facilities  Public welfare--hospitals; cash assistance, medical payments for needy  Social problems--housing, disability, unemployment, job training  Court system; administration; natural resources; economic development