1. Taxes

2. Effective Taxation
Equity (Fairness)- Does everyone pay the same amount or percentage
Simplicity- Tax laws should be easily understood
Efficiency- Easy to administer and successful at generating revenue

3. Taxes are based on the following ideas:
1. The Benefit principle of Taxation- If you derive benefit from government should pay for it.
2. Ability to Pay- people should be taxed by their ability to pay.

4. TAX SYSTEMS
PROGRESSIVE
PROPORTIONAL
REGRESSIVE

5. PROGRESSIVE TAX
A TAX WHERE PERCENTAGE OF INCOME PAID IN TAX RISES AS THE LEVEL OF INCOME RISES (ROBIN HOOD)
Federal Income Taxes

7. PROPORTIONAL TAX
A TAX IN WHICH THE PERCENTAGE OF INCOME PAID IN TAX IS THE SAME REGARDLESS OF INCOME. (FLAT TAX)

8. REGRESSIVE TAX
A TAX WHERE PERCENTAGE OF INCOME PAID IN TAX GOES DOWN AS INCOME RISES. (RICH PAY A LOWER %)
State Sales Tax is an example

9. FEDERAL TAXES INCOME TAX FICA CORPORATE TAXES EXCISE TAXES (SIN TAXES)
SOCIAL SECURITY 6.2 % OF WAGES UP TO $65,000,
MEDICARE 1.4% OF WAGES
CORPORATE TAXES
(15% BELOW $50,000,
25% BELOW $75,000,
34% UNDER 18.3 MILLION,
35% OVER 18.3 MILLION)
EXCISE TAXES (SIN TAXES)

10. State Spending
1. Intergovernmental expenditures- money from level of govt. to another ( sales taxes from state going to city govt. )
2. Public Welfare – cash assistance, medical payments, and other welfare programs
3. Govt. Pensions and retirement funds

12. Government Expenditures (Spending)

14. Local Govt. Counties, towns, school districts, and other categories
1. Public Education, utilities, hospitals, police, fire, local roads

15. Balanced Budget
An Annual budget in which the expenditures equal revenue

16. Debts, Surpluses, Deficits
Deficit- spending in excess of revenue
Current Deficit Trillion
Federal Debt- the total amount borrowed from investors to finance govt. deficit spending.
3/5/2015 $

17. Sources of Debt
1. Govt. Trust Funds- special accounts to fund special spending (Social Security)
2. Current Spending
3. Interest payments on deficit spending.

18. Controlling the Debt 1. Gramm-Rudman-Hollings
First attempt to mandate a balanced budget amendment, by making automatic cuts
Failed- Congress could get around the legislation by delaying the spending, the economy started to decline.

19. Budget Enforcement Act of 1990
Pay as you go- an increase in one part of the budget will cause a decrease somewhere else.
Only applies to discretionary spending,
(spending the Congress has control over)
Can be suspended if the economy slows

20. Omnibus Budget Reconciliation of 1993
Attempted to cut 500 billion from the deficit over 5 years.
Intended to slow the growth of the deficit, not the deficit itself.
Tax increases on the wealthiest 1.2 % of people

21. Balanced Budget Agreement of 1997
Congress gave the President – the line item veto (Supreme Court declared it unconstitutional)
Rigid spending caps- legal limits on discretionary spending.

22. 1998
Budget Surplus
Strong Economy
Control of Spending

23. 2001 Recession slowed the economy 9/11 slowed the economy
War in Iraq and Afghanistan started
Growth of Entitlements- social programs to provide health, nutritional, or income supplements. (mandatory spending)

24. Tax Deductions Reduction of income that is able to be taxed
Deductions include
Child and Dependent Care
High Education costs
Mortgage interest
Donations to Charities

25. Avoiding Taxes -
Retirement Planning

26. Types of Plans
A defined benefit plan, funded by the employer, promises you a specific monthly benefit at retirement.
A defined contribution plan does not promise you a specific benefit amount at retirement. You and/or your employer contribute money to your individual account in the plan
Federal law does not require employers to offer or to continue to offer a plan.

27. Several different options for retirement depending on types of employment
401K
403B (State Employees)
IRA
SEP-IRA
Simple IRA
KEOGH

28. 401K For any type or size company.
Funded by employee elective deferrals and optional employer matching.
$15,500 in employee deferrals and up to $30,500 in optional matching funds;

29. 403B/ 457
For any non-profit business, government entity, or educational institution.
Funded by employee elective deferrals and optional employer matching.
$15,500 in employee deferrals and up to $30,500 in optional matching funds
"15-Year Rule":  employees with 15 years service can contribute an additional $15,000 over 5 years
Fewer options than 401Ks

30. Simple 401K
For businesses with 100 employees or less and no other retirement plan.
$10,500 (total employee and employer contributions);
Employer contributions 100% vested from day one

31. Solo 401K
For self-employed, sole proprietors, partnerships, corporations.
Covers owner and spouse only. Funded by salary and profit share
$46,000

32. SEP-IRA For self-employed and small businesses under 25 employees
$46,000 (based on years of service, performance, and employee salary).

33. Simple IRA (Employer Based)
For small businesses with 100 employees or fewer.
Funded by mandatory employer and optional employee contributions.
$10,500 (matched or fixed contributions);
Employer contributions 100% vested from day one. Can reduce contributions when business is not doing well.

34. KEOGH
For law partnerships, medical practices, and family businesses with 10 or fewer highly paid employees.
Funded by employee and employer contributions.
$46,000
Defined contribution: Amount employees receive at retirement varies based on years of service, earnings, expenses, gains, and losses

35. Simple IRA (Employee Based)
Can contribute up to $5,000 for the year
Can take money out for qualified events without penalty.
Taxed as ordinary income, which could be a tax rate as high as 35 percent, when you start taking distributions.
Can start taking money out regularly at 59½.

36. ROTH- IRA Employee after taxes contribution 5,000 limit
No tax deduction.
Can take out the money you've contributed at any time without penalty.
Money not taxed when you take it out at retirement. Can contribute past age 70½.