1. What types of taxes do I have to pay?

2. Tax Freedom Day
In 2017, Americans will pay $3.5 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total tax bill of $5.1 trillion, or 31% of national income. This year, Tax Freedom Day falls on April 23, or 113 days into the year

3. Tax Basics Tax Base The thing that is taxed (ex. Property).
Taxes are defined according to their tax base (ex. Property tax is based on the value of property).
Tax Rate
Percentage of income that is paid in tax. (ex. 20%)

4. Tax Structures Proportional Tax (flat tax)
A tax that takes the same share of income at all income levels. (ex. 10% for all regardless of income)
Critics: unfair because poor have less ability to pay than do the rich
Advocates: fair because everyone pays equal share, easy to calculate.

5. Tax Structures Progressive Tax
Larger share of income tax as income increases (ability-to-pay principle)
Advocates: Places a larger burden on the wealthy (equity)
Critics: Places a larger burden on the wealthy, complex system

6. Tax Structures Regressive Tax
Smaller share of income tax as income increases (proportional tax)
Tale of two incomes: sales tax (5%)
Income A: $20,000 a year. $10,000 on taxable goods. $500 in sales tax a year (2.5% of total income)
Income B: $100,000 a year. $40,000 on taxable goods. $2,000 in sales tax a year (2% of total income)

7. Individual Income Tax
Largest share of tax revenue taken in by the Fed. Gov.
Tax code: set of laws that govern federal taxes (contains 4 million words)
“Pay as you earn” system (withholding): employers take out a certain amount of tax from each paycheck
W-2 Form: lists wages from previous year and amount of taxes withheld.

8. Individual Income Tax Taxes are paid each year January 1-April 15
Required to declare all income from previous year (wages, investment earnings, business profits)
Audit: IRS questions accuracy of a tax payers return

9. The marginal tax rate is the rate at which the last dollar a person earns in a given year is taxed.

10. Suppose you earned $15,075 in 2013. The first $8,925 of your income would be taxed at the lowest rate of 10%. The remaining $6,150 would be taxed at the next highest rate of 15 percent. 
This rate—15 percent—would be your marginal tax rate, because it is the rate you would pay on the last dollar earned that year.
Because your income is taxed at two different rates, your average tax rate will be lower than your marginal tax rate. In this case, your average tax rate in 2013 would be just over 12 percent. 

11. Payroll Tax 2nd largest federal tax revenue
Payroll Tax: tax on the wages a company pays its employees
Social Security tax: fixed rate (12.4%)
Split between employer (6.2%) and employee (6.2%)
Regressive tax because it does not include investments, and is capped at $118,500.
Medicare Tax: fixed rate (2.9%)
Split between employer (1.45%) and employee (1.45%)
Not capped and income above $200,000 face additional 0.9% tax increase

12. Property Tax
Taxes on real (land and buildings) and personal (cars, boats) property.
Proportional tax
If the value of the property changes (ex. Real estate), property taxes change.
Property taxes fund public schools
Critics: not everyone in the community uses the public school, lower income school districts have lower property value and can’t raise as much money, educational disadvantage

13. Sales Tax
A tax on wide variety of goods and services that provides funds for local and state governments.
Can be regressive so many communities don’t tax necessities like food and medicine.

14. Corporate Income Tax
A tax on the profits of a company and is a progressive tax
It might seem that placing high taxes on corporations and other businesses would help relieve the tax burden on ordinary citizens. In reality, the cost of corporate taxes is passed along to individuals—to customers in the form of higher prices, to employees in the form of lower wages, and to shareholders in the form of smaller dividend checks. As one economist put it, “Purely and simply, business taxes, like all other taxes, . . . are paid for by people.”

15. Excise and Luxury Tax
Excise Tax: tax placed on goods and services the government wants to regulate (ex. Alcohol, tobacco)
“sin tax”
Luxury Tax: tax placed on luxury goods (private jets, fur coats)
“The theory behind such taxes is that a person who can afford to buy a fur coat or a private jet can easily afford to pay an extra tax on it.”
Does not always work
Stopped buying luxury items that were taxed
Companies lay off workers who make those items
Within a year, the tax had destroyed 330 jewelry industry jobs, 1,470 aircraft industry jobs, and 7,600 jobs in the boat-building industry. In 1991, these job losses cost the federal government more than $24 million in lost income tax revenue and unemployment benefits paid to laid-off workers. This amount was more than all of the revenue generated by the luxury tax that same year.

16. User Fees and Tolls
User fees: User fees and tolls are fixed charges levied on the use of a public service or facility. 
Fees and tolls are based on the benefits-received principle, because those who use a facility pay the tax.

17. Estate and Inheritance Tax
Estate Tax: tax on assets left to heirs by someone who dies. 
The heirs, or inheritors of such assets, pay the tax. 
Many states also levy an estate tax, sometimes called an inheritance tax, on top of the federal tax.
Estate taxes are progressive, because larger estates are taxed at a higher rate. 
Some critics argue, however, that estate taxes are unfair because they impose an additional tax on property and wealth that may already have been taxed during a person’s lifetime. Estate taxes may also discourage saving. 
Critics who oppose the estate tax sometimes call it a “death tax.” “Death and taxes may be inevitable,” one critic has said, “but they shouldn’t be related.”