1. Review What is the fundamental economic problem?
What are the requirements for something to be scarce?
What are the three questions that all societies must face?
What are the four factors of production?
What are the three major economic systems? Who answers the questions in each?
What type of economic system is the U.S.? Explain?
What are fixed costs?
What are variable costs?
Pepsi and coke are ___________________ goods. Peanut butter and jelly are ____________ goods.
What are the three major types of unemployment? Explain each.

2. The source of government revenue
Taxes
The source of government revenue

3. What does this mean?

4. Why tax? Source of government revenue
What does the Government spend money on????
Public Goods (Nat. Defense, Schools, Parks, Roads, Social Programs, Police, Firemen)
Repayment of debt with interest
Research and Development (technology)
Entitlements – Medicare, Medicaid, and Social Security

5. Where does all the money go?
s/politics/2013-budget-proposal-graphic.html

6. What are the Types of Taxes?
Proportional Taxes
A tax with a constant % paid regardless of income
Flat tax
Progressive Taxes
A tax where the % paid in taxes increases as income increases
U.S. Personal Income Tax
Regressive Taxes
The lower your income the higher % you pay in taxes
Sales Tax

7. Proportional, regressive, or progressive?

8. sales tax – two families?
Family of 4 with income of $100,000 annually
If they save 30% of their income, how much do they spend on consumer goods (assume they spend the rest for purposes of simplicity)?
$70,000
Suppose there is a 5% sales tax – how much do they pay in taxes
.05 x 70,000 = $3,500
What percentage of their total income do they pay in taxes?
$3,500/100,000 x 100 = 3.5%
Family of 4 with income of $20,000 annually
At this income level, how much will this family be able to save?
How much do they spend on consumer goods?
$20,000
Suppose there is a 5% sales tax – how much do they pay in taxes
.05 x 20,000 = $1,000
What percentage of their total income do they pay in taxes?
$1,00/20,000 x 100 = 5%

9. Who should pay taxes?

10. Principles of taxation – Who should pay?
Ability to Pay Principle
A citizen will pay more tax if he or she is able to pay more
Income Tax- Wealthy more taxes, impoverished pay less
Benefit Principle
Citizens who will benefit from the use of the tax will pay for it.
Excise taxes on gas go to fund road work and other projects
Sales tax / Property tax in an area go to fund schools in that area

11. Criteria for Effective Taxes
Equity-
Tax must be fair and not discriminate or target individuals based on race or gender or age
Simplicity
The Tax must be some what easy and understandable for citizens
Tax loopholes??
Efficiency
The tax must generate an acceptable flow of income for the government.

12. Impact of Taxes Generate Income Adjust Behavior – How?
Sin Tax- high tax placed on a product that has is viewed negatively in society
Tobacco, Liquor, fast foot
Allocate Resources
Taxes change the price of products and will change the QD of the product and the S of the product

13. WHY? Impact of Taxes Productivity and Growth
High taxes will stunt economic growth
Low taxes will limit ability of government to function
WHY?

14. Federal Tax System Income Tax- Personal Corporate Capital Gains Tax
Excise Tax- Flat tax placed on the production and sale of specific items
Tariff- Tax on imported goods

15. Federal Tax System
Payroll deductions- taxes that automatically come out of your pay check
FICA Taxes
Medicare and Social Security Taxes
The Internal Revenue Service (IRS)
Federal Agency that collects taxes
Tax Returns
Tax Evasion

17. State and Local taxes
Property Tax
Sales Tax
“Splost”

18. The State Dollar- Where It Comes From
Property Tax
32%
Individual Income Tax
22%
Alcoholic Beverages
Sales Tax 1%
Tobacco Product
Sales Tax 1%
States have the power to make, collect, and spend their own taxes.
Each state is unique, its laws are made by the state legislatures
and governors.
There are 51 different tax programs (one for each of the 50 states and
one for the District of Columbia).
Sources of state tax revenue:
Sales taxes
Income taxes
Excise taxes
States cannot make any laws that interfere with interstate commerce.
Some states do not have individual income taxes on wages.
Some do not have sales tax.
Individual donations from private citizens often provide a significant
source of revenue for many hospitals, schools, and libraries.
Local taxes are under the authority of the state and may vary from
city to city.
The federal government often gives local governments additional tax
revenue for schools and highways, among other services.
Motor Vehicle License 2%
Corporate Income Tax 3%
General Sales Tax &
Gross Receipts
25%
Motor Fuel
Sales Tax 4%
All Other
10%

19. Government Administrative Environment and Housing
The State Dollar-
Where It Goes
Education
30%
Social Services
21%
Insurance Trust
Expenditure 7%
Transportation 7%
Government Administrative 4%
State highways and transportation projects, such as building bridges, are
supported through tax dollars.
Universities and schools also get state funding.
State monies pay for the state law enforcement system, including state
courts, prisons and the police.
States fund state parks and recreation and pay for welfare and
special services.
Tax revenue is also used to oversee professional license programs given
to such groups as drivers, doctors, lawyers, and barbers to ensure that
proper standards of conduct and safety are maintained.
Local tax dollars are used in many different ways.
Local services supported by tax dollars include
Schools and local libraries
Maintenance of local roads and city streets
Streetlights, garbage collection, and recycling
Local police and fire protection
City and county jails; local courts
Enforcement of zoning laws
Local parks and recreation
Utility Expenditure 7%
Interest on
General Debt 4%
General Expenditure 5%
Public Safety 8%
Environment and Housing 7%

20. What Tax am I???? http://www.youtube.com/watch?v=lafDykKJ_9I
The only reason I exist is to get people to stop people using specific product.
The % I take gets bigger as you make more money.
I am a special tax, I am not on everything just one specific product, the product is good to use and the money I generate goes to specific cause like roads or education.
I am a constant, as your income goes up or down I stay the same %.
I am everywhere, where ever there is a market I am there.
If you are making legal money I get a cut.
If your income is big then I am small, and if your is small I seem larger than life.
If you want something from over the seas it has to get past me.
I am the basic economic problem that everyone faces.
When someone does not pay their taxes they have committed ________