1. Financing the Government
Chapter 16

2. The Income Tax Authorized by the 16th Amendment
Largest Source of Federal Revenue
Flexible Tax – rates can be adjusted
Progressive Tax – the higher the source of income, the higher the tax

3. Individual Income Tax
The tax on individuals’ income regularly produces the largest amount of federal tax revenue.
Tax is levied on each person’s taxable income minus exemptions and deductions.
April 15th – everyone who has earned taxable income must file a tax return (declaration of income).
Individual Income taxes are filed with the IRS

4. Corporate Income Taxes
Corporations pay taxes on its net income (earnings minus costs).
More complicated than individual taxes because of the many deductions.
Non-profit organizations and charitable foundations are not subject to corporate income taxes.

5. Payroll Taxes Social Security Medicare Unemployment Compensation
Regressive taxes – levied at a flat rate without regard to the taxpayers income.
The IRS collects the money and places it into trust accounts maintained by the Treasury (Congress appropriates funds).

6. Excise Taxes
A tax laid on the manufacture, sale, or consumptions of goods and/or the performance of services.
Taxes on gas, oil, tires, tobacco, alcohol, firearms, telephone services, airline tickets, etc.
Often called “hidden taxes” or “luxury taxes” or “sin taxes.

7. Estate and Gift Taxes
Estate Tax – a levy imposed on the assets of one who dies.
The first $1.5 million of an estate is exempt from federal tax.
Gift Tax – a tax imposed on the making of a gift by a living person.
Any person may make up to an $11,000 in tax-free gifts to another person in one year.

8. Customs Duties Taxes laid on goods brought into the U.S.
Also known as tariffs, import duties, or imposts.
Congress decides which imports will be dutied and at what rates.
Customs were a major source of federal income for over a century. Now they make up less that 1% of all the money the government makes in each year.

9. Non-tax Revenues
A large amount of earnings of the Federal Reserve comes from interest.
Interest is a charge for borrowing money (generally a percentage of the amount borrowed).
The interest from loans made by other federal agencies generate large sums of money.
The Treasury Department also makes money by minting coins (difference between the cost of the materials and the value of the coin) and commemorative stamps.

10. Borrowing
Congress has the power to borrow money on the credit of the U.S. (Article 1, Section 8, Clause 2).
The government generally borrows money as a way to meet the costs of a short-term crisis or a large-scale project.
In recent decades, the Federal Government has borrowed money for another reason: deficit spending (when the government spends more money than they bring in on tax revenues).