1. Taxes: Somebody Has To Pay
Module 2.1 & 2.2

2. What do taxes pay for? Public schools Roads and highways
National defense
Firefighters/police
Safe drinking water
Public welfare programs (WIC, food stamps)

3. Tax theories
Ability to Pay
Benefits Received
Those who CAN afford to pay taxes should pay more than those who can’t
People with higher income should pay more than those with lower income.
Takes away incentive.
Only the people that who use the programs/services would pay the taxes to support them.
Example: toll roads

4. Benefits Received – Unfair?
People with limited income benefit more from:
Unemployment
Public welfare
Housing subsidies
Do people with little income pay enough taxes to provide the money the receive?

5. Progressive vs. Regressive
Progressive Tax
Regressive Tax
Takes a larger percentage of income from people in higher-income groups
Example: federal income taxes
Takes a larger percentage of income from people in lower-income groups
Example: sales tax at stores

6. Progressive – Income Tax

7. More… The overall tax system in US = progressive
$ paid in income tax > $ paid in sales tax
Free riders: A problem that happens when people benefit from using goods and services without paying for them.

8. Why People Don’t Pay Taxes
They say it’s illegal.
It’s in violation of religious beliefs.
It’s not required by the US Constitution.

9. Punishment
If you do NOT report the correct amount of income (underreporting taxable income) … OR If you do NOT file a tax return, you can face criminal prosecution. (fine or imprisonment) Accidental errors on tax forms can still result in fines and penalties

10. IRS – Internal Revenue Service
Division of US Department of Treasury
Responsible for maintaining confidence in the federal tax system
Has the right to audit a person’s tax return (question anything reported)
File your income tax return in time
Keep good records of income and expenses
Always be honest

11. Reporting Your Taxes Done each spring – April 15
W-2 to complete tax form
HAS to be done

12. Ethical and Moral Issues
Paying taxes is part of their responsibility to others and to society
Many complain about paying
Some disagree how money is spent
Good citizens pay taxes
Helps provide public goods

13. Vocabulary Standard of living – level of wealth w/in country
Quality of life – what makes people happy
Sales tax - a tax paid on certain goods and services at the point in time they are purchased
Voluntary compliance - A system that relies on individual citizens to report income voluntarily
Underpaying taxes: knowingly paying less than you’re required to pay