1. Ch14 Taxes

2. Are your taxes too high?
Do you think that you pay too much in Federal, State, County, and City Taxes?
What do you think you get for your Taxes?
How many Taxes are you paying?

3. Tax Structures
The way in which taxes are applied can be done in different ways
Proportional Tax – Percentage remains the same for all who pay
Progressive Tax – Those who earn more, pay a higher percentage (10%, 15%…35%)
Regressive Tax – Those who earn more pay less

4. Characteristics of a good Tax
Simple – Easily understood
Efficient – Easy to collect
Certain – Impossible to avoid
Equitable – Fair, and not too much burden

5. Effect of Taxes
The effect of taxes is to reduce the amount of consumer and producer surplus, as well as reduce quantity and increase prices. The larger the tax, the more distorted the outcome.
Depending on the elasticity, the tax burden may fall more heavily on the producer or the consumer.

6. Who should pay?
While just about everyone agrees that taxes should be fair, people disagree on what “fair” is.
Should those who receive the most benefit from a tax pay the most, or should those who have the greatest ability pay the most?

7. Corporations and taxes
The Government Accountability Office said 72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005.
More than half of foreign companies and about 42 percent of U.S. companies paid no U.S. income taxes for two or more years in that period, the report said.
In fact, GE not only paid no taxes in 2009, but got a $1.1 Billion refund (even when posting over $10 Billion in profits)!
Of course, if you tried that…

8. Federal Taxes
Federal Revenues come from 6 main sources (not including borrowing)
Personal Income Tax 43%
Social Insurance Tax 39%
Corporate Income Tax 10%
Excise Tax 4%
Estate and Gift Taxes 1%
Custom Duties and Tariffs 1%

11. Discretionary vs. Mandatory Spending
Mandatory spending includes payments the government must make in the form of entitlements (Medicare[elderly], Medicaid[poor], Social Security). Entitlements may be means tested (benefit depends on amount earned), or fixed (you get the benefit no matter what income level)
Discretionary spending covers all other outlays by the federal government and includes defense, education, law enforcement, exploration and research, parks and environment, etc.

12. State and Local Governments
State and local governments also collect taxes, though the taxes collected rely less on personal income taxes, and more on sales taxes, property taxes, and fees.
State and local governments spend far more on education, law enforcement, safety, roads, and public improvements.