1. E VERYONE ’ S FAVORITE …….. TAXES !!!

2. T HE R OLE OF G OVERNMENT Two typical microeconomic roles of government in a market economy are: provision of public goods and services redistribution of income

3. T HE DILEMMA Markets produce too few public goods The government determines the amount to produce through looking at benefits and costs

4. W HAT ARE TAXES ? Taxes- a mandatory payment to the government Revenue- is government income from taxes and other sources. Like bonds, foreign aid, and lotteries Criteria for taxation Equity Simplicity Efficiency

5. T AX INFO Taxes was firstly introduced in Ancient Egypt as records show that the pharaoh would collect taxes from the people of Egypt for the kingdom. What is tax? Tax is derived from the Latin word ‘ taxare’ meaning ‘to estimate’ Tax is levied (imposed) directly on people or corporations. Tax is the main source of revenue of every country which it can distribute in different type of expenses like defense, education, public health, etc.

6. T AX BASES Who is taxed? Individual income tax Corporate income tax Sales tax Property tax How are they taxed? Tax Structure Regressive- as the amount of income you make goes up, the percent of tax you pay goes down EX: Social Security Tax Progressive- as the amount of income you make goes up, the percent of tax you pay goes up EX: Income Tax Proportional- (flat tax) everyone pays the same percentage of tax. EX: Sales Tax

7. H OW DO THEY IMPACT SOCIETY ? Resource Allocation- can change the way resources are allocated Productivity and Growth- can hamper or spark growth Economic Behavior- through tax incentives the government can compel the tax base to behave the way they want them to. EX: Cigarette taxes

9. F EDERAL T AXES How do you pay? The payroll tax is deducted from a paycheck as withholding, or money taken from a worker’s pay before the worker receives it. The amount of money owed is based on taxable income, the portion of income subject to taxation. Each year, taxpayers must file a tax return, a form used to report income and taxes owed to various levels of government

10. FICA Federal Insurance Contributions Act- is a payroll tax that provides coverage for the elderly, the unemployed due to disability, and surviving family members of wage earners who have died. Ex. Social Security and Medicare Unemployment taxes- unemployment compensation is a program funded by federal and state taxes and is administered by the state. Gives aid to people who have been fired for a certain amount of time

11. C ORPORATE I NCOME T AX Corporate Income Tax- is tax on corporate profits Country Corporat e Tax Rate in 2000[1] Rank in 2000 Corporat e Tax Rate in 2006 Rank in March 2006 Japan40.9339.51 United States[2] 39.4639.32 Germany52138.93 Canada44.6236.14 France37.87355 Spain3511355 Belgium40.24347 Italy379338 New Zealand 3316338 Greece4053210 Netherlan ds 351131.511 Luxembo urg 37.5830.412 Mexico35113013 Australia34143013 Turkey33163013 United Kingdom 30213013 Denmark32182817 Norway28262817

12. O THER TAXES Estate tax- a tax on property transferred to others on the death of the owner. Gift tax- a tax on assets given by one living person to another. Excise tax- is a tax on the production or sale of a specific good or service Customs duty- is a tax on goods imported into the United States User fee- is money charged for the use of a good or service

13. F EDERAL G OVERNMENT S PENDING Mandatory Spending- programs that require that the federal government pay back the contributions previously taxed from the citizens. Entitlements - social welfare programs (Social Security, Medicare, Medicaid, Food Stamps) Discretionary Spending- spending on programs like defense, roads, schools, and running the government.

14. F EDERAL G OVERNMENT S PENDING ( CONT.) Federal budget- the plan for spending federal tax money Fiscal year- a 12 month period for which an organization plans its expenditures. The federal government goes from October 1 st through September 30 th The President proposes his budget which is prepared by the Office of Management and Budget. Congress works from the budget and appropriates money Methods Transfer payments- payments of those who provide nothing in return EX: Social Security, Welfare Grants in aid- a transfer payment to state and local government for certain projects EX: Federal Highway Funds

15. S TATE AND L OCAL T AXES Sales tax- all but 4 states take a percentage of the price of an item sold, usually luxury or non-essential items. (Indiana- 7%) Excise tax- taxes on cigarettes, alcohol, fuel Income tax- most states also charge income taxes. Not Texas and Florida Property tax- a tax assessed by a tax assessor that is a percentage of real estate or other property Balanced budget- Many states have constitutions that say they cannot spend more money than they have Expenses Education is the largest major expense for states

16. M UNICIPAL S PENDING At the city level, taxes pay for these things Schools Public Safety- Police and Fire Public Welfare- health departments and medical care for the needy Other- Roads, Parks, Public Utilities, Snow Removal, Public Transit, Sewage, and trash removal.

17. C OSTS AND BENEFITS The costs of government policies may exceed benefits, because social or political goals other than economic efficiency are being pursued. Example: President must increase military spending out of political necessity, but needs to reduce spending in other programs to limit the deficit (spending more money than is received).