CHAPTER 14 TAXES AND GOVERNMENT SPENDING SECTION 1
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CHAPTER 14 --TAXES AND GOVERNMENT SPENDING • SECTION 1 --WHAT ARE TAXES • SECTION 2 --FEDERAL TAXES • SECTION 3 --FEDERAL SPENDING • SECTION 4 --STATE AND LOCAL TAXES AND SPENDING
THE AMERICAN TAX SYSTEM • Tax- a required payment to various levels of government • Authority to levy taxes--given to federal, state and local government by the U. S. Constitution. – Article I Section 8 of U. S. Constitution – 16 th amendment--Federal Income Tax • America is a “middle class” tax system. – Designed to draw largest amount from more populated middle class! • Creates “revenue” for U. S. Government. – Revenue used to fund government programs and services.
LIMITS ON THE POWER TO TAX • MUST BE FOR COMMON DEFENSE AND NOT FOR GENERAL INTERESTS • FEDERAL TAXES MUST BE THE SAME IN EVERY STATE • NO TAXES ON CHURCH SERVICES • NO TAXES ON EXPORTS
TAX STRUCTURE AND TAX BASE • TAX STRUCTURE--REFERS TO THE WAY THE TAX IS ASSESSED AND COLLECTED. • TAX BASE--THAT WHICH IS SUBJECT TO TAX. • INCOME TAX--PEOPLE’S EARNINGS • CORPORATE TAX--COMPANY PROFITS • PROPERTY TAX--VALUE OF OWNED LAND OR PROPERTY • SALES TAX--VALUE OF A PRODUCT SOLD
TAX STRUCTURE--PROGRESSIVE TAX STRUCTURE • AS INCOME INCREASES, SO DOES THE PERCENT PAID IN TAXES. • FEDERAL INCOME TAX STRUCTURE IS A PROGRESSIVE TAX
TAX STRUCTURE-PROPORTIONAL TAXES • ALSO CALLED A “FLAT TAX” • IT APPLIES THE SAME PROPORTION OR PERCENT ON ALL DESPITE THE VALUES OR SIZE OF THE TAX BASE. • MANY STATE TAXES ARE PROPORTIONAL.
TAX STRUCTURE-REGRESSIVE TAX • PERCENT OF INCOME IN TAXES DECREASES AS INCOME OR TAX BASE INCREASES. • EXAMPLE--SALES TAX • $35, 000 YEARLY INCOME PAYS 5% SALES TAX ON $250 OF GROCERIES X 12 MONTHS-$150 • $35 O, 000 YEARLY INCOME PAYS 5% SALES TAX ON $250 OF GROCERIES X 12 MONTHS-$150 • http: //www. youtube. com/watch? v=Os. Gd 6 FWn. Y_0 &feature=related
WHO BEARS THE “BURDEN OF TAX” • “INCIDENCE OF TAX”. --IS WHO IS REALLY ASSIGNED THE PAYMENT OF TAX. • PRODUCERS LOOK TO “PASS ON” THE BURDEN OF A TAX RATE. • INELASTIC DEMAND PRODUCTS-- THE BURDEN OF TAX CAN BE SHIFTED TO THE CONSUMER. • http: //www. youtube. com/watch? v=zjo. Nnxsfi b. U
WHAT ARE THE CHARACTERISTICS OF A GOOD TAX? • SIMPLICITY – EASY FOR TAXPAYERS TO UNDERSTAND, FILE AND PAY. • EFFICIENCY – EASY TO ADMINISTER AND COLLECT BY GOVERNMENT • CERTAINTY – CLEAR WHEN THE TAX IS DUE, HOW MUCH IS DUE, AND HOW TO PAY THE TAX • EQUITY – FAIR SO THAT THE “BURDEN” IS NOT TOO MUCH OR TOO LITTLE – APPLIED EQUALLY TO ALL PEOPLE!
MEASURING THE FAIRNESS OF A TAX. • BENEFITS RECEIVED PRINCIPLE – PAY TAXES IN PROPORTION TO BENEFITS RECEIVED FROM THE GOVERNMENT – Example--People who drive a lot on government roads pay more in gas tax. • ABILITY TO PAY PRINCIPLE – Pay more in tax based on your wealth status – Basis of the Progressive tax.
Section 2: FEDERAL TAXES • FEDERAL TAXES--SOURCES OF REVENUE • 5 CHIEFS SOURCES / TAXES • 1) FEDERAL INCOME TAXES--39 -43% • 2) FICA--FEDERAL INSURANCE CONTRIBUTORY ACT--32% • SOCIAL SECURITY, MEDICARE, UNEMPLOYMENT • • 3) CORPORATE INCOME TAX--10 -13% 4) BORROWING FOR FEDERAL DEFICIT-9% • 5) MISCELLANEOUS TAXES--7% • CUSTOMS DUTIES, EXCISE TAX, GIFT& INHERITANCE TAX
FEDERAL INCOME TAX • PEOPLE FILE TAX RETURNS UNDER THE “PAY AS YOU EARN SYSTEM” • MAKES IT EASIER THAN PAYING A LUMP SUM. • GOVERNMENT HAS MONTHLY FINANCIAL NEEDS • TAX RETURNS FILED BY APRIL 15 • PROGRESSIVE TAX WITH 6 BRACKETS • TAX SYSTEM IS A COOPERATIVE EFFORT BETWEEN EMPLOYER AND EMPLOYEE
FILING A TAX RETURN • FILL OUT W-4 FORM • LIST POSSIBLE EXEMPTIONS • HAVE EMPLOYER “WITHHOLD” THE CORRECT AMOUNT FROM MONTHLY PAY BASED ON EXEMPTIONS AND SALARY. • RECEIVE W-2 STATEMENT • LIST PERSONAL EXEMPTIONS AND POSSIBLE DEDUCTIONS • (TOTAL INCOME)EXEMPTIONS AND DEDUCTIONS = TAXABLE INCOME • TAX CREDITS-AMOUNT YOU CAN SUBTRACT FROM YOUR TAXABLE INCOME
FICA TAX • http: //www. youtube. com/watch? v=UP 9 x y 2 e. Vj 7 s
F. I. C. A. TAX • SOCIAL SECURITY(OASDI) • Provides retirement fund for people who reach a specific age. • Provides benefits for surviving members and to those with a disability. • MEDICARE • A Federally funded health care program for those over the age of 65. • UNEMPLOYMENT • Paid by employers and funded by state and federal government. • Provides an income for workers who lose their jobs through no fault of their own. Specific rules apply. • TAX STRUCTURE BEGINS AS PROGRESSIVE TILL A CERTAIN AMOUNT, THEN TURNS REGRESSIVE
CORPORATE INCOME TAXES • TAX ON THE PROFIT OF A CORPORATION. • DIFFICULT TO CALCULATE BECAUSE CORPORATIONS CAN HAVE MANY DEDUCTIONS AND “LOOPHOLES”. • LOOPHOLES ARE WAYS TO AVOID PAYING CERTAIN AMOUNTS OR TYPES OF TAXES. • PROGRESSIVE TAX • RATES BEGIN AT 15%…. RISE TO 35 -39%
OTHER FEDERAL TAXES! • EXCISE TAXES – TAX ON MANUFACTURE / SALE OF CERTAIN DOMESTIC PRODUCTS. (ALCOHOLIC BEVERAGES, TOBACCO, AUTOS, GAS, ETC. ) • ESTATE TAX – TAX ON PROPERTY / ASSETS OF PERSON WHO HAS DIED. – LEVIES BEFORE HEIRS RECEIVE THEIR SHARE – PROGRESSIVE TAX-STARTS @ $2 MILLION • GIFT TAXES – TAX ON MONEY PROPERTY ONE LIVING PERSON GIVES ANOTHER. – STARTS AT $12000 • IMPORT TAXES – LEVIES TO PROTECT DOMESTIC PRODUCERS – CALLED “TARIFFS” OR CUSTOM “DUTIES”
TAXES ALSO INFLUENCE BEHAVIOR • TAX INCENTIVE. • A TAX THAT IS LEVIED THAT ALSO ENCOURAGES OR DISCOURAGES BEHAVIOR OR PURCHASING. • SOME PRODUCTS ARE IDENTIFIED AS OR WITH “SIN TAX”. • EXAMPLES OF SIN TAX PRODUCTS ARE CIGARETTES, ALCOHOLIC BEVERAGES, AND EVEN GASOLINE.
SECTION 3 --FEDERAL SPENDING • FEDERAL SPENDING IS DIVIDED INTO 2 CATEGORIES: • MANDATORY SPENDING--MONEY THAT CONGRESS MUST, BY LAW, SPEND ON PROGRAMS OR AREAS! • DISCRETIONARY SPENDING--IS AREAS OF SPENDING THAT LAWMAKERS CAN VARY HOW MUCH THEY SPEND OR IF THEY SPEND ANY AT ALL!
MANDATORY SPENDING • INTEREST ON FEDERAL DEBT • ENTITLEMENT PROGRAMS • – SOCIAL SECURITY • RETIREMENT FUND • RATIO OF PEOPLE PAYING TO COLLECTING IS CHANGING FROM 4: 1 to soon 2: 1 • AFFECTED BY THE BABY BOOMERS--STRAIN ON SOCIAL SECURITY – MEDICARE • FEDERALLY FUNDED HEALTH CARE (INSURANCE) AND DISABILITY PAYMENTS – MEDICAID • FEDERAL-STATE FUNDED HEALTH INSURANCE FOR LOW INCOME AND ELDERLY SOCIAL WELFARE PROGRAMS – MEAN TESTED PROGRAMS (ELIGIBILITY BASED ON AGE, INCOME, HEALTH) – PROVIDE SOCIAL ASSISSTANCE
INTERGOVERNMENTAL TRANSFERS OF REVENUE • MONEY COLLECTED BY FEDERAL GOVERNMENT RETURNED TO STATE GOVERNMENTS. • APPROXIMATELY $400 BILLION ANNUALLY DIVIDED AMONG 50 STATES AND WASHINGTON D. C. • MONEY RETURNED MUST BE SPENT ACCORDING TO SPECIFIC GUIDELINES
DISCRETIONARY SPENDING • SPENDING THAT VARIES ACCORDING TO NEEDS OR SITUATIONS • LARGEST DISCRETIONARY SPENDING INCLUDES: • DEFENSE • EDUCATION • ENVIRONMENT • SCIENTIFIC RESEARCH (SPACE PROGRAM)
Sect. 4 STATE AND LOCAL TAXES • States collect over $500 bilion on taxes each year. • TWO LARGEST SOURCES OF STATE REVENUE ARE: • INTERGOVERNMENTAL TRANSFERS OF REVENUE. --25% • MONEY TRANSFERRED FROM FEDERAL TO STATE GOVERNMENTS • INSURANCE TRUST REVENUE. --22% • MONEY PAID TO THE STATE BY TAXPAYERS SIMILAR TO SOCIAL SECURITY.
OTHER STATE TAXES • SALES TAX & EXCISE TAX--19% • 2. 9% to 7. 25% rate (varies state to state) • Can act as a “Sin Tax” • INCOME TAXES--13% • Like most state taxes, they tend to be proportional ! • CORPORATE TAXES--2. 5% • Low corporate taxes tend to encourage industrial development.
OTHER STATE TAXES--16% • • • LICENSING FEES TRANSFER FEES STOCK VALUE FEE SEVERANCE TAX INHERITANCE TAX – A TAX ON VALUE OF PROPERTY THE FAMILIES OF THE DECEASED. A STATE TAX SIMILAR TO FEDERAL ESTATE TAX.
LIMITATIONS ON STATE TAXES • CANNOT TAX FEDERAL PROPERTY • CANNOT TAX INTERSTATE COMMERCE --TAX SALE OF PRODUCTS BETWEEN STATES • CANNOT TAX NON PROFIT GROUPS. • CHURCHES, SCHOOLS ETC. • TAX EXEMPT STATUS--NOT SUBJECT TO TAXES
STATE SPENDING • STATES HAVE 2 CATEGORIES OF SPENDING: • OPERATING BUDGET--DAY TO DAY SPENDING NEEDS. (SALARIES, RESOURCES, ETC). • • MANY STATE BY LAW MUST HAVE A BALANCED OPERATING BUDGET. CAPITAL BUDGET--SPENDING ON LONG TERM AND MAJOR INVESTMENTS
WHERE ARE STATE TAXES SPENT? • EDUCATION • FUNDING OF STATE UNIVESITIES • EVERY STATE HAS AT LEAST ONE UNIVERSITY • FUNDING PUBLIC LOCAL SCHOOL SYSTEMS. • SCHOOLS RECEIVE APPROXIMATELY $8701 PER STUDENT IN STATE AID. (BASED ON ATTENDANCE) • PUBLIC SAFETY • STATE POLICE, STATE CRIME LABS, CORRECTIONS DEPT, FIRE DEPTS.
WHERE ARE STATE TAXES SPENT? (Continued) • PUBLIC WELFARE – – HOSPITALS --SOME UNEMPLOYMENT TEST FOR POLLUTION MEDICAL CLINICS INSPECT WATER SUPPLIES • HIGHWAYS AND TRANSPORTATION – CONSTRUCTION AND MAINTENANCE OF ROADS • ARTS AND RECREATION – STATE FORESTS & PARKS, MUSEUMS • ADMINISTRATION. – PAY SALARIES OF STATE OFFICIALS
LOCAL GOVERNMENT FORMS OF REVENUE • 87, 000 LOCAL GOVERNMNET UNITS • COLLECT ALMOST $484 BILLION IN TAX REVENUE. • THREE LARGEST SOURCES OF REVENUE ARE: • INTERGOVERNMENTAL FORMS OF REVENUE • PROPERTY TAXES • OTHER TAXES
PROPERTY TAXES • TAX ON VALUE OF ASSESSED PROPERTY. • REAL PROPERTY--TAX ON REAL ESTATE & STRUCTURES ON LAND • PERSONAL PROPERTY--MOVABLE POSSESSIONS OR ASSETS • VALUE DETERMINED BY TAX ASSESSORS – 1) TAX VALUES HARD TO COMPARE – 2) ASSESSORS HARD TO TRAIN – 3) DISCOURAGES PROPERTY IMPROVEMENT
OTHER TAXES INCLUDE: • • HOTEL / MOTEL TAXES OCCUPATIONAL TAXES(LIKE INCOME) EXCISE TAXES LICENSING FEES
LOCAL SPENDING • LARGEST CATEGORIES OF SPENDING ARE: – 1) EDUCATION 40% – 2) UTILITES – 3) GENERAL WELFARE (POLICE AND FIRE)
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