Chapter 9 1 Raising Revenue The federal government

Chapter 9. 1 Raising Revenue • The federal government can’t develop and sustain its programs without revenue – The income the government collects from us.

How does the Federal government make revenue? • Taxes – Charges laid on individuals and businesses by a government. • THIS IS THE FEDERAL GOVERNMENTS PRIMARY SOURCE OF REVENUE!!

Federal Taxes • How does the federal government collect taxes from an individual? – Income taxes!!

Individual Income Tax • Makes up the federal government’s largest source of revenue. – Around 50% of all federal revenue comes from personal income tax. – What does this include? • • Wages and salaries Business profits Tips Dividends – Payments received as a return on an investment

Individual Income Tax, cont. • Personal income tax is based on a progressive tax – Larger percentages of income are taken from people with higher incomes. Table 1 [Income Tax Paid to Federal Government] Individual Tax Payer • 10% on income between $0 and $8, 025 • 15% on the income between $8, 025 and $32, 550 • 25% on the income between $32, 550 and $78, 850 • 28% on the income between $78, 850 and $164, 550 • 33% on the income between $164, 550 and $357, 700 • 35% on the income over $357, 700

What is taxable income? • Taxable income = sum of all sources of a person’s income minus deductions and exemptions • Math Equation: – All Personal Income – (Deductions + Exemptions) = Taxable Income

What are deductions and exemptions? • Deductions: – Money that the government allows you to subtract from your taxable income. • School loan interest • Mortgage interest • Donations • Exemptions: – Money that can not be taxed at all. • Given to people who have children.

So how does this all add up? • Personal Income – $40, 000 • Deductions – $3, 000 mortgage interest – $650 school loan interest – $750 donations • Total = $4, 400 deductions • Exemptions – $3, 500 for one child • Total taxable income = $32, 100 – WHY IS THIS IMPORTANT? ? ?

You get a refund!! • Original Personal Income – $40, 000 • Taxed at 25% – Should have paid $10, 000 in taxes! • True taxable income – $32, 100 • Taxed at 15% – Only have to pay $4, 815 in taxes. • Refund = $5, 185 Table 1 [Income Tax Paid to Federal Government] Individual Tax Payer • 10% on income between $0 and $8, 025 • 15% on the income between $8, 025 and $32, 550 • 25% on the income between $32, 550 and $78, 850 • 28% on the income between $78, 850 and $164, 550 • 33% on the income between $164, 550 and $357, 700 • 35% on the income over $357, 700

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When do you have to pay your taxes? • April 15 th of every year! – If you do not pay by then, you have to: • File for an extension • Pay fines • Go to jail!

What if I own a business? • If you own a business, – You must pay a corporate income tax. • Based on a business’s net income. – What is net income? • Revenue (Money made) – Expenses (Money spent). • Makes up the 3 rd largest source of revenue for the federal government. • Example: – Apple Computers paid $1, 580, 000 in 2008

How much did Apple make in 2008? • $6, 210, 000 in revenue!