Chapter 9 Taxation Nothing is certain but death

Chapter 9 - Taxation “Nothing is certain but death and taxes”

Criteria for Effective Taxes 1. Fair/ Equitable – few loopholes 2. Simple – easy to u-stand 3. Efficient – easy to administer and generate revenue for gov.

2 Principles of Taxation 1. Benefit principle = those who benefit should pay in proportion to the amount of benefits they receive. + + = 2. Ability-to-pay principle = according to income, regardless of benefits they receive = =

Types of taxes 1. Proportional = 2. same % for everyone 3. 2. Progressive = 4. higher % for higher incomes 5. 3. Regressive = 6. opposite of progressive

Federal Gov. Taxes 1. Almost ½ of their rev. comes from income tax 2. FICA (Fed. Insurance Contributions Act) = Largest source of gov. rev. - mainly pays for Social Security and Medicare (“Revolving Door” – ‘it pays for itself’) 3. Corporate income tax – from 15 to 35% *Remember, “Corporations are people too” , so they have to pay taxes on their ‘income’.

Federal Gov. Taxes – other ways the fed. Gov. get revenue: 4. Excise taxes – ‘luxury’ items 5. Sin Taxes – behavior adjustment 6. Estate taxes and gift taxes 7. Customs taxes – (imports)

State and Local Taxes - intergovernmental revenues - sales tax - property tax - income - lottery?

How do they collect? • Federal gov. = IRS • State gov. = the Tax Board – Mostly it comes out of your paycheck (it is ‘withheld’) – You will file your official tax return by April 15 • You may receive a ‘refund’ or be made to pay more, depending on how much was withheld and how much $ you made

Federal Spending

• Based on the ‘fiscal year’, as opposed to the ‘calendar year’.

• Mandatory Spending – Those items that don’t need Congressional approval. (“The money is already spent. ”) Social Security Medicare Interest on the National Debt

• Discretionary Spending – Those items that require approval from Congress from year to year • Appropriations Bill = a law that allocates money to a particular program (goes through the traditional ‘Bill to a Law’ sequence) National “Defense” Veterans benefits “Income Security” Agriculture Transportation Education International Affairs Science/Space/Technology

The Process: • President & his administration come up with a proposal – called “The 2013 Budget” – Sends it to Congress • Congress slashes, adds, amends – Sends it back to President • President signs it – becomes the plan for expenditures for the coming year.

Federal Debt & Deficit • The amount of money that the U. S. Gov. spends over and above what they took in (Spending – Revenue = Deficit) • National Debt = the total “credit card bill” that has accumulated thus far.