Tax Rate Introduction U S Federal Income Tax

Tax Rate Introduction U. S. Federal Income Tax System

3 Types of Taxes • Progressive– Tax rate increase as income increases (tax brackets) – Example: Federal & California Income taxes • Regressive– Consumes a larger % of a low income worker’s salary – Example: Gasoline Tax, Bridge Tax • Flat – Same % for everyone – Example: Sales Tax, Some State income taxes

Federal Gov’t Taxes • Federal Income Tax – Progressive Tax: % tax rate increases as income increases • Lowest 10% & highest bracket 37% • Social Security Tax– 6. 2% of salary on first $130, 000 salary/income (employer also pays 6. 2%!!) – Benefit: Receive monthly Gov’t pension starting at 65 (or older) • Medicare Tax – 1. 45% of entire salary (employer also pays 1. 45%) – Why: Gov’t health insurance starting at 65

Purpose/Goals of a Gov’t INCOME TAX?

2013 Federal Tax Rate Brackets Tax Rate Bush Tax cuts are now permanent New top bracket Single Married filing Jointly or Qualifying Widow(er) 10% Up to $8, 925 Up to $17, 850 15% $8, 926 – $36, 250 $17, 851 – $72, 500 25% $36, 251 – $87, 850 $72, 501 – $146, 400 28% $87, 851 – $183, 250 $146, 401 – $223, 050 33% $183, 251 – $398, 350 $223, 051 – $398, 350 35% $398, 351 – $400, 000 $398, 351 – $450, 000 $400, 001 + $450, 001 + $6, 100 $12, 200 39. 6% Standard Deduction

2019 Federal Tax Brackets

Who pays taxes? Approximately 76. 4 million or 45. 0% of Americans won’t pay any federal income tax in 2018

California State Income Tax

Tax Worksheet AS/AD Model Price Level LRAS AS 1 Recessionary Gap • Below PPF Line • Unemployment > 4. 0% ------- P 1 ------- E 1 Q 1 U. S. PPF Graph AD 1 Real GDP

Trade-off Analysis More Progressive Tax Code? Opportunity Benefit Opportunity Cost U. S. PPF Graph