Taxation in the USA I Principles of Taxation

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Taxation in the USA

Taxation in the USA

I. Principles of Taxation • A) Ability-to-Pay Principle = citizens who earn more in

I. Principles of Taxation • A) Ability-to-Pay Principle = citizens who earn more in society are able to give back more to society for the general good • B ) Benefits-Received Principle = people who use a government service should support it through taxes • C) Why Governments tax? To raise revenue for services provided for its citizens

II. Types of Taxes • 1. Progressive taxes = tax system in which tax

II. Types of Taxes • 1. Progressive taxes = tax system in which tax rates increase as income increases a) “graduated” income taxes for individuals and corporations b) federal corporate tax rates = 15% to 35% c) CA State income tax rates = 1% to 13. 3% d) Federal tax rates = see table

• The top 50% of income earners pay a whopping 97. 7% of

• The top 50% of income earners pay a whopping 97. 7% of federal income taxes, while the lower 50% pay just 2. 3%. • The top 25% pay 87. 3% of federal income taxes • The top 10% pay 70. 5% (these are people with an adjusted cross income of about $112, 124 or higher) • The top 5% pay 58. 7% • The top 1% pay 36. 7% (these are people with an adjusted gross income of about $343, 927 or higher)

• 2. Regressive Taxes = a tax that takes a larger percentage of

• 2. Regressive Taxes = a tax that takes a larger percentage of lower incomes than higher incomes a) Examples: excise taxes, sales, etc. 1) Riverside County sales tax = 8. 00% 2) excise taxes = taxes on the consumption of gasoline, alcohol, cigarettes, etc

• 3. Proportional Taxes = tax rates that stay the same percentage regardless

• 3. Proportional Taxes = tax rates that stay the same percentage regardless of incomes a) Examples: Property taxes, tariffs, and F. I. C. A. * F. I. C. A. and Medicare taxes = 7. 65% b) also known as “flat-rate” taxes

• 4. Capital gains taxes = a tax on all profits from the

• 4. Capital gains taxes = a tax on all profits from the sale of stocks, bonds, and real estate a) 15 -20% tax rates • 5. Excise taxes or “value added taxes” = a tax on the consumption or use of gasoline, alcohol, cigarettes, cell phones, transportation (trucking), air travel, etc.

Summary of 2009 Federal Individual Income Tax Data Summary of Federal Income Tax Data,

Summary of 2009 Federal Individual Income Tax Data Summary of Federal Income Tax Data, 2009 Number of Returns with Positive AGI All Taxpayers AGI ($ millions) Income Group's Taxes Share of Paid ($ Total AGI millions) Group's Share of Income Taxes Income Split Point Average Tax Rate 137, 982, 203 $7, 825, 389 $865, 863 100. 0% - 11. 06% Top 1% 1, 379, 822 $1, 324, 572 $318, 043 16. 9% 36. 7% $343, 927 24. 01% 1 -5% 5, 519, 288 $1, 157, 918 $189, 864 14. 8% 22. 0% Top 5% 6, 899, 110 $2, 482, 490 $507, 907 31. 7% 58. 7% 5 -10% 6, 899, 110 $897, 241 $102, 249 11. 5% 11. 8% 11. 40% Top 10% 13, 798, 220 $3, 379, 731 $610, 156 43. 2% 70. 5% $112, 124. 00 18. 05% 10 -25% 20, 697, 331 $1, 770, 140 $145, 747 22. 6% 17. 0% Top 25% 34, 495, 551 $5, 149, 871 $755, 903 65. 8% 87. 3% 25 -50% 34, 495, 551 $1, 620, 303 $90, 449 20. 7% 11. 0% Top 50% 68, 991, 102 $6, 770, 174 $846, 352 86. 5% 97. 7% > $32, 396 12. 50% Bottom 50% 68, 991, 102 $1, 055, 215 13. 5% 2. 3% < $32, 396 1. 85% Source: Internal Revenue Service $19, 511 16. 40% $154, 643 20. 46% 8. 23% $66, 193. 00 14. 68% 5. 58%

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