Taxing and Spending CHAPTER 20 SECTION 1 PGS

Taxing and Spending CHAPTER 20 SECTION 1 PGS. 555 -559

Taxes as a Source of Revenue “In this world, nothing is certain but death and taxes. ” – Benjamin Franklin “Taxes are what we pay for civilized society”-Oliver Wendell Holmes �Taxes – payments by individuals and businesses to support the activities of the government Article I, Section 8 of the Constitution

Taxes and the Economy � Levying and collecting taxes is a concurrent power (belongs to both state and federal governments. ) � Taxation is the government’s chief source of revenue (income). � Governments may use taxation as a means of manipulating the economy (i. e. , higher taxes for products/activities the government wants to discourage; tax exemptions for actions it wants to encourage; tax cuts to stimulate spending during a recession. ) � Federal government brought in approx. $3. 25 trillion in revenue in 2015. It also spent approx. $3. 69 trillion, leaving a deficit of around $438 billion.

Types of Taxes

Types of Taxes �Progressive Tax – based on the taxpayers ability to pay; the higher a person’s taxable income, the higher the tax rate. (income tax) �Regressive Tax – tax in which lower incomes pay a larger portion of their income. (i. e. , sales tax)

Individual Income Tax �Nearly 50 cents of every dollar the government collects in revenues comes from income taxes. �Taxable Income – the total income of an individual minus certain deductions and personal exemptions. �Dependent – one who depends primarily on another person for such things as food, clothing, and shelter

2013 Federal Tax Bracket (Single) (Couple) (Head of Household) Marginal Tax Rate $0+ $0+ 10% $8, 700+ $17, 400+ $12, 400+ 15% $35, 350+ $70, 700+ $47, 350+ 25% $85, 650+ $142, 700+ $122, 300+ 28% $178, 650+ $217, 450+ $198, 050+ 33% $388, 350+ 35%

Tax Credits �Federal government provides tax credits generally to people in lower income brackets �Tax Credits – allow taxpayers to reduce their income tax liability

Income Tax �Withholding – the money an employer withholds from worker’s paycheck for anticipated income tax �Self-employed people are expected to file estimates of their income four times a year. �Internal Revenue Service (IRS) – bureau of the US Treasury Department, collects taxes through regional standards

Payroll Taxes �Social Insurance Taxes – money collected by the federal government from employees and employers to pay for major social programs such as Social Security, Medicare, and unemployment compensation. � Fastest-growing source of federal income � Unlike other taxes, social insurance taxes do not go into the government’s general fund; instead they go to Treasury Department special trust accounts. Congress then appropriates money from these accounts to pay out benefits

Estate and Gift Taxes �An estate tax is collected on the assets (property and money) of a person who dies. Federal exemption (2013): $5. 25 million Federal tax rate: 35% �A gift tax is levied on gifts of money from a living person. Current exclusion: $14, 000 (State taxes may apply as well)

Excise Taxes �Excise Tax – tax on the manufacture, transportation, sale, or consumption of certain items such as gasoline, liquor, or cigarettes �Some excise taxes are called luxury taxes because they are levied on goods not considered to be necessities, or sin taxes if levied on products like tobacco, alcohol, or gambling. �Contribute about $70 billion a year to the federal government

Customs Duties �Customs Duties – taxes levied on goods imported into the United States �Raise revenue and help protect the nation’s industries, businesses, and agriculture from foreign competition

Protective Tariff �Protective Tariff – a high customs duty �Many businesses, labor, and farm groups support protective tariffs because they raise the price of foreign goods, making them less competitive compared to American goods on the domestic market �Downside: Higher prices for consumers

Corporate Income Tax that must be paid by a corporation based on the amount of profit generated.

Taxes and the Economy �The federal government sometimes uses taxes to influence economic decisions �Tax Loopholes – provisions, or tax exemptions, favoring certain groups that many people consider to be unfair

�Tax Reforms 1985 – Ronald Reagan � Reforms meant to stimulate spending and boost the economy 2002—Ge 0 rge Bush � Tax cuts for all brackets

Government Borrowing � 2002 – borrowed amount-$220 billion, or about 9 cents for every dollar the government raised � 2012—federal budget deficit $1. 1 trillion � 2015—approx deficit $450 billion �National Debt currently over $19 trillion. �http: //www. usdebtclock. org

Budget 2010 Budget Military Medicare Social Security Medicaid Education Foreign Aid 19. 3% 13. 1% 20. 4% 7. 9% 2. 7% 0. 6%

Government Pensions Food Assistance Housing Assistance What to cut? What to increase/decrease? 3. 5% 2. 8% 1. 7%