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CHAPTER 14
Taxes and Government Spending
STEFF CYBULSKILIZ DILLON
What are taxes?
What is the purpose of taxation?
Tax- a required payment to a local, state, or national government.
They give the gov the money to operate (primary way they collect money)
Revenue- the income received by a government from taxes and other nontax sources. Without revenue from taxes, gov would not be able to
provide goods we only benefit from. (national defense, education)
Limits to Taxing
The constitution spells out specific limits on taxing A tax cannot bring in money that goes to
individual interests. Federal taxes must be same in every state Cannot tax churches (freedom of religion)
Types of taxes
Progressive-Percentage
of income paid ion taxes increases as income increases (ex. Federal income tax)
Regressive-The
percentage of income paid in taxes decreases as income increases
•Proportional-•Percentage of income paid in taxes remains the same at all income levels
Taxes (cont.)
Tax base- the income, property, good, or service that is subject to tax
Different taxes have different bases Examples;
Individual income tax- a tax based on a persons earnings
Corporate income tax- tax based on company profits Property tax- tax based on real estate Sales tax- tax based on goods or services
Characteristics of a Good Tax
Simplicity- easy to understand, keep necessary records, etc.
Efficiency- accessible by gov, easy to payCertainty- clear due date, how much is due
and how it should be paidEquity- no one bears too much/too little of tax
burden
Determining Fairness
2 ideas:Benefits-received principle: person should pay taxes based on level of benefits from gov
Ability-to-pay: people should pay taxes according to their ability to pay
MADISON ZIEMBA 2AND
JUSTIN BROJAKOWSKI
Federal Taxes
Individual Income Taxes
“Pay-As-You-Earn” Taxation: paid throughout the year
Tax Brackets: progressive tax; rises with the taxable income
Tax Withholding: taxes taken out of pay
Taxable Income: earnings on which taxes are paid; Total income minus exemptions & deductions
Personal Exemption: amount subtracted from gross income
Tax Deduction: variable amount subtracted from gross income
Tax Credit: variable amount subtracted from gross income
Corporate Income Tax
Progressive TaxThey can subtract
many expenses from their income. It’s tricky to determine taxable income because of this.
Social Security, Medicare, and Unemployment Taxes
Social Security
Provides old-age pensions and unemployment insurance to workers
Unemployment Taxes
Paid by employers
If the workers are laid off through no falt of their own they can file for unemployment compensation
Medicare•National health insurance that helps pay for healthcare
Other Types of Taxes
Excise Taxes: on the sale or manufacture of a good
Estate Tax: on the value of money and the property of a person who has died
Gift Tax: on the money or property that one living person gives to another
Import Tax: tariff (on imported goods)
Tax Incentive: use of taxation that discourages or encourages types of behavior
ARIONNA SHAVER
FEDERAL SPENDING
Mandatory and Discretionary Spending
Mandatory spending: money that Congress is mandated
Discretionary spending: Spending where lawmakers are free to make choices
The largest of federal spending goes to Medicare & Medicaid. The smallest is Interest.
Enlightenment Programs
Enlightenment programs are social welfare programs Social Security Medicare
About 42 million people mostly over 65 year old Medicaid
Low income families, disabilities, and elderly people in nursing homes
Other mandatory spending programs Benefits people and families whose income fall below
certain level
Discretionary Spending
Discretionary spending is a spending category which governments can spend through an appropriations bill. This spending is optional.
Defense spending is the amount of financial resources dedicated by an entity.
Other Discretionary spendingWhat some of federal spending pays for…
Education, training, scientific research, student loans, law enforcement, and environmental cleanup.
Federal Aid
To state and local Government In total about $404 billion a year in federal money is
divided among the states, Average of about $1,400 per person.
JOE IMPERATO
State and Local Taxes and Spending
Taxes and Spending
Like families and individuals, governments must plan their spending ahead of time.
Budget-an estimate of future revenues and expenses
Federal gov.- One budget for planned revenue and expenses
States- Two budgets; operating budgets and capital budgets States put an operating budget to plan for its dat to
day spending needs
Spending and taxes
Since trade and commerce are considered national enterprises states cannot tax imports or exports
Sales taxes are a main source of revenue for state governments
Some states tax property; Real property- land and any permanent structures on
the land which the person has a legal title Personal property- movable possessions or assets
Questions
Why do we have to tax?What are the 4 characteristics of a good tax?Explain how the gov arrives at a person’s
taxable income.Explain what unemployment taxes are. Why
are they important?Why do we have Social Welfare programs?Why do we have Federal spending?What is a budget?