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El Dorado High SchoolEl Dorado High School
Spring 2015Spring 2015
Taxe$ and Government
$pending
Objectives Understand how government uses
taxes to fund programs
Identify the roots of the concept of taxation in the United States Constitution
Describe types of tax bases and tax structures
List the characteristics of a good tax
Identify who bears the burden of a tax
Questions to considerQuestions to consider
Why do we have taxation?
Is taxation done fairly?
How much of our pay should go to taxes?
Do we benefit from taxes?
Funding Government ProgramsFunding Government Programs
Tax: A required payment to a local, state, or national government.
Taxation is the primary way governments collect monies they need to operate
Without this revenue( income from taxes and non-tax sources), governments could not provide the goods and services that its people expect like:
1. Defense- Armed forces2. Education- Schools, buildings, and libraries3. Law enforcement- Federal, state, and local 4. Highways- Roads and connecting infrastructure
Taxes and the ConstitutionTaxes and the Constitution
The framers of the Constitution gave careful consideration when granting the new government the power to tax.
The Constitution outlines the taxation powers that are given to Congress in: Article 1, Section 8, Clause1:
To lay and collect taxes, duties, imposts and excises, to pay the debt, and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniforms throughout the United States.
Limits on the Power to TaxLimits on the Power to Tax The Constitution specifically places
provisions and limits certain kinds of taxes:
The purpose of the tax must be for the,” common defense and general welfare.” (i.e. Taxes cannot be used for individual interests)
Federal taxes must be the same in every state
Cannot tax church services because it would violate the 1st Amendments stand on freedom of religion.
Government cannot tax exports
Tax BasesTax Bases
Tax Base: A tax base is the :
1. Income
2. Property
3. Good
4. Service(That is subject to a tax)
Example: A person can be taxed from their earnings (individual income tax)
Example: Property taxes are accessed according to the value of one’s home and/or belongings.
Example: The dollar value of any good or service you purchase is subject to SALES TAX( From buying a car to getting a car wash))
Tax StructuresTax Structures Once tax bases are set,
economists consider three(3) different tax structures:
1. Proportional Taxes (Flat tax)
2. Progressive Taxes
3. Regressive Taxes
A tax in which the percentage of income paid remains the same for all income levels,( 6% tax on $250,000 and $50,000; whether income goes up/down the tax % stays the same)
A tax in which the tax percentage increases as income increases.( 10% at $20,000 and 30% at $55,000)
A tax for which the percentage of income paid decreases as income increases( Households with higher incomes pay proportionally less than lower-income households)
Characteristics of a Good TaxFour (4) characteristics are considered
Simplicity: They should be simple and
easy to understand( people/ businesses should be able to fill-out their own forms and and pay on predictable schedules
Efficiency: Taxpayers and government
administrators should not have to spend to much time or money to get their taxes paid and collect.
Certainty: The taxpayer should have
clarity on when the tax is due, how much is due, and how it should be paid
Equity: Finally, the tax system
should be fair.
Who Bears the Burden of a Tax?Who Bears the Burden of a Tax?
Chapter 14Section Two
Federal Taxes
ObjectivesObjectives Describe the process of
paying individual income taxes
Explain basic characteristics
Understand purpose of Social Security, Medicare, and Unemployment taxes
Identify other types of taxes
How does the federal government How does the federal government affect our bottom line?affect our bottom line?
Individual Income TaxesIndividual Income Taxes Individual income taxes make
up the federal government’s main source of revenue (About 49%).
The amount of income tax a person owes is determined annually.
Pay –as-you-earn system- People usually pay most of their income tax throughout the year as they earn it to: Alleviate the burden of large
sum payments Assure that the government
can cover its periodic payments during the year
Individual Income Taxes (cont.)Individual Income Taxes (cont.)
Tax Withholdings: Taking tax payment s out of an
employee’s pay before he or she receives it.
Employers carry a primary responsibility in federal income tax withholdings of their employees.
The amount withheld depends on how much an individual is estimated to own for the whole year.
Tax Brackets: As a progressive tax, the federal
income tax rises with the amount of taxable income.
Filing a Tax Return: At years end employees receive a report (W-2)
indicating how much income tax has already been withheld.
The employee then files a tax return This return is used to assess your taxable
income ( a persons total or gross income minus exemptions and deductions)
Exemptions: yourself, spouse, dependents Deductions: interest on mortgage, medical
expenses, and donations
KEY: If you have paid more than you owe the govt. you get a return
On the other hand, if you paid less then you owe , you must pay the balance to the govt.
Corporate Income Tax Like people, corporations must pay taxes; however, corp.
can take numerous deductions like their employees’ health care and numerous other costs of doing business.
Corporate income tax is also progressive
Social security , Medicare, and unemployment taxes
Other taxes authorized by the Federal Insurance Contributions Act (FICA) include:
Social Security: Old age, survivors, and disability insurance
Medicare: National health insurance program that helps pay for healthcare for people over 65 or w/ certain disabilities
Unemployment Taxes: Paid for by employers, this tax pays for an insurance policy for workers (unemployment compensation)
Other Types of TaxesOther Types of Taxes Excise Taxes:
A general revenue tax on the sale or manufacture of a good Ex.: Gasoline, alcohol, cigarettes, telephone, and cable
Estate Taxes: A tax on the estate , or total value of the money and property of a person who has died Ex.: Money, real estate, cars, jewelry, investments, and furniture
Gift Taxes: A tax on money or property that one living person gives to another.
Import Taxes: Taxes on imported goods. Also called tariffs, these are intended to protect farmers and industry from foreign
competitors rather than raise revenue.
Chapter 14Chapter 14Section Three: Federal SpendingFederal Spending
Mandatory and Discretionary SpendingMandatory and Discretionary Spending
Mandatory spending: Spending on certain programs that is
mandated or required by existing law. Social Security, medicare
Discretionary Spending: Spending category about which
government planners can make choices. Defense, Education
Entitlement ProgramsEntitlement Programs Entitlement programs are social welfare programs
that people are entitled to if they meet certain eligibility requirements ( income, age)
Programs: Social Security Medicare Medicaid Food Stamps Supplemental Security Income Veteran’s pensions Unemployment insurance (Worker’s Comp.)
Discretionary SpendingDiscretionary Spending One primary example of discretionary
spending is defense spending
Other Discretionary Spending:
Education Training Student Loans Technology Law enforcement Scientific research Housing Environment Parks Foreign aid Disaster aid
CHAPTER 14SECTION FOUR:STATE AND LOCAL TAXES AND SPENDING
State BudgetsState Budgets Like the federal, State and local governments use the
revenues from taxes to pay for a variety of programs and services.
States make use of the following two(2) budgets: Operating budgets
These types of budgets pay for day-to-day expenses. ( including: salaries of state employees, facility maintenance, and supplies)
Capital budgets These types of budgets pay for major capital/ or investment
spending. ( include: building new state bridges and/or buildings; usually satisfied with long term borrowing or the sale of bonds)
Where are States Taxes Spent?Where are States Taxes Spent? Spending policies are different among the states;
however, spending normally encompasses the following areas:
1. Education2. Public Safety3. Highways and Transportations 4. Public Welfare5. Arts and Recreation6. Administration
State Tax RevenueState Tax Revenue For every dollar a state spends, it must take in a dollar in
revenue. The bulk of this revenue comes from sales taxes and
individual income taxes.
Limits on State Taxation: States cannot import or exports (this is a federal concern) States cannot tax goods sent between states. States cannot tax federal property (military bases)
Tax Exemptions are also offered to nonprofit organizations, religious groups, and charities.
FINFIN