HOW MUCH SHOULD THE FOLLOWING INDIVIDUALS PAY IN TAXES?

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1 TAXES

2 TAXES Taxes are required contributions, levied by the government on personal income and business profits or added to the cost of some goods, services, and transactions. Raise revenue to finance government operations and redistribute income. Public goods-highways, defense, employee wages Fund programs- welfare, social security Influence economic behavior of firms and individuals. Ex: Excise taxes on tobacco raises tax revenue and discourages the use of cigarettes.

3 HOW MUCH SHOULD THE FOLLOWING INDIVIDUALS PAY IN TAXES? If an individual makes. $12,000/yr How much (% of income) do you think they should be taxed? $60,000/yr $600,000/yr $1,000,000/yr

4 2016 TAX SCHEDULE If you made $44,000, how much will you pay in taxes? 10% of $1 - $9,275 = $928 15% of $9,276-$37,650 = $4, % of $37,651 44,000 = $1,587 You will pay $6771 $928 + $4, ,587 Average/effective tax rate = 15.4% (6771/44,000)*100

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7 CA Statewide Tax: 7.5% (6.25% goes to the state and 1.25% goes to the local gov t.) South Pasadena: 9% Santa Monica: 10.75% Santa Barbara: 8% San Francisco: 8.75% Ventura: 7.5%

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10 THE OBAMA S 2015 TAXES adjusted gross income of $436,065 paid $81,472 in total tax. effective federal income tax rate is 18.7 percent. Taxable income is not = earned income. Deductions included: Donated $64,066 or about 14.7 percent of their adjusted gross income to 34 different charities. Paid $16,017 in state income tax.

11 Taxable income income after tax exemptions and deductions have been applied. Exemptions Amount that taxpayers can claim for themselves, their spouse, and eligible dependents. Deduction A part of a person s or business s expenses that reduces income subject to tax Must choose to take the standard deduction of $6,300/$12,600 OR itemized deductions The most common itemized deductions are: Mortgage interest. Student loan interest Charitable contributions (50% of your income). Property taxes. State and local income taxes. Medical expenses that exceed 7.5% of your adjusted gross income. IRA (individual retirement account) contributions Exemption $ 2016: $4, : $4, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $3, : $2, : $2,800

12 How do exemptions and deductions work? $44,000 Income for $4,050 Personal exemption - $6,300 Standard Deducion $33,650 Taxable Income

13 Credit A dollar-for-dollar reduction in the tax paid. $1,300 - tax owed -$300 - tax credit $ amount you actually have to pay The most common credits are: Child Tax Credit (under 17) Child and Dependent Care Tax Credit (under 13) Earned Income Tax Credit

14 How does the government collect income taxes?

15 Federal Insurance Contributions Act (FICA) Social Security Taxes = retirement and disability fund 6.2% on income up to $118, 500. Medicare Taxes = national health insurance for people over 65 and people with disabilities. 1.45% Unemployment Taxes = paid for by employers (3.4%) and used to help workers who are laid off from work at no fault of their own.

16 W-2 Form W-2 reflects all taxable wages you received during the calendar year and all taxes withheld from those wages. The form serves as an annual report that enables you to file your personal income tax return with the Internal Revenue Service.

17 Last year my federal tax bill the income tax I paid, as well as payroll taxes paid by me and on my behalf was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income and that s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent. WARREN BUFFETT h ttp:// READ THE WEEK ARTICLE Are the wealthy paying their fair share of taxes?

18 Is this fair?

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20 Do you think we should raise the capital gains tax? Should we raise tax rates for the super wealthy?

21 Warren Buffett on raising the tax on the wealthy. 8dePMo9MK30&feature=related

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24 9/clinton-and-trump-tax-planscost-by-income-level/ July 25, 2016

25 ONE LAST THING.

26 TAX STRUCTURES Proportional % of income paid in taxes is fixed as income changes Flat tax, Medicare tax

27 TAX STRUCTURES Progressive % of income paid in taxes as income U.S. federal income tax, estate taxes

28 TAX STRUCTURES Regressive % of income paid in taxes as income Sales tax, Social Security taxes

29 Income Proportional Tax of 10% Disposable Income Progressive Tax Rate Taxes Paid DI Regressive Tax of $2,500 10,000 1,000 9, ,000 9,000 2,500 7,500 30,000 3,000 27, ,500 25,500 2,500 27,500 80,000 8,000 72, ,000 60,000 2,500 77, ,000 15, , , ,000 2, , ,000 25, , , ,500 2, , ,000 40, , , ,000 2, ,500 DI

30 WHAT KIND OF TAXES ARE THESE? (THINK % OF INCOME) 1. Toll road tax ($1 per day) 2.State income tax where richer citizens pay higher % 3. $.45 tax on cigarettes 4. Medicare tax of 1% of every dollar earned 5. City of Berkeley levies a penny-per-ounce soda tax.