Taxes and Spending ESSENTIAL QUESTION: Who and what should be taxed? Mark the box that reflects your opinion about each statement. Completely Agree Mostly Agree Mostly Disagree Completely Disagree Businesses that make more money should be taxed at a higher rate than businesses that make less money. The government should tax goods that harm people or the environment, such as alcohol or tobacco. Americans should only pay taxes to the state instead of to both the state and federal government. Tickets to concerts, sporting events, and other forms of entertainment should be taxed. Read the section about Al Capone in the text provided. How does the story reflect the famous saying by Benjamin Franklin, In this world, nothing is certain but death and taxes.? Read Section 2: What Are Taxes and How Should They Be Levied? What is a tax? Why are taxes necessary? What were two historical forms of paying taxes before they were replaced by money?
What are four purposes of taxes? Draw a symbol depicting each of Adam Smith s maxims. Next to each symbol, describe the maxim in your own words. Equity Certainty Convenience Efficiency Define each of the following principles Ability-to-Pay Principle Benefits-Received Principle
Which of these two approaches to tax equity do you find fairer? Why? How does the elasticity of supply and demand affect the burden of a tax? Define deadweight loss. Create a simple flowchart showing how a tax can result in a deadweight loss. Create your own example or use one from the text. A sample flowchart has been started for you. A worker is offered a job with overtime. Taxes take much of the added income. What Kinds of Taxes Will You Pay in Your Lifetime? Tax Structures With a income tax, everyone pays at the rate, whatever their income level. A tax is the same as a proportional tax. With income tax, people pay rates as their incomes. Progressive income tax structures are usually capped at some rate. The United States has a progressive income tax structure. A income tax is a tax rate that as income levels rise. Sales tax is regressive because the higher your income, the smaller the percentage of your income will be taxed.
Three Major Federal Taxes The government collects three major federal taxes: personal income tax, corporate income tax, and Social Security tax. tax is a tax people pay on their income. Personal income tax is paid to both the government and most governments. U.S. states currently don t have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Residents of New Hampshire and Tennessee only pay state tax on dividends and investment income. However, these states have some of the highest and taxes. The government will get the money it needs from somewhere. tax is a tax corporations pay on their. Corporate income tax is also paid to both the government and most governments. and are the only states that do not have some form of corporate tax. tax is a tax on wages that funds money for retirees. It is paid half by the employer and half by the employee (unless you are self-employed). It is capped at $ which means earnings over that amount are not taxed. This makes it a tax up to that cap and a tax for any income above it. Other Taxes tax provides for the elderly. It is also split evenly between employer and employee. State governments may also have and taxes to help workers who lose their jobs or are injured on the job. tax is applied to the purchase of many goods. Sales tax is collected by, not by the federal government. Sales taxes vary among states. taxes are placed on the purchase of certain goods, such as and
. The federal government, as well as many states, collects excise taxes. (Sometimes called taxes) taxes are levied on the sale of luxury goods such as fur coats and private jets. These can have the of increasing unemployment and therefore decreasing overall tax revenue. Property owners, such as homeowners, pay a tax on the value of their property. This is a major source for state and local governments. and are taxes levied on the use of a public service or facility. Only those that use them are taxed. taxes are imposed by the federal government on the assets left to heirs by someone who dies. States also have a similar tax called an tax. ***************************************************************************************** Use the chart below to complete the table on the next page.
For each tax listed, identify the tax base (personal income, good or service, or piece of property). Also identify the tax structure (proportional, progressive, or regressive). Finally, explain whether you think each tax is fair. Tax Tax Base Tax Structure Is this tax fair? Explain Income tax personal income progressive Social security tax Home property tax 5-cents-per-dollar sales tax Corporate income tax Tax on jewelry Park entry fee Estate tax Answer the following questions on your own. 1. If your goal is to create a similar tax burden for people of all income levels, you would likely choose a income tax. 2. If your goal is to make those with high incomes pay a greater share of the tax burden, you would most likely choose a income tax. 3. Would you rather live in a country with a flat tax or a progressive tax? Explain your reasoning. How Long Do You Have to Work to Pay All Your Taxes? It has been calculated that the average person works from to before earning enough to pay all taxes owed. The chart below is based on average state taxes. Your state and local taxes would vary depending on where you live. Year Number of Days Spent Working to Pay ALL Federal, State, and Local Taxes Time Period 1980 Jan 1 - April 21 2000 Jan 1 - May 1 2009 Jan 1 - April 13 2013 Jan 1 - April 18
Who Pays What Percentage of Federal Income Taxes? Some polls show that most people think Americans do not pay their of taxes. We need to consider several issues when we talk about the share of taxes paid by different income groups. 1. What do we mean by wealthy Americans? 2. What do we mean by fair share of taxes? 3. What do wealthy Americans pay in taxes compared with what they earn? Income Group Income Split Point Group s Share of Total U.S. Income Group s Share of Federal Income Taxes Average Tax Rate Top 1% Above $388,905 18.7% 35.1% 23.5% Top 5% Above $167,728 33.9% 56.5% 20.9% Top 10% Above $120,136 45.4% 63.3% 18.9% Top 25% Above $70,492 67.8% 85.6% 15.8% Top 50% Above $34,823 88.5% 97.1% 13.8% Bottom 50% Below $34,823 11.55% 2.89% 3.13% COMPLETE ON YOUR OWN According to the data above, in 2012 the top 50% of income earners earned of total U.S. income, and paid of federal income taxes, with an average tax rate of. According to the data above, in 2012 the bottom 50% of income earners earned of total U.S. income, and paid of federal income, with an average tax rate of. Based on this data, do you think the wealthy in the U.S pay their fair share of federal taxes? Explain and provide evidence to support your answer.
Taxes Applying the Principles The amount of income taxes a person owes depends on the tax rate, the person's total income for the year, and any adjustments the person is allowed to make. A tax deduction is subtracted from total income before figuring the amount of taxes owed. A person's taxable income is the amount of income after these deductions are subtracted. Taxable income is multiplied by the tax rate to find the amount of taxes owed if no credits can be taken. A tax credit is subtracted from the amount of taxes owed after figuring this amount. Assume a nation taxes the income of a single person based on the following table. Use the table to answer questions 1-5. Taxable income Tax rate $0-$25,000 15% $25,001-$50,000 25% $50,001-$75,000 30% $75,001-$160,000 35% $160,001 and over 40% 1. If your taxable income for the year is $55,000, how much income tax do you owe? 2. If your total income for the year is $55,000 and you have $10,000 in tax deductions, how much income tax do you owe? 3. If your taxable income for the year is $55,000 and you have $1,000 in tax credits, how much income tax do you owe? 4. If your total income for the year is $55,000 and you have $10,000 in tax deductions and $1,000 in tax credits, how much income tax do you owe? 5. Is the tax structure described by the table above regressive, progressive, or proportional? In questions 7-11, assume that income up to and including $113,700 is subject to a Social Security tax and that income over $113,700 is not subject to the tax. Also assume the Social Security tax rate is 6 percent. 7. If your income is $170,000, how much Social Security tax do you have to pay? 8. What percentage of your income do you pay in Social Security taxes? 9. If your income is $70,000, how much Social Security tax do you have to pay? 10. What percentage of your income do you pay in Social Security taxes? 11. Is this Social Security tax structure regressive, progressive, proportional, or a combination of more than one tax structure? Explain.
The Budget: Deficits and Debt In 2013, the federal government collected about $ that is, $2,902,000,000,000 in tax revenue from its citizens. Such an enormous sum raises an obvious question: what does the federal government do with it all? The figure below shows where this revenue comes from. Even with these sources of revenue, the government typically does not take in enough revenue to cover all of its expenditures. This gives rise to the federal - the shortfall between tax revenues and government expenditures. To make up this difference, the government money through the sale of government. Selling government bonds to make up for a federal deficit adds to the - the total amount owed by a nation s government as a result of borrowing.
Mandatory vs. Discretionary Spending Every year the federal government draws up a budget to determine how it will spend its revenues. Like all government budgets, it is based on a fiscal year, rather than a calendar year. The federal fiscal year begins on. Spending is divided into two broad categories Mandatory spending is spending that is. The only way for Congress to change the amount of money allocated to mandatory spending is to enact new legislation. The two main categories are... Interest on the National Debt Entitlements - programs through which individuals receive benefits based on their age, income, or some other criteria. Entitlement programs include Social Security, Medicare, and welfare. Discretionary spending is made up of expenditures that may be raised or lowered as Congress sees fit. By far the biggest chunk of discretionary spending is. The rest supports government funding for education, scientific research, health care, and foreign aid. A portion also funds federal grants to and governments. The Budget Process The of the United States prepares the budget. The budget to Congress how much should be spent for such things as national defense and income security programs. The advises the members of the committees and subcommittees that review the president s budget. Estimates are used to determine tax revenues. In the end, many details of the president s budget are to reflect between the president and Congress. When the president submits the budget to Congress, the public gets a chance to hear about the budget proposal. The American can write to or call their congresspersons and express their on the president s budget. Congress must pass a budget by the beginning of the year. The fiscal year for the federal government begins on and runs through September 30. Once Congress passes the budget, the details of spending outlined in the budget become for that fiscal year.
Budgets: Balanced and in Deficit A budget is a situation in which federal government expenditures are than federal government tax revenues. A budget occurs when federal government expenditures are than federal government revenues. The (1929 1933) changed the way people felt about budget deficits. Until then, many people felt that a balanced budget was the best way for the government to operate. After the Depression, people began to accept budget deficits as a way of reducing. fiscal policy was necessary to increase government spending without increasing tax revenues, allowing employment to rise. Many people felt that it was better to balance the than to balance the budget. Every time the federal government runs a deficit, it is increasing the. At the end of 2013, the national debt was $ trillion, or $54,300 per citizen. Economists argue that increased national debt will lead to higher in the future. ************************************************************************************************** Spending Applying the Principles Assume your town needs to raise revenue to build a new fire station. The mayor has asked residents to email their positions on who and what should be taxed to pay for the new station. Write an email that is at least three paragraphs long and that includes... the tax base (what is taxed) that should be targeted and why. the tax structure that should be used and why. an example of a tax that would meet these two criteria. You will complete this in Google Classroom. There is a document assigned to you there. Use it to write your email and submit it by the end of the period.