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The Role of Taxes in Society

TEF Lessons for Members and CitizensLesson 4

Objective:

Participants will discuss the purpose and uses of taxes, their role in society, and characteristics of good tax policy.

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As a group can we agree that we will:

1) Respect and value differences of opinions and varying levels of knowledge

2) Be attentive

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What do we get

for our tax dollars?

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The AngryTaxpayer!

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• What does this story mean to you?

• We’ve just talked about many benefits we receive from tax dollars, yet people want to have lower taxes and often have negative feelings about paying taxes. Why?

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• People may not be aware of all the services and things they use paid for with tax dollars. • Cutting taxes is

politically popular.• People may not agree

with how their tax dollars are spent.

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“Taxes are the price we pay for civilization.”

—Oliver Wendell Holmes

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Common Ground

What is the role of taxes

in our society?

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Reflection on Common Ground

• What did you see or hear during this activity?

• How did you feel?

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3 TAX STRUCTURES

• Progressive tax = one that takes a larger share of income as the taxpayer’s income rises.

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U.S. Federal Tax FilersEffective Tax Rate by

Adjusted Gross Income Level, 2007

IRS, “Table 1. All Returns: Sources of Income, Adjustments, Deductions and Exemptions, by Size of Adjusted Gross Income, Tax Year 2007”; David Cay Johnston, “Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data,” http://www.tax.com/taxcom/features.nsf/Articles/0DEC0EAA7E4D7A2B852576CD00714692?OpenDocument ; http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133414,00.html 4–12

U.S. Federal Tax FilersEffective Tax Rate by

Adjusted Gross Income Level, 2007

IRS, “Table 1. All Returns: Sources of Income, Adjustments, Deductions and Exemptions, by Size of Adjusted Gross Income, Tax Year 2007”; David Cay Johnston, “Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data,” http://www.tax.com/taxcom/features.nsf/Articles/0DEC0EAA7E4D7A2B852576CD00714692?OpenDocument ; http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133414,00.html 4–13

3 TAX STRUCTURES

• Progressive tax = one that takes a larger share of income as the taxpayer’s income rises.

• Regressive tax =

one that takes a smaller share of income as the taxpayer’s income rises.

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Regressive Tax Example: The State & Local Tax System

0%

2%

4%

6%

8%

10%

12%

Bottom Income

Second Income

Middle Income

Fourth Income

Top 15% of Income Earners

Top 4% of Income Earners

Top 1% of Income Earners

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Source: “Who Pays? A Distributional Analysis of the Tax System in All 50 States,” 3rd Edition. Institute on Taxation and Economic Policy, 2009.

3 TAX STRUCTURES• Progressive tax = one that takes a larger share of income as

the taxpayer’s income rises.

• Regressive tax = one that takes a smaller share of income as the taxpayer’s income rises.

• Flat rate tax = income tax would go up exactly in proportion to income. However, what is often advocated as a flat tax is to tax everyone at the same rate, such as the sales tax.

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The Sales Tax: Neither Flat nor Fair

• The sales tax is actually regressive.

• As your income goes the % of income

you spend on taxes goes

• A sales tax provides a skewed burden on the poor and middle class who have to spend most all of what they earn, much of it on things that are subject to sales tax.

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Is the SAME always FAIR?

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3 TAX STRUCTURES

• Progressive tax = one that takes a larger share of income as the taxpayer’s income rises.

• Regressive tax = one that takes a smaller share of income as the taxpayer’s income rises.

• Flat rate tax = income tax would go up exactly in proportion to income. However, what is often advocated as a flat tax is to tax everyone at the same rate, such as the sales tax, which is neither flat nor fair.

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Good Tax Policy:1. Is progressive (at least not

regressive)

2. Is broad based

3. Does not tax income from work more than income from investments.

4. Doesn’t allow special interests to avoid paying their fair share of taxes

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February 25, 2010

“Bills Would Close Missouri’s Yacht Loophole,” Mike McGraw, Kansas City Star, 2/25/2010, available at primebuzz.kcstar.com, accessed 4/20/2010: (http://www.google.com/url?sa=t&source=web&ct=res&cd=2&ved=0CAsQFjAB&url=http%3A%2F%2Fprimebuzz.kcstar.com%2F%3Fq%3Dnode%2F21543&ei=g8nNS4TXLcP7lwfqvvShCw&usg=AFQjCNGkXhs5p_Op_mO9rxMiY8TjpTTzuw&sig2=ppNhg3XRulh8bJ8VSF8sTQ); also see Mike McGraw, “Missouri Compromise: Cut Schools, but Don't Tax the Yacht,” available at:http://www.mcclatchydc.com/2010/02/21/87288/missouri-compromise-cut-schools.html

[T]he exemption allowed buyers of big boats to pay a small fee in lieu of sales taxes and shave as much as $30,000 off the purchase of a $500,000 boat. Yachts are treated like baby formula for the poor – exempt from state and local sales tax. Missouri boats that qualify

for the exemption have been given names such as “Tax Haven” and “Greedy Bastard,” The Star reported.

The bills failed.

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Alabama Senate Bill 144 Film Project Tax Incentive Bill

• Efforts by the Alabama Education Association to stop funding erosion have resulted in approximately $2 billion a year staying in education. This amount is 1/3rd of all state education funding in Alabama.

• As education costs continue to rise, we must protect the funds before they are given away to special interest.

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Schools are being held accountable for results…

When they lack the capacity to deliver those results…

When funding is inadequate and inequitable…

When tax structures are out of sync with the economy…

School Capacity

School Funding

Economy & Tax Structure

Public Support

And not everyone is aware.

Accountability

MAKE THE TEF CONNECTION

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REFLECTION

1. What stands out in your mind from today’s lesson?

2. What does this mean for you? For your students?

3. How might you act on this knowledge or awareness?

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A few examples…

This video address from Alabama EA President, John Wright.

Alabama EA sheds light on corporate tax avoidance

in Alabama

Detroit News, Friday, July 25, 2008

MEA Press Release: Drop-outs One Too Many, April. 4, 2008

Honolulu Advertiser, Dec, 2006Honolulu Advertiser, Feb. 2007

Iowa State EA News Article Kentucky EA - School Funding Statement.

Michigan’s Business Tax Incentives: A study commissioned by MEA and NEA to improve the quality of the debate on business tax incentives.

Mississippi EA op-ed piece.

State Affiliate TEF Websites: Colorado, Illinois, Michigan, Mississippi, New Jersey, Oklahoma

States Facing Budget Shortfall – Center for Policy and Budget Priorities (CBPP) reports state fiscal profiles.

State-by-state tax news and policy analysis provided by the Institute of Economics and Policy Analysis (ITEP).

Economic Policy Institute’s (EPI) new report analysis rank states by overall unemployment as well as the change seen since the start of the recession in December 2007.

Enriching Children, Enriching the Nation show state returns in budget, salary, crime reduction by investing in Pre-K thru 12.

Find out how much Wal-Mart is costing your state in subsidy deals, healthcare cost, and property tax appeal appeals.

Combined Reporting, How Does Your State Stack-Up? Institute on Taxation and Economic Policy (ITEP) This reporting requires multi-state corporations to report the income earned by both the parent corporation and all of its subsidiaries and to determine their income tax liabilities on that basis.

Good Jobs First state-by-state corporate subsidy websites.

Studies supporting TEF concepts:

• The Effects of State Public K-12 Expenditures on Income Distribution

• K-12 Education in the U.S. Economy

• Protecting Public Education from Tax Giveaways to Corporations.

• School Funding, Taxes and Economic Growth

• TEF Series

Why invest in education makes sense:

Enriching Children, Enriching the Nation

Corporate abuse:

The Great American Job Scam - corporate tax dodging and the myth of job creation.

Your Tax Dollars At Work…Offshore - foreign outsourcing firms are capturing state government contract.

No More Secret Candy Store - A grassroots guide into investigating corporate subsidies.

Publications1 2State affiliates in TEF Action

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TEF Tools and Resources

State-SpecificData Sources

TEF Website: http://www.nea.org/tef

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NEA Information on establishing a social networking site to use as an organizing tool.

Others are: (http://www.ning.com/ ) and (http://www.groupsite.com/)

http://www.faireconomy.org/tfoc to locate your state’s tax fairness organizing collaborative. These groups are located in 21 states.

Community Organizing• Business Outreach

Sample Political Action Tools

• Corporate Legislation• TEF Model Legislation

Customizable Tools4 Other

Useful Links5Introducing aNew TEFInteractive Tool

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TEF Tools and Resources

www.nea.org/tef

TEF Website: http://www.nea.org/tef

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U.S. PIRG on Countdown. Olbermann talks about U.S. PIRG's report "Tax Shell Game.”

Free Lunch, Corp Welfare, Bill Moyers and David Cay Johnston

(9:49)

David Cay Johnston - A History of Government Subsidies (3:08)

David Cay Johnston - Are Government Subsidies Unfair? (4:43)

David Cay Johnston - A Moral Argument for Progressive Taxes (3:04)

Videos

PBS Now, "Taxing the Poor" ((26.03)

Wal-Mart Subsidies (7:48)

Warren Buffett's Tax Rate is Lower than His Secretary's (4:39)

TAXES: Warren Buffett - Rich Taxed Too Little, Poor Too Much (5:17)

Eye To Eye With Katie Couric: Buffett's Tax Code (CBS News) (1:40)

On Taxes…7 On Economic Policies8 Funding for

Schools9

Other Resources

Access Quality Education: School Funding Litigation A National Network of Advocates Involved in Education Finance Litigation,

Abbott vs. Burke is the New Jersey

Supreme Court ordered a set of education programs and reforms widely recognized to be the most fair and just in the nation.

Videos

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“Our lives begin to end the day we become silent about things that matter.”

— Martin Luther King, Jr.

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