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?