Taxes & Government Spending Chapter 14 Section 2 Federal Taxes

Taxes & Government Spending

Chapter 14 Section 2

Federal Taxes

Taxes & Government Spending Objectives:

Describe the process of paying individual income taxes.

Explain the basic characteristics of corporate income taxes.

Understand the purpose of Social Security, Medicare, and unemployment taxes.

Identify other types of taxes.

Taxes & Government Spending During the fiscal year 2007, the federal

government took in more $ 2.568 trillion in taxes. {Population: 301,139,947}

If you divide up this federal tax revenue among all people in the United States, it comes to about $ 8,528.00/person.

The Federal Government has six major sources of tax revenue.

Taxes & Government Spending1. Individual Income Tax:

43% of the government’s revenues come from payment of individual income taxes {2007}.

The amount a person owes is determined on an annual basis.

In theory, the federal government could wait until the end of tax year to collect individual income taxes.

In reality, that would be a problem for both taxpayers and the government.

Taxes & Government Spending What percentage of money comes from

Individual Income Taxes?

Taxes & Government Spending 43%


The government has to pay their bills like everyone else and they need money throughout the year.

Many people in the country would have a hard time paying their taxes all at once.

For these reason, the federal income tax system is collected in a “pay-as-you-earn” system.

Individuals pay throughout the year. Tax Withholding – taking payments out of your

pay before you receive it.

Taxes & Government Spending What is meant by tax withholding?

Taxes & Government Spending Taking payments out of your check before

you receive it.


The amount withheld is an estimate of your annual income.

Filing a Tax Return Due Date APRIL 15APRIL 15THTH of each year. Taxable Income - a person’s gross (total income)

minus exemptions and deductions. Personal Exemptions – set amounts that you subtract

from your gross income for yourself, your spouse, and any dependents.

Deductions – are variable amounts that you can subtract, or deduct, from your gross income.

Taxes & Government Spending What is the date that you have to have paid

your taxes from the previous year?

Taxes & Government Spending April 15th


What is a person’s gross (total income) minus exemptions and deductions?

Taxes & Government Spending Taxable Income

Taxes & Government Spending What is the set amounts that you subtract

from your gross income for yourself, your spouse, and any dependents?

Taxes & Government Spending Personal Exemptions

Taxes & Government Spending What are variable amounts that you can

subtract, or deduct, from your gross income?

Taxes & Government Spending Deductions


Tax Brackets The federal income tax is a progressive tax. The tax rate rises with the amount of taxable income.


2007 Federal Income Tax Rates – Schedule X

This is for those filing as a single person. $ 0 - $ 7,825 -------------- 10% $ 7,825 - $ 31, 850------------- 15% $ 31,850 - $ 77,100------------- 25% $ 77,100 - $ 160,850-------------- 28% $ 160,850 - $ 297,350-------------- 36% $ 297,350 and over ---------------- 39.6%

Taxes & Government Spending If you make $ 35,600.00 per year, how much

tax will you pay? (percentage)


Taxes & Government Spending Corporate Income Taxes

Corporations also pay taxes on their taxable income.

Corporation taxes make up about 13% of the federal revenue {2007}.

The problem in determining a corporation’s taxable income is the many deductions that they can claim.

They can subtract their many expenses from their income before the taxation applies.

Taxes & Government Spending How much of the total revenue that the

Federal Government collects comes from Corporate Taxes?


Taxes & Government Spending The companies can deduct the cost of their employee

health insurance.

2007 Corporate Federal Income Tax Rates$ 0 - $ 50,000------------------- 15%$ 50,000 - $ 75,000------------------- 25%$ 75,000 - $ 100,000------------------- 34% $ 100,000 - $ 335,000------------------ 39%$ 335,000 - $ 10 million---------------- 34%$ 10 million - $ 15 million---------------- 35%$ 15 million - $ 18.3 million-------------- 38%$ 18.3 million and up --------------------- 35%

Taxes & Government Spending Social Security, Medicare, and

Unemployment Taxes Employers withhold money for another category of taxes

authorized under the Federal Insurance Contributions Act (FICA).

FICA taxes fund two large government programs, Social Security, and Medicare.

Employees and employers share FICA payments.

Taxes & Government Spending What two government programs does the

FICA tax fund?

Taxes & Government Spending Social Security and Medicare


Social Security Taxes Most of the FICA taxes go to the Social Security

Administration. This funds programs like…

Old-age Survivors Disability Insurance (OASDI)

Social Security started out as a retirement fund In 2000, the most you could pay into Social Security as

a tax was $ 76,200

Taxes & Government Spending What federal agency administers the FICA

tax money?

Taxes & Government Spending Social Security

Taxes & Government Spending Medicare Taxes

FICA Taxes also fund Medicare. Medicare program is a national health insurance program

that helps pay for health insurance for people over the age of 65.

It also covers people with certain disabilities. There is no ceiling on this tax.

Unemployment Taxes This tax is paid by the employer It pays for an insurance policy for workers that are laid off

from work.

Taxes & Government Spending What is Medicare?

Taxes & Government Spending It is a national health insurance program that

helps pay for health insurance for people over the age of 65.

Taxes & Government Spending Other Taxes

Excise Taxes – a general revenue tax sale or manufacture of a good.

Federal excise taxes apply to gasoline, cigarettes, alcoholic beverages, telephone services,

cable services, and others.

Taxes & Government Spending What is an excise tax?


It is a general revenue tax sale or manufacture of a good.


Estate Taxes – a tax on the estate, or total value of the money and property, of a person who has died. {As of 2007}

$ 0 - $ 2,200 15% $ 2,200 - $ 5,150 25% $ 5,150 - $ 7,850 28% $ 7,850 - $ 10,700 33% $ 10,700 and above 35%


Gift Taxes – a tax on money or property that one living person gives to another.

Not over $ 2,150 ------ 15% $ 2,150 - $ 5,000 ------ 25% $ 5,000 - $ 7,650 ------ 28% $ 7,650 - $10,450 ------ 33% $10,450 and over ------ 35%


Import Taxes – Also called tariffs. Taxes on imported goods into our country. May have special arrangements with another

country. This causes the price of foreign goods to rise.

Taxes & Government Spending What is another name for an Import Tax?

Taxes & Government Spending Tariff


Taxes that affect behavior The use of taxation to encourage or discourage behavior

is called Tax Incentive. Taxes on products like alcohol and tobacco are

designed to reduce consumption by the American people.

Most of the time it does not work. Gasoline Tax (Federal only) is 38.4% in Texas – you

have to add the other state and highway taxes to that figure to get the true tax on a gallon of gasoline.

Taxes & Government Spending What term describes the use of taxation to

encourage or discourage behavior?


Tax Incentive

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Taxes & Government Spending Chapter 14 Section 2 Federal Taxes