Taxes

Video Discussion

Besides being a little silly at times each of the following videos has a different theme and purpose:

Can you figure out what they are? Which one do you most agree with?

1950’s video

Your first paycheck - Talking Paycheck

First Paycheck – teenage view

Taxes reform explained with Beer

Videos – Different views of Income Taxes1950’s video

https://www.bing.com/videos/search?q=videos%2c+tax+reform+for+kids&&view=detail&mid=BF3976796E8DC3F4C3E7BF3976796E8DC3F4C3E7&rvsmid=EA76CE2DD6367F127A8BEA76CE2DD6367F127A8B&FORM=VDRVRV

Your first Paycheck – talking paycheck

https://www.bing.com/videos/sea rch?q=videos%2c+tax+reform+for+kids&&view=detail&mid=0F456A22D0E33ABB3A2A0F456A22D0E33ABB3A2A&&FORM=VDRVRV

Your First paycheck – the teenage view

https://www.bing.com/videos/search?q=videos%2c+tax+reform+for+kids&&view=detail&mid=9A8B0DA7BA06D8DD52089A8B0DA7BA06D8DD5208&&FORM=VDRVRV

Tax Reform explained in Beer

https://www.bing.com/videos/search?q=videos%2c+tax+reform+for+kids&&view=detail&mid=BB36D1D02205E451F6AABB36D1D02205E451F6AA&&FORM=VDRVRV

Personal Taxes

The government needs money to run

This is called revenue

Where do they get their revenue from?

$162247%

$2257%

$123836%

$33710%

Federal Government Revenue Estimate for 2018 – 2019 ($Billions)

Individual IncomeTax

Business IncomeTax

SocialSecurity/Medicare

Excise and OtherInc.

Total Revenue = $3.422T

There are basically 3 ways to tax Income

Progressive Rates – The higher your income the higher your tax rate

- Income taxes use this system most often

Flat/Proportional Rates – Pay the same rate regardless of income.

- The state of Illinois uses an income tax that is a flat tax of 4.95%

Regressive Rates – Some taxes aren’t based on income and can have rates that actually fall as you make more money

Nearly Half the Government’s Revenue comes from Individuals like us

The U.S. Federal tax system (more about the states later) takes a higher percentage or rate of your income as your income grows. That is known as a Progressive Tax.

See the tax tables on the next page – as you can see the rate goes up as your income rises – in progression. The higher tax is only paid on the incremental amount.

Federal Income Taxes – Filing SingleTaxable Income Tax Rate

$0 - $9,700 10% of taxable income

$9,701 - $39,475 $970 plus 12% of the amount over $9,700

$39,476 - $84,200 $4,545 plus 22% of the amount over $39,475

$84,201 - $160,725 $14,385 plus 24% of the amount over $84,200

$160,726 - $204,100 $32,751 plus 32% of the amount over $160,725

$204,101 - $510,300 $46,631 plus 35% of the amount over $204,100

$510,301 or more $153,801 plus 37% of the amount over $510,300

This is the rate you apply to the taxable amount. Remember we get allowances to reduce our taxable income.

Est. Revenue Sources for Illinois in 2019Taxes:

Individual Income taxes $ 22.7

Corporate Taxes 3.1

Sales Taxes 8.8

Public Utility Taxes .9

Other Taxes 2.6

Total Taxes $38.1

Other Sources:

Lottery .7

Riverboat Gambling .3

Other Sources 1.0

Total Other Sources $2.0

Federal Government Transfers $3.1

Total Illinois Revenue in 2019 $43.3

Illinois Tax SystemIllinois uses a Flat or Proportional Tax System

That means that no matter how much you make, the RATE you pay stays the same – 4.95% (for now)

This is difficult to change - Based on the Illinois Constitution all citizens need to be taxed “uniformly”.

(The Illinois State Legislature has passed a law to change to a progressive tax – there will be a referendum on the ballot in November to change the constitution to allow it.)

State sales tax – A regressive tax exampleIndividual #1 Individual #2

Taxable Income (A) $ 30,000 per yr. $100,000 per yr.

Consumable items

Subject to sales tax

(food, gas, household goods) $20,000 $20,000

Sales tax on purchases at 10% (B) $2,000 $2,000

% of taxable income paid in sales tax (B A) 6.7% 2.0%

The rate of taxation is lower for the person who is wealthier (2% vs. 6.7%). Many taxes and fees works this way.

Some argue this disproportionately taxes the poor at a higher rate.

Federal Government Tax System

How do these system seem to work?

Fair or Unfair?

It is no just about Income taxes

In addition to Income taxes there are many other taxes we pay, particularly to the state.

Sales taxes (Illinois sales tax range is 8 – 11% depending on the municipality)

Gas taxes/tolls – funds roads (these can be up to $.80 per gallon in Illinois)

Excise taxes on cable, phone, electricity (sometimes 10-20% of the bill)

“Sin” taxes - liquor, cigarettes, gambling, marijuana

Entertainment taxes on hotels, sporting events, parking

These are all regressive taxes

Local Real Estate taxes (on property) – funds schools

There a lots of hidden taxesGas may have taxes as high as 80 cents per gallon depending on the state. Illinois is among the highest – recent increases make it about (~$.80/gallon). The tax rate might be 20% or more

You pay fees and taxes on everyday common items – cable, phone, electric

Look at your home cell phone or electric bill - you will find many miscellaneous fees that can add 10 to 30% to the bill

What does the City of Chicago tax?

https://www.cityofchicago.org/city/en/depts/fin/supp_info/revenue/tax_list.html

Amusement tax – 9%

Cigarette tax (Federal, State, County and Chicago) - $8.17 per pack

Parking tax – A 20 – 22% parking charge had an actual cost of $17.19 and $4.81 in taxes to the city and county – A whopping 28% tax.

And let’s not forget the cost for businesses to collect and account for the tax – this is basically a tax on businesses to do the work of government

Income Taxes – Important VocabularyTaxable Income – The amount on which you will pay taxes

Filing Status – How you will file your tax return (married, single, etc.). The tax rates vary based on this status.

Dependents – A person who lives with you and for whom you provide at least 50% of their support

Standard Deduction – A stated amount you can deduct to reduce your taxes

What is Taxable Income?Taxable income is the income that the government makes you pay tax on.

It doesn’t necessarily match your gross income

Gross Income (Generally Wages)

- Before-tax deductions (like 401k)

+/-Other Income or Losses (investment income – dividends and interest)

= Equals Adjusted Gross Income

- Deductions/exemptions (Standard deduction or itemized deductions)

= Equals your Taxable Income

Standard Deduction for 2019

Filing Status Standard Deduction

Single $12,200

Married Filing Separately $12,200

Married Filing Jointly $24,400

Qualifying Widow(er) $24,400

The government gives us a break by giving usDeductions before they startTo make us pay taxes.

Income Taxes

Tax Forms to remember:

W-4 – recall what that was for?

W-2 – a record of your earnings and taxes withheld, sent by the employer to the employee and the IRS

Form 1040 – Tax return form filed by a taxpayer. This allows you to report income to the IRS, pay additional taxes or request a refund

W-2

New Tax Law Summary

If you are taxed on something are you likely to buy more of it or

less of it?

New Tax Law Summary

A tax on something works the same as raising the price. The higher the price (or tax) the less I am likely to buy.

This fits with our understanding of supply and demand

The most recent income tax cuts are an across-the-board reduction of taxes for individuals and business. Some deductions also changed.

Less taxes Lower pricesMore Economic Activity

New Tax Law SummaryPros Cons

Tax Rates go down for everyone Certain deductions were eliminated(2018 proved that the less your perhaps raising taxes for some

income, the more your rate (usually wealthy people in high taxwent down) states)

Business taxes are going down Unclear if businesses will(good for stocks, businesses passes use this tax reduction for investment or some of the savings on to employees to pay employees moreand shareholders)

Economic Activity should be Government revenue will likelystimulated go down overall

(National deficit and debt go up)

Video – Rabbit does his taxes

https://www.bing.com/videos/search?q=videos%2c+tax+reform+for+kids&&view=detail&mid=9B691359003000BE01C49B691359003000BE01C4&rvsmid=EA76CE2DD636/7F127A8BEA76CE2DD6367F127A8B&FORM=VDRVRV

$162247%

$2257%

$123836%

$33710%

Federal Government Revenue Estimate for 2018 – 2019 ($Billions)Individual

Income Tax

Business IncomeTax

SocialSecurity/Medicare

Excise and OtherInc.

Total Revenue = $3.422T

$1,04624%

$62514%

$4129%

$65615%

$88620%

$4198%

$3638%

2018-2019 Federal Budget Estimate ($Billions) Social Security

Medicare

Medicaid

OtherMandatory

Military

Otherdiscretionary

Interest onNatl. Debt

Total Expenditures =$4.407T

Notice that the amount of spending farexceeds theamount the government takes in.