Sources of Gov’t
Revenue--TAXES
Chapter 9
Criteria for Effective Taxes
• 1. Equity
– Must be fair
– Want to avoid tax loopholes —when people
find a flaw in tax laws that allow some people
to avoid paying taxes
– The belief of “fairness” is different for each
person
• 2. Simplicity
– Written so anyone can understand it
– Ex. Individual income tax —a tax on peoples
earnings is actually 1,000 of pages long but
the IRS puts it in terms everyone can
understand
• Sales tax —tax on most consumer goods
– Different for each state
• 3. Efficiency
– Must be easy to collect
– Must be cost efficient
ex. Toll booths collect a tax. Toll must be =
or > the cost of employment and upkeep of
booths
2 Principles of Taxation
• 1. Benefit Principle
– Those who benefit from the g or s should pay
in proportion to the amount of benefit
received
• Example: gasoline. Tax is included in price of
gas. If you drive more, you pay more taxes
because you receive the benefit of better roads,
more police protection, etc.
GAS TAX PER GALLON
• 2. Ability to Pay
– Belief that people should be taxed on their
ability to pay
• Example: indiv. income tax—people who have a
higher income are taxed at a higher percentage
Video: Understanding your paycheck-on a separate sheet to turn in
• 1. What is the difference between gross and net
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pay?
2. What must be deducted from your paycheck?
3. List some optional deductions.
4. What can you do to minimize your taxes or
your taxable income?
5. How many tax brackets are there?
6. How can you increase your income?
7. What is compounding?
Types of Taxes
• Proportional
– The same % of tax on everyone regardless of
income
• Example: if tax is 20%, a person with a $10,000
income pays $2,000.
A person with a $100,000 income pays $20,000
• 2. Progressive
– Imposes a higher % of tax on people w/ a
higher income
– Claims a larger $ amount and larger % of
income
• Example: income tax
• 3. Regressive
– Tax that imposes a higher rate on low
incomes than on high incomes
• Social Security Tax
– Tax on income up to $80,400. If you make
more than this, you do not have to pay a tax
on the amount above $80,400.
 Example: if you made $80,400 or less you
would pay around 7.5 cents per dollar
earned in SS tax
 If you earned 300,000 you would only be
paying 1.7 cents per dollar earned
Vocabulary—Grab a book!
• 1. sin tax
• 2. individual income tax
• 3. sales tax
• 4. payroll withholding system
• 5. IRS
• 6. tax return
• 7. indexing
• 8. FICA
• 9. medicare
• 10. payroll taxes
• 11.
• 12.
• 13.
• 14.
• 15.
• 16.
• 17.
• 18.
• 19.
• 20.
corporate income tax
excise tax
luxury good
estate tax
gift tax
custom duty
user fees
intergovernmental revenues
property tax
tax assessor
QUIZ ON MONDAY USING YOUR VOCAB!!!!!
Chapter Review Page 252
• Do Identifying Key Terms 1-13 (not
number 9)
– Just the word—you do NOT have to write out
the definition
• Reviewing the Facts
– 1, 3, 4, 5, 6, 9 and 11
• Either write out the question and answer
• OR
• Answer the question in complete sentences.
True or False Questions
• Make 10 true or false questions about
taxes (chapter 9) or spending (chapter
10).
• I will email these out tonight or tomorrow
for review.