Chapter 9
Sources of Government Revenue
15 Vocabulary words
Who and what should be taxed?
1966 “The Taxman” The Beatles
School House Rock Tax Man
Economics of Taxation
• Taxes Why do we pay them?
• Govt. tries to Raise Revenue by- income, sales, and
property taxes are the main categories
• Other ways- college tuitions, social security tax,
unemployment, insurance contributions, and drivers
license fees.
What is the economic impact of taxes?
• Resource Allocation: Taxes increase the prices of
goods.
• Behavior Adjustment: Sin Tax is levied against people
who buy cigarettes to discourage smoking.
• Productivity and Growth: Do taxes encourage or
discourage people to make money? Not sure.
CRITERIA FOR EFFECTIVE TAXES
• 1. Equitable: It must be fair
• 2. Simplicity: The taxpayer and tax collector must
be able to understand the laws.
• 3. Efficiency: It should be easy to administer and
effective in generating revenue.
2 Principles of Taxation:
What do you think?
• Benefit Principal: Those who BENEFIT from the
government goods and services should pay in
proportion to the amount they receive.
• IE: What about immigrants?
• Ability to Pay Principal: the belief that people should
be taxed according to their ABILITY to pay, regardless
of the benefits they receive.
What types of taxes are there?
• 1. Proportional Tax: it proposes the same proportion of
taxation on everyone, regardless of income. IE: 20% for
everyone.
• 2. Progressive Tax: is a tax that imposes a higher % rate of
taxation on persons with higher incomes. IE: 10,20, and
30% of income.
• 3. Regressive Tax: is a tax that imposes a higher % of
taxation on low incomes than on high incomes. IE: It pays to
make more.
• (see graph on page 228)
The Federal Tax System
Section 2
• AS: In 2001 the US collected $11,800 for every man
woman and child in the US.
• How many people live in the US and how much money
is that?
• 350 million people
• 4.13 TRILLION DOLLARS!!!! WHOA!
Income Taxes:
• In 1913 the 16th Amendment was ratified allowing the
government to levy an income tax.
• This is a tax on peoples earnings to finance its
operations.
• The federal government has collected nearly 50% of
its total revenue from taxes.
TAXES:
• IRS (Internal Revenue Service): This is who receives
the tax and it is done through a payroll withholding
system.
• On April 17th (usually 15th) you file a tax return which is an
annual report of total income and deductions.
• If for some reason you cannot file you must file an
extension.
OUR TAX SYSTEM IS PROGRESSIVE 2011
This is for a single individual
• 10% is paid on income up to $8,500.00
• 15% is paid on income $8500-34,500
• 25% is paid on income $34500-83,600
• 28% is paid on income $83600-174,400
• 33% is paid on income $174,400-379,150
• 35% is paid on income over $379,150
OUR TAX SYSTEM IS PROGRESSIVE 2011
This is for a Married individual filing Joint
• 10% is paid on income up to $17000.00
• 15% is paid on income $17000-69,000
• 25% is paid on income $69000-139,350
• 28% is paid on income $139,350-212,300
• 33% is paid on income $212,300-378,150
• 35% is paid on income over $379,150
FICA TAXES
What is a FICA tax?
• Federal Insurance Contributions Act tax
• Levied on employers and employees
• Pays for Social Security and Medicare
What is the % of Social Security and Medicare (started in
1965)?
• Social Security is 6.2 it is capped at $84,900
• Medicare is 1.45% no cap.
Corporate Income Taxes 2011
• CORPORATE INCOME TAX:
• 15% of all income under 50,000
• 25% of all income between 50000-75000
• 34% of all income between 75000-100,000
• 39% of all income between 100,000-335,000
• 34% of all income between 335,000-10 million
• 35% of all income between 10 mill-15 mill
• 38% of all income between 15 mill-18.333333 mill
• 35% of all income between 18.333333 mill -
Excise Tax:
• A tax on the
manufacture or sale of
selected items, such
as gasoline, and liquorthis is the 4th largest
revenue maker for the
US.
Estate and Gift Taxes:
• Estate tax: is a tax on the transfer of property when a
person dies. Estate taxes can range from 18-50% of
the value of the estate.
• Estates worth less than $675,000 were exempt in
2002, although this limit will soon be raised to 1
million.
• You must QUIT CLAIM the house to your children 3
years prior to their death to avoid the tax. (see ehow:
get the form get it notarized)
GAMBLING and GREED
• "Las Vegas was built for people who are really bad at
math...." ...Penn Jillette
• Casino gambling: $50 billion business
• 20 % comes from Nevada
• 1/3 of all tax is generated by gambling (NV)
• Taxes: 25% is withheld if you win over 1200-.
• If you are foreign 30% is withheld.
• http://lasvegas4newbies.com
Customs and Duties
• Customs: A charge levied on goods brought from
another country.
• The President has the ability to raise or lower the
customs tax by as much as 50%
• Customs taxes produce very little revenue although
prior to 1913 it was the highest.
User Fees
• President Ronald Reagan made a huge push for USER
fees.
• The fees would include entrance charges you pay to
visit national parks, fees that ranches pay to graze on
federal land. (125- / yr. 10-/day)
• These are taxes based on the benefit principal. See
page 232, and 239.
State taxes
Section 3
• Intergovernmental Revenues: Revenues collected by one level of
government that are distributed to another level for expenditures.
• Taxes and Fees:
(7.0% “state” tax + 0.25% “county” tax + “combined state and local” tax of
1.0% = 8.25% CA.)
• Only 5 states have no sales tax. Alaska, Oregon, New Hampshire,
Montana, and Delaware.
• The choice of tax: Lotteries, the states spend ½ the money on
prizes and 6% on administration. #1 money maker.
Local Government Taxes
Section 3
• Intergovernmental Revenues: Transfers from state
governments. 1st and largest.
• Property Taxes: 2nd largest revenue. 1.2-2.0% of the
price of the home.
• Public Utilities: This is the 3rd largest contributor.
Current Tax Issues
Section 4
• Tax Reform 1986, 1993:
• Surcharge: 5% or additional tax above and beyond
the base rate for the companies in the top 31%.
• Taxes: Either a 15% tax or 28% tax.
• Tax Reform 1997:
• Capital gains: Tax on the sale of an asset held for
12 months was reduced from 28% to 20%.
• Tax reform 2001:
• Refunds for Individual/married couples of
$300/$600.00. Also higher child tax credits.
THE END
The nation should have a tax system that looks like someone designed it on
purpose.
~William Simon
Taxes: Of life's two certainties, the only one for which you can get an automatic
extension. ~Author Unknown
Indoors or out, no one relaxes in March, that month of wind and taxes, the wind will presently
disappear, the taxes last us all the year. ~Ogden Nash
It's income tax time again, Americans: time to gather up those receipts, get out those tax
forms, sharpen up that pencil, and stab yourself in the aorta. ~Dave Barry
Man is not like other animals in the ways that are really significant: animals have instincts, we
have taxes. ~Erving Goffman
Are Taxes Voluntary?
• 2009 Federal Tax Laws
• 2009 State Tax Changes
• Create your own tax system see www.mrpillsbury.com click here