Oklahoma’s Personal Financial
Literacy Passport
Teacher Presentation Series 2
©2008. Oklahoma State Department of Education. All rights reserved.
1
Standard 2.2
Taxes: Somebody
has to Pay
©2008. Oklahoma State Department of Education. All rights reserved.
2
Down Payment
Mario received $20 for his birthday. He wants
to buy a new video game at Aim Videos.
Mario heads to the game aisle. Sure enough, it is
there, and the price is $19.95.
He heads to the cashier, who rings it up and
says, “That will be $21.60.”
©2008. Oklahoma State Department of Education. All rights reserved.
3
Down Payment
The cashier explains he has to pay
the sales tax to get the game.
“I am just a little kid. Why does the
government want my money for
taxes?”
If Mario was your little brother, what
would you tell him?
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4
Vocabulary
Ability to Pay
The belief that people should be taxes
according to their ability to pay, regardless of
the benefits they receive. The U.S. individual
income tax is based on this principle.
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5
Vocabulary
Benefits-Received Principle
The belief that people should be taxed
according to the benefits they receive from
the good or service the tax supports. The
gasoline tax is an example.
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6
Vocabulary
Free Rider
One who enjoys the benefits of a good or
service without paying for it
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7
Vocabulary
Progressive Tax
A tax that takes a larger percentage of
income from people in higher-income groups
than from people in lower-income ones; the
U.S. federal income tax is an example
©2008. Oklahoma State Department of Education. All rights reserved.
8
Vocabulary
Regressive tax
A tax that takes a larger percentage of
income from people in lower-income groups
than from higher-income ones. Sales taxes and
excise taxes are examples.
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9
Vocabulary
Taxes
Government fees on business and individual
income, activities, or products to support
government programs.
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10
Somebody Has to Pay
Where does the money come from
to pay for fire and police protection
in your town?
Local, state, and federal taxes
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11
Somebody Has to Pay
What other services are paid for by
taxes:
Public schools
Roads and highways
National defense
Safe drinking water
Public welfare programs
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12
Goal of the U.S.Tax Policy
To ensure that taxes are “fair”
Unbiased
Just
Equitable
Objective
Impartial
Is what you consider fair the same as
what I consider fair?
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13
Ability to Pay vs. Benefits
Received Tax Theory
Ability to Pay
• People who can afford to pay
taxes should pay more than those
with limited ability to pay.
• People with higher income should
pay more taxes than people with
lower levels of income.
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14
Ability to Pay vs. Benefits
Received Tax Theory
Taxing one group more than the
other may decrease the
incentive to earn more money.
• What kinds of problems do you
see this causing?
•
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15
Ability to Pay vs. Benefits
Received Tax Theory
Benefits Received:
• Theory: Government should only tax
people who receive the goods and
services
• Example: People who drive on toll
roads pay fees, but if you do not use
them, you do not pay.
• Problem: People who often benefit
more from government programs have
limited incomes.
©2008. Oklahoma State Department of Education. All rights reserved.
16
Ability to Pay vs. Benefits
Received Tax Theories
Ability to pay means:
Benefits received means:
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17
Progressive and
Regressive Taxes
Progressive tax –
proportion of income
paid in taxes increases as
income increases
Regressive tax –
proportion of income
paid in taxes decreases
as income decreases
©2008. Oklahoma State Department of Education. All rights reserved.
18
Sales Taxes
Is classified as a regressive tax
 While everyone pays the same amount of
sales tax, lower income households spend
more of their earnings to purchase goods
and services than people with higher
income.
 What is the local sales tax rate?

©2008. Oklahoma State Department of
Education. All rights reserved.
19
U.S. Tax System
Is classified as progressive
 Because the amount of money paid in
income tax exceeds the amount of money
paid is sales tax and other regressive
taxes.

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Education. All rights reserved.
20
Progressive Tax Bucket
Bill’s
Salary:
$35,000
38%
$349,700 and above
33% $160,850 to $349,700
28% $77,100 to $160,850
$31850-$77100
25% 25%
$31,850
to $77,100
15% $7,825 to $31,850
10% $0 to $7,825
What will
he pay?
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21
Earnings
Everyone benefits from the public
goods and services provided by our
tax dollars.
How much we pay in taxes is
frequently debated.
Answer to public debate: continue
paying taxes as long as benefits to
society are greater than the cost.
©2008. Oklahoma State Department of Education. All rights reserved.
22
Free Riders
People who benefit from using goods and
services without paying for them
 Those who are paying will need to pay
more to meet our demands
 Public goods and services provide benefits
to more than one person at a time; and it
is difficult to limit their use to only those
who pay for them
 Example?

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Education. All rights reserved.
23
Government should:

Provide goods and services as long as the
benefits of providing them are greater
than the costs associated with them.
◦ Health Care?
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Education. All rights reserved.
24
Review
Identify examples of progressive and
regressive taxes.
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25
Review
What is a “free rider?”
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26
Review
Identify examples of goods and
services paid for by taxes.
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27
Paid in Full
Tell Mario paying sales tax is an important
source of income for local government.
Sales taxes provide parks, bike paths,
roads, police, and fire safety.
Everyone who buys goods and services
pays sales taxes, regardless of age or
income.
©2008. Oklahoma State Department of Education. All rights reserved.
28
End of Chapter Work
Visit the IRS web site
 Review Lesson 2.1
 Complete a simple tax form
 Calculate % of income Mark had to pay in
taxes

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Education. All rights reserved.
29
Standard 2.2
Taxes: Voluntary
Compliance
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30
Payoff
Recognize the moral and ethical
reasons for paying taxes.
Explain the legal and financial
consequences of failing to pay taxes.
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31
Down Payment
Ashlee and Brittany need to earn money
for cheerleading camp. They start mowing
lawns.
They pay expenses first, then divide the
rest of the money earned 50/50.
Ashlee keeps a record of every lawn they
mow, expenses paid, and personal income.
©2008. Oklahoma State Department of Education. All rights reserved.
32
Down Payment
Brittany writes down:
• The checks they receive.
• The expenses they pay.
• Subtracts expenses from amount received in
checks.
• Does not keep a record of any cash received
because there is no record of the money.
Which one of the girls is correct?
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33
Vocabulary
Ethics
A set of principles or beliefs
that govern an individual’s
action
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Vocabulary
Morals
A system of values and
principles of conduct that
promotes good customs and
virtues while condemning bad
customs and vices
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35
Vocabulary
Standard of Living
The quality and quantity of
goods and services available
to people, and the way these
goods and services are
distributed within a country
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36
Vocabulary
Quality of Life
The overall enjoyment of life
and sense of well-being
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37
Vocabulary
Voluntary Compliance
A system that relies on
individual citizens to report
their income freely and
voluntarily, calculate their tax
liability correctly, and file a
tax return on time, according
to the rules established by
the Internal Revenue Service
©2008. Oklahoma State Department of Education. All rights reserved.
38
Tax Facts
Our tax system operates on a principal
called “voluntary compliance.”
If you do not file a tax return you can:
• face criminal prosecution
• be heavily fined
• be imprisoned
The Internal Revenue Service (IRS), a
division of the U. S. Treasury, is
responsible for the federal tax system.
©2008. Oklahoma State Department of Education. All rights reserved.
39
Internal Revenue Service
Has the right to audit a person’s tax
return
 To avoid a tax audit

◦ To file your income tax return on time
◦ Keep good records of your income and
expenses
◦ Always be honest with the information you
report
©2008. Oklahoma State Department of
Education. All rights reserved.
40
Reporting Your Taxes
According to law, everyone who
receives a paycheck is required to
submit a tax return to the IRS by
April 15.
You can use a variety of deductions
and exemptions to reduce your tax
bill.
However, the law is very specific
about what is legal.
©2008. Oklahoma State Department of Education. All rights reserved.
41
W-2
Received in January
 Includes the information you need to
complete your tax return

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Education. All rights reserved.
42
Oklahoma Taxes
State Income Tax
 Federal Income Tax

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Education. All rights reserved.
43
Ethics and Moral Issues
What are some reasons for being
ethical in paying your taxes?
Part of your responsibility to others and to
society
Part of being a good citizen
Provides public goods and services designed
to increase our country’s standard of living
and quality of life
©2008. Oklahoma State Department of Education. All rights reserved.
44
Ethics and Moral Issues
What are some moral reasons for
paying taxes?
Assist in providing many of the services
people rely on every day
Clean drinking water
Safe roads
Social services for elderly
Military
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45
What if I Make an
Honest Mistake?
Result in a fine or a penalty
If determined you willfully committed
fraud, that you can be tried in court;
and if found guilty, jailed.
©2008. Oklahoma State Department of Education. All rights reserved.
46
Earnings
Paying taxes is a moral and ethical
responsibility of all U. S. citizens.
Paying taxes helps us avoid being
financially penalized or imprisoned by the
IRS.
©2008. Oklahoma State Department of Education. All rights reserved.
47
Review
What are some of the reasons people
pay taxes?
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48
Review
If you knowingly underpay your taxes,
what are some actions the IRS might
enforce?
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49
Review
What is voluntary compliance?
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50
Review
What date are taxes due?
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51
Review
What is the primary purpose for
collecting taxes?
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52
Paid in Full
If you said Ashlee, then you are correct.
Ashlee’s recordkeeping would allow her
to report all of her income.
Brittany’s behavior is also unethical and
illegal. She runs the risk of being caught
and penalized for her choices.
©2008. Oklahoma State Department of Education. All rights reserved.
53
Activity 2.2.1 Civic Duties
and Taxes
“Taxes are what we pay for
a civilized society.” Justice
Oliver Wendell Holmes
“People want just (or fair)
taxes more than they want
lower taxes. They want to know
that every man is paying his
proportionate share according
to his wealth.” Will Rogers
“Collecting more taxes than
absolutely necessary is
legalized robbery.”
President Calvin Coolidge
“Ask not what your
country can do for
you, but what you
can do for your
country.” President
John F. Kennedy
©2008. Oklahoma State Department of Education. All rights reserved.
54