Taxes
I.
Somebody Has To Pay
A. Not a New Concept
a. Paying taxes to the government is almost as old as time. Early money collected
supported the empires of kings and provided revenue for military efforts. Many will
complain about taxes…..but most still enjoy the benefits paid by the government.
b. Local, state, and federal governments use tax dollars to ____________ _________
_____ ________________ such as public schools, roads and highways, national defense,
safe drinking water, firemen, police, etc. Some of these programs are only paid for at
one level of government while others are partnerships between two or more levels.
Regardless of who provides the service, _____________ pay for it. The idea is for taxes
policy in the US to be fair. The idea of a “fair tax” is based on the notion that no one
segment of society should be treated differently in the eyes of the law. Problem – what
seems fair to one group may seem unfair to another group
B. Tax Theories
a. Ability to pay theory – says the people who ________________________________________
pay more than those with a limited ability to pay
b. Benefits received theory – based on the premise that the government ____________
________________________ the goods and services provided by those taxes. Only people using
the programs would pay the taxes. Example – people who drive on toll roads in Oklahoma pay
fees for those roads. If you do not want to pay fee, don’t drive on it. Problem – people with
limited income may benefit most from programs such as unemployment or food stamps. If
these people are in need of public assistance, how can they pay more?
C. Progressive and Regressive Taxes
a. Progressive – a tax that takes a larger percentage of income from people in _______________
groups than from people in lower-income ones; federal income tax – as income increases, tax
rates increase
b. Regressive – a tax that takes a larger percentage of income from people in _________________
than from higher-income ones; sales tax – tax paid on goods and services at the point of
purchase. While everyone pays the same amount, lower income households ___________
_______________________ to purchase goods and services than people with higher incomes.
Therefore, it is a bigger burden on lower income households.
D. Public Goods and Services – Because the idea of fairness is subjective, it becomes a hot political topic at
both the state and federal level.
a. Free rider – The free rider problem happens when people ___________ from using goods and
services ____________________ for them. If we do not have to pay, there is little incentive to
control these goods or services. Those who are in fact paying will need to pay more to meet the
demand. Governments provide goods and services for the good of society. Deciding what the
government should provide is like other decisions – governments should provide goods and
services as long as the benefits of providing them is greater than the costs associated with them.
Measuring the costs and benefits is difficult – not all individuals have the same benefits and not
all individuals have the same costs.
II.
Voluntary Compliance
A. Vocab
a. Ethics – a set of principals or beliefs that govern an individual’s actions
b. Morals – a system of values and principals of conduct that promotes good customs and
virtues while condemning bad customs and vices
c. 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
d. Quality of Life – the overall enjoyment and sense of well-being
e. 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 rules established by the Internal Revenue Service
B. Duty:
a. Most people believe that it ____ their civic duty to pay their taxes. However, some citizens look
for ways to cheat the government by using false deductions or failing to report their income.
Regardless of their reasons, paying taxes is ______________. If you do not comply with the law,
you will probably end up ______ ___________. If you do not report the correct amount of
income (________________ _______________) or if you do not file a tax return, you can face
criminal prosecution. The Internal Revenue Service (______), which is a division of the US
Treasury, is charged with maintaining the confidence in the federal tax system. To insure proper
filing, the IRS has the right to audit a person’s tax return. Make sure it file on time – this makes
an audit less likely. Keep good records and always be honest!
C. Reporting Your Taxes
a. Everyone who receives a ______________ is required to submit a tax return to the IRS by April
_____. Employees receive a _______ which includes the information you need to complete your
tax return. In most states, you are required to pay local and state personal income tax in
additional to federal. Oklahoma residents pay ____________ and ______________.
D. Ethical and Moral Issues
a. Failing to pay taxes is a _______ risk. One incentive for paying your personal income taxes or
any other required tax is knowing you have done nothing illegal if you are questioned by the
government.
b. Paying taxes is part of your shared __________________ ______ _____________. Good
citizenship is at the core of our society; this means doing your part for the common good. Your
tax dollars provide public goods and services designed to increase our country’s __________ of
living and ____________ of life.
c. Standard of living relates to the ____________ within the country while the quality of life
reflects what makes people ___________.
d. Services supported – clean drinking water and safe roads, support for the elderly, military
personnel to defend our nation, etc
e. Even if an error is an honest mistake, you may pay large fines. If the IRS determines that you
willfully committed fraud, you will be tried in court. If found guilty, you will go to _______ for
tax fraud.