Brief Response
• Wal-mart is a profitable business with many
outlets that require a lot of floor employees.
Their selling-point is low prices.
• Which group do you think is the majority of
their labor force, full-time employees or parttime employees? Explain. (2)
– Wal-mart uses a majority of part-time workers.
• This keeps costs of labor down.
• Saves Wal-mart on legal labor benefits (also keeping costs down).
• This keeps employees from demanding their rights (joining
unions).
1
Chapter 9 Sources of Government Revenue
Section 1 p. 223 Terms:
• Sin tax
• 224 a relatively high tax
• Raise revenue
– Used to fund treatment and prevention
• Discourage an undesirable product
– Liquor
– Tobacco
– Gambling
• Incidence of a tax
• 225 the final burden of the tax
Tax loopholes
• 226 exceptions or oversights in the tax law
that allow select individuals and businesses to
avoid paying taxes.
• Raise a question of fairness.
Individual income tax
• 226 tax on a person annual earnings (salary,
wages, tips, etc.)
• A complex tax
• Many rules apply to
– how much is taxable
– How much is deductible
Sales tax
• 226 levied on most consumer products
• Simple tax
– Paid on time of purchase
– Uniform for all products
• CA = as high as 9.25% (after vote to approve emergency
hike for education), official is still 7.5%
• Exemptions include:
– Basic foods (not processed)
– Child care
– medicine
Benefit principles of taxation
• 227 those who benefit from government
goods and services should pay in proportion
to the amount of benefits they receive
• A guiding principle of taxation.
– Ex: Gas tax paid only by users at gas stations
• Pays for interests of users of gasoline
• Highways
Ability-to-pay principle of taxation
• 228 the belief that people should be taxed
according to their ability to pay.
• Recognizes
– That society cannot measure the benefits derived
from government spending.
– The assumption is that people with higher
incomes suffer less discomfort paying taxes than
people with lower incomes.
Proportional tax
• 229 imposes the same percentage of taxation
on everyone, regardless of income.
– A 15% tax would mean
• $10,000 income, tax would be $1500
• $100,000 income, tax would be $15000
Proportional tax
• On your other worksheet (start a new one if
you have no more room (keep them together)
– Why doesn’t the US use a proportional income
tax? Explain (consider the tax burden for each
income group) (2)
Proportional tax
• Why doesn’t the US use a proportional tax?
Explain. (2) (consider the tax burden for each
income group)
– Answer: it is not a fair rate as it takes what little
money lower income people have, reducing their
buying power. The wealthy class can afford the tax as
they still have tens of thousands of dollars to spend
after taxes. (ability-to-pay principle of taxation)
– While both groups use the tax-dollar government
goods and services, business uses them at an
accelerated rate. (benefit principles of taxation)
Average tax rate
• 229 total taxable income divided by the total
income
• Constant, regardless of income
– If income increases, the percentage stays the
same.
– Current for my tax bracket:
• US: @15%
• CA: @10%
Progressive tax
• 229 imposes a tax with a higher rate of taxation on
person with higher income.
• Marginal tax rate
• Applies a levy to the next dollar of taxable income
• The rate increases as the amount of taxable income
increases
• 2014 (single). Break out your calculators; I’ll call you.
– $10,000 income, tax is $1,050 = ______% tax?
• .105
– $20,000 income, tax is $2,550 = ______% tax?
• .1275
– $98,000 income, tax is $20,623 = ______% tax?
• .21
• Points where tax percentage increases are called
“brackets”
Regressive tax
• A tax that imposes a higher tax burden on lower
income people as it takes the same percentage
rate of taxation as that on high incomes.
• Sales tax is harder on lower income people than
higher income people.
– CA = 9.25
– (considering the single tax earner, again):
– $10,000 income finds it harder to save precious
money when shopping making the cost of living
proportionally higher than that of a $98,000 income
earner who has more money to spend after the sales
tax.
Section 2, p. 231 Terms:
• Payroll withholding system
• 232 requires the employer to automatically
deduct income taxes from an employee’s
paycheck.
– W-2 form starts the process
– W-2 statement informs employee
• total annual gross income,
• net income,
• taxes withheld.
Internal Revenue Service (IRS)
• 232 Branch of the US government that collects
taxes.
• Part of the Department of the Treasury
Tax return
• 232 an annual report filed by the employee to
the IRS
– Total income
– Deductions
– Taxes withheld by employers
• Must be submitted by April 15th if employee
owes any more taxes.
– If employer paid more taxes, the employee will
receive a payment from the government.
Tax information
• When a person is hired, they fill out a W-2
form.
– This starts withholding of tax on weekly or
monthly pay.
• Actually tax filing begins with the Form 1040
for most people and businesses.
– If your employer or you withheld more money
than you should be taxed you get a refund
– If your employer or you withheld too little money,
then you will pay more taxes.
Tax Form Project
• Use the worksheets and forms to help you complete
the US 1040 and CA 540 tax forms for this year.
• You will only have the deductions on the tax form as
we have no access to the tax books that allow you
more.
• Use the following:
– Consider yourself a “single” income earner
– On-line tax table for US 2014 (school web-page--Econ Unit
III: macroeconomics).
– Tax forms given to you
– W-2 form given to you
Tax Form Project
•
•
•
•
•
Turn in:
14 front
16 back
1 W-2 attached in proper place
Total = 31.
Indexing
• 233 an upward revision of the tax brackets to
keep workers from paying more in taxes just
because of inflation.
FICA
• 233 Federal Insurance Contributions Act
– Tax levied on both employers and employees to pay for
Social Security and Medicare
• Medicare
• A federal health-care program available to all senior
citizens
– Regardless of paying the tax for Social Security and
medicare
• Payroll tax
– Revenue deducted from a person’s paycheck by the
government.
• FICA
Corporate tax
• 235 a corporation pays an income tax as if it
were an individual.
• Based on profits
• Brackets as of printing were:
– 15% up to $50,000
– 25% $50,001 to $75,000
– 34% $75,001 to $18.3 million
– 35% $18.3 million and over.
Excise tax
• 235 A tax on the manufacture or sale of selected
items
–
–
–
–
–
–
–
Gasoline
Liquor
Telephone service
Tires
Legal betting
Coal
Luxury goods
• A regressive tax as lower-income people pay more of
their income than higher income people.
Luxury good
• 235 good or service where demand for the
good rises faster than income, when income
grows.
– Vehicles over $40,000
– Large pleasure boats
– Private planes
– Jewelry
– Furs
• Phased out by Congress in 2002
Estate tax
• 235 tax levied on the transfer of property
when a person dies.
• Usually on property OVER $2 million.
• Aka, “death tax”
Gift tax
• 235 tax on large amount of money or wealth
“donated” by a person to others to avoid
paying larger income taxes.
Customs duty
• 236 tax on imported goods or goods brought
in by travelers from other countries.
– Automobiles
– Jewelry
– Metals
• Until 1913, the main source of revenue of the
United States
– Replaced by income tax that year.
User fees
• 236 Charges for the use of a good or service.
• Ex: National park fees
Hwk Assessments, Class Work,
to Know
Assessments: Checking for Understanding
CH 9, S1
•
•
•
•
•
1
Resource allocation
Behavior adjustment
Productivity and growth
Incidence of a tax
CH 9, S1
• 3
• They affect
– resource allocation
– Consumer behavior
– The nation’s productivity and growth
CH 9, S1
•
•
•
•
4
Equity
Simplicity
Efficiency
CH 9, S1
•
•
•
•
5
(just list them)
Benefit principle
Ability-to-pay principle
CH 9, S1
• 6
• Proportional:
– Same percentage rate of taxation on everyone
• Progressive:
– Imposes higher percentage rate on person with higher
incomes
• Regressive:
– Imposes a higher percentage rate on lower incomes as
compared to high incomes.
Assessments: Checking for Understanding
CH 9, S2
•
•
•
•
1
Individual income taxes
FICA taxes
Corporate income taxes
CH 9, S2
• 3
• It imposes a higher percentage rate of taxation
on persons with higher income.
CH 9, S2
•
•
•
•
•
4 (text: 2005)
15%
25%
34%
35%
• 2014 US tax brackets (single payer)
CH 9, S2
•
•
•
•
•
•
5
Excise taxes
Estate taxes
Gift taxes
Customs duties
User fees for the use of a good or service.
image, p. 224
• Question
• Total government receipts grew from 500% of
the 1940 level to over 700%
Image, p. 225
• Question
• The demand for medicine is generally inelastic
• The consumer will bear the greater burden of
a tax on medicine.
images, p. 227
• question
• The amount each pays depends on how much
income each earns
images, p. 228
• Question
• Progressive tax
image, p. 232
• Borrowing decreased and taxes increased
Image, p. 233
•
•
•
•
$6,810.00
Solution:
$3,910 + .25 ($40,000 – $28,400) =
$3,910 + $2,900 = $6,810
image, p. 234
• Question
• A regressive tax
• Because the Social Security portion of FICA is
capped at a certain income level
– The higher the income, the lower the FICA tax.
image, p. 235
• Question
• Goods or services for which the demand rises
faster than income when income grows.
Brief Response
• What are the purposes of government
collecting taxes and other revenue? (5)