How can the U.S. significantly decrease the deficit
1)
2)
3)
4)
Taxes
Spending
Tax Rate Introduction
U.S. Federal Income Tax System
3 Types of Taxes
• Progressive– Tax rate increase as income increases
– Example: Income Taxes
• Regressive– Consumes larger % of lower income worker’s salary
– Example: Gasoline Tax, Bridge Tax
• Flat
– Same % for everyone
– Example: Sales Tax, Some State income taxes
Purpose/Goals
of an INCOME TAX
Tax Worksheet
• History of Income Taxes
• Taxes people pay
Federal Income Tax
• Progressive Income Tax
As income
Tax
Rate
Single
% Tax Bracket
Married Filing
Jointly
10%
$0 – $8,350
$0 – $16,700
15%
$8,351– $33,950
$16,701 – $67,900
25%
$33,951 – $82,250
$67,901 – $137,050
28%
$82,251 – $171,550
$137,051 – $208,850
33%
$171,551 – $372,950
$208,851 – $372,950
35%
$372,951+
$372,951+
EVERY taxpayer pays
10% on first $8,350 of income
Example: If you Earn $100,00 (single)
($ 8,350 - 0 )
x .10 :
$ 835
(33,950 - 8,351) x .15 :
3,840
(82,250 - 33,951) x .25 :
12,075
(100,000 - 82,251 ) x .28 :
4,970
Total:
$ 21,720 or 21.7%
2 Wage Earners
Mary earns $60,000
John earns $360,000
$91,025
$4,485
$5,220
$32,123
Federal Taxes
Social Security
Medicare
California Tax
$5,855
$2,520
$870
$1,617
$226,965
$18,913
$133,035
Take Home Pay
Pay Per Month
Total Taxes Paid
$49,137
$4,094
$10,863
37.0%
Overall Tax % Rate
18.0%
http://www.paycheckcity.com/calculator/netpay/us/california/calculator.html
Numbers to Know for Exam
• Top 1% of Taxpayers
($343,000 + Up)
– Pay 38% of all taxes
– Earn 20% of all income (1.4 million households)
• Top 10% of Taxpayers
($115,000 + Up)
– Pay 70% of all income taxes
– Earn 46% of income
• Bottom 50% of Taxpayers ($33,000 + Below)
– Pay 3% of Income Taxes
– Earn 13% of Income
Top 1% pay
more taxes but
The income
Gap has
widened last
30-Years
EQUAL % tax cuts
What best stimulates economic growth?
Equal % Tax Cuts
• Example: 10% tax cut for ALL taxpayers
• Who gets more nominal dollars (money)
Earn $120,000
Taxes $36,000
Earn
Taxes $3,000
$24,000
Refund $3,600
Refund
$300
Fiscal Cliff December 2012
2013 Federal Tax Rate Brackets
Tax Rate
Bush Tax
cuts are now
permanent
New top
bracket
Single
Married filing Jointly or
Qualifying Widow(er)
10%
Up to $8,925
Up to $17,850
15%
$8,926 – $36,250
$17,851 – $72,500
25%
$36,251 – $87,850
$72,501 – $146,400
28%
$87,851 – $183,250
$146,401 – $223,050
33%
$183,251 – $398,350
$223,051 – $398,350
35%
$398,351 – $400,000
$398,351 – $450,000
$400,001 +
$450,001 +
$6,100
$12,200
39.6%
Standard Deduction