Unit 3: Taxes & Employment
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Bell Ringer
Criteria for Taxes
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Chapter 9: Economic Taxation
Explain the economic impact of taxes.
 List three criteria for effective taxes.
 Understand the two primary principles
of taxation.
 Understand how taxes are classified.

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Economic Impact of Taxes
• A taxes
• placed on a good raise the factors of production!
• Revenue for the gov and influences our behavior,
productivity, and resource allocation.
• Resource Allocation:
• Passed on to consumers
• Buy more or buy less
• Productivity:
• Work or not to work?
• incentives to save, invest, and work.
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• Behavior:
• Sin tax
• is a high-percentage tax that raises revenue while
reducing consumption of a socially undesirable
product.
• Cigarettes and alcohol.

Incidence of Tax

Who pays the final burden of a tax
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Criteria for Effective Taxes
• 1: Equity or fairness
• fairness is subjective, but taxes are considered
fairer if they have fewer loopholes—exceptions,
deductions, and exemptions.
• 2: Simplicity
• tax laws should be easy to understand.
• Income Tax: paid based on earnings
• Sales Tax: tax on purchased items
• 3: Efficiency:
• which means it is easy to administer and is
successful at generating revenue.
• Employers take money away.
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Two Principles of Taxation
• Benefit Principle:
• Those who benefit from Gov goods should pay a
proportion of those benefits.
• EX> Gas Tax
• Problem: Those who get Gov subsides don’t pay!
• Ability-to-pay Principle
• is the belief that people should be taxed
according to their ability to pay, regardless of the
benefits they receive.
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Types of Taxes
• Proportional tax
• is one that imposes the same percentage
on everyone, regardless of income.
• Progressive tax
• is one that imposes a higher percentage
of tax on persons with higher income.
• Regressive tax
• is one that imposes a higher percentage
on low incomes than on high incomes.
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Types of Taxes, cont

Marginal Tax Rate

Like Average Tax rate, but the percentage
increases as income increases.
Average Tax:
Pay the same amount regardless of
income.
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9.2 Bell
Ringer
Federal
Revenue Sources
2
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9.2 Federal Tax System

16th Amendment (1913) allows
congress to levy income taxes.
 50%
of Gov budget
 IRS receives the payments

Income Tax
Payroll Withholding System
 Tax Period ends Dec. 31st
 We file a tax return before April 15th

 Deductions and expenses can lower the amount owed.

Self-employed do not withhold
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
Progressive Income Tax
Under 7K= 10% tax
 Marginal rate over 7K

 The

more you make, the more you pay!
FICA Taxes (Payroll Tax)
Medicare (health for Seniors)- 1.45
%
 Social Security (6.2 % in ’03)

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Other Taxes! (OMG!)

Corporate Tax

Tax on profits- marginal


Excise Tax


Tax on the manufacture or sale of certain
goods. Ie> Gas (4th largest), tobacco,
alcohol, phone, tires, coal.
Estate-Gift Tax



The more they make, the more they pay
Tax on the transfer of property after death
Gift- Tax on donations of money
Customs Duties

A charge levied on goods brought from
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State and Local Tax
Sales tax, property tax, utility
 Intergovernmental Revenues


Funds collected by 1 level of gov to
another level
 Fed’l=

Edu, welfare, highways, health, hospital
Sales Tax
Tax levied on consumer products at time
of purchase
 2nd largest revenue source for state

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
Other Taxes
Retirement/Pension
 Schools, colleges, hospital fees, income,
lottery


Local Gov

State gov gives revenue to local gov


EDU & WELFARE
Property Tax
 Tax

on tangible & intangible possessions
Cars, house, property, farm animals, furniture,
stocks, bonds, bank
accounts, etc
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Examine Your Paycheck

Your check contains a Payroll
Withholding Statement>

Summary of income, tax withholdings,
deductions, etc.
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Chapter 8.1
Read and complete Assessment on 198
Q’s 3-6!
 Explain influences on personal
economic decision making choices.

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Early Union Development
• 2 types of unions developed during ColCW era—
• the trade union and the industrial union.
• Unions use strikes, pickets, and
boycotts to help members get better
pay, better hours, and job security.
• Employers resisted unions through
lockouts, firings, and even setting up
company unions.
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Labor Since World War II
• Right to Work Law:
• State law making it illegal to force workers
to join a union
• The AFL-CIO was created when two
powerful unions joined forces.
• Independent unions are those that do
not belong to the AFL-CIO.
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Chapter 8.2

Contrast the costs and benefits of the
American Government’s economic
policies.
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Kinds of Union Arrangements
• Closed shop
• the employer agrees to hire only union members.
• Union shop
• most workers belong to a union.
• Modified union shop
• workers cannot be made to join the union.
• Agency shop
• workers must pay union dues, whether or not
they are union members.
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Collective Bargaining
• Labor and management agree to mediation,
a neutral person helps settle the dispute.
• Arbitration
• labor and management agree to abide by a third
party’s decision.
• Disputes also can be resolved through factfinding, in which a neutral third party
presents non-binding recommendations.
• The government also can get involved in
labor disputes by issuing injunctions or
resorting to seizures.
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• The president can intervene by publicly
appealing to both parties to resolve
their differences, by firing federal
workers who have broken their oath
not to strike (1981 air traffic
controllers), and in some cases by
using emergency powers (1997
American Airline pilots).
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Chapter 8.3
Identify four main categories of labor.

 Explain the importance of
noncompeting labor grades. 
 Describe three different approaches to
wage determination. 

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Categories of Labor
Unskilled laborers
Lacks specific skills
Semiskilled workers
Minimal skills
Skilled workers
Operate complex equipment
w/o supervision
Professional workers
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 Highest level of knowledge based on education
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Noncompeting Labor Grades
• People = ability, the initiative, and the
money to obtain additional education
and training.
• Lack of opportunity? Initiative?
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Wage Determination
• The traditional theory:
• that supply and demand together will determine
the equilibrium wage rate.
• The theory of negotiated wages:
• uses organized labor’s bargaining strength to
help explain wage differentials.
• signaling theory:
• employers are willing to pay more for those
people with certain indicators of superior ability.
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Regional Wage Differences
• Wages can vary when demand for
certain skilled positions exceeds supply.
• Employers tend to offer higher wages
in areas where the cost of living is
higher than normal.
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Chapter 8.4
Explain why union membership has
declined.
 Describe reasons for the discrepancy
in pay between men and women.

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Decline of Union Influence
 unfriendly
businesses, new
workers with little loyalty to
organized labor, and
cutbacks in production by
unionized companies
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Lower Pay for Women
less experience and education to bring
to the working world.
 The Equal Pay Act and the Civil Rights
Act both work to prevent wage and
salary discrimination.

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Part-Time Workers
COST LESS MONEY!!
 NO BENFITS! NO OVERTIME!
 ONLY HAVE TO PAY MINIMUM WAGE

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Chapter 14.2
– Describe five kinds of unemployment.
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Measuring Unemployment
• The unemployment rate = % of
unemployed people/ the total # of
people in the civilian labor force.
• does not include “discouraged” workers
or people who are working part-time
because they cannot find full-time
work.
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Kinds of Unemployment
• Frictional unemployment
• Structural unemployment
• Cyclical unemployment
• Seasonal unemployment
• Technological
unemployment
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The Concept of Full
Employment
• Full employment is lowest possible rate
when the economy is growing and all
factors of production are being used as
efficiently as possible.
• Full employment is achieved when the
unemployment rate falls below 4.5
percent.
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Chapter 14.3
Explain how inflation is measured.
 Discuss five causes of inflation.

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Inflation in the United States
The inflation rate is determined by comparing the
price level at the beginning and end of a period.
• deflation can occur when there is a decrease in the
general price level.

• Creeping inflation is inflation in a range of 1 to 3
percent annually.
• Galloping inflation is when inflation can go as high
as 100 to 300 percent annually. 
• Inflation of more than 500 percent a year is known
as hyperinflation.
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Causes of Inflation
Demand-pull inflation occurs when all sectors
of the economy try to buy more goods and
services than the economy can produce.
• Cost-push inflation occurs when input costs,
especially labor, drive production costs up.

• The wage-price spiral occurs when higher
prices force workers to demand higher
wages, forcing producers to raise their prices
even more.
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Consequences of Inflation
 dollar
buys less
 hurts people with fixed
incomes.
 change their spending habits,
which disrupts the economy.
• alters the distribution of
income.
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Resume
What should be on it?
Name, address, phone number, email
 Career objective/Philosophy
 Education/Training
 Work Experience
 Strengths

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