Taxes & Government
Spending
Chapter 14 Section 2
Federal Taxes
Taxes & Government Spending
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Objectives:
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Describe the process of paying individual income
taxes.
Explain the basic characteristics of corporate
income taxes.
Understand the purpose of Social Security,
Medicare, and unemployment taxes.
Identify other types of taxes.
Taxes & Government Spending
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During the fiscal year 2007, the federal
government took in more $ 2.568 trillion in
taxes. {Population: 301,139,947}
If you divide up this federal tax revenue
among all people in the United States, it
comes to about $ 8,528.00/person.
The Federal Government has six major
sources of tax revenue.
Taxes & Government Spending
1. Individual Income Tax:
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43% of the government’s revenues come from
payment of individual income taxes {2007}.
The amount a person owes is determined on an
annual basis.
In theory, the federal government could wait until
the end of tax year to collect individual income
taxes.
In reality, that would be a problem for both
taxpayers and the government.
Taxes & Government Spending
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What percentage of money comes from
Individual Income Taxes?
Taxes & Government Spending
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43%
Taxes & Government Spending
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The government has to pay their bills like
everyone else and they need money throughout
the year.
Many people in the country would have a hard
time paying their taxes all at once.
For these reason, the federal income tax system
is collected in a “pay-as-you-earn” system.
Individuals pay throughout the year.
Tax Withholding – taking payments out of your
pay before you receive it.
Taxes & Government Spending
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What is meant by tax withholding?
Taxes & Government Spending
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Taking payments out of your check before
you receive it.
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The amount withheld is an estimate of your
annual income.
Filing a Tax Return
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Due Date APRIL 15TH of each year.
Taxable Income - a person’s gross (total income)
minus exemptions and deductions.
Personal Exemptions – set amounts that you subtract
from your gross income for yourself, your spouse,
and any dependents.
Deductions – are variable amounts that you can
subtract, or deduct, from your gross income.
Taxes & Government Spending
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What is the date that you have to have paid
your taxes from the previous year?
Taxes & Government Spending
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April 15th
Taxes & Government Spending
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What is a person’s gross (total income)
minus exemptions and deductions?
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Taxable Income
Taxes & Government Spending
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What is the set amounts that you subtract
from your gross income for yourself, your
spouse, and any dependents?
Taxes & Government Spending
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Personal Exemptions
Taxes & Government Spending
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What are variable amounts that you can
subtract, or deduct, from your gross income?
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Deductions
Taxes & Government Spending
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Tax Brackets
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The federal income tax is a progressive tax.
The tax rate rises with the amount of taxable income.
Taxes & Government Spending
2007 Federal Income Tax Rates – Schedule X
This is for those filing as a single person.
 $
0 - $ 7,825 -------------- 10%
 $
7,825 - $ 31, 850------------- 15%
 $ 31,850 - $ 77,100------------25%
 $ 77,100 - $ 160,850-------------- 28%
 $ 160,850 - $ 297,350-------------- 36%
 $ 297,350 and over ---------------- 39.6%
Taxes & Government Spending
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If you make $ 35,600.00 per year, how much
tax will you pay? (percentage)
Taxes & Government Spending
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25%
Taxes & Government Spending
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Corporate Income Taxes
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Corporations also pay taxes on their taxable
income.
Corporation taxes make up about 13% of the
federal revenue {2007}.
The problem in determining a corporation’s
taxable income is the many deductions that
they can claim.
They can subtract their many expenses from their
income before the taxation applies.
Taxes & Government Spending
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How much of the total revenue that the
Federal Government collects comes from
Corporate Taxes?
Taxes & Government Spending
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13%
Taxes & Government Spending
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The companies can deduct the cost of their employee
health insurance.
2007 Corporate Federal Income Tax Rates
$
0 - $ 50,000------------------$ 50,000 - $ 75,000------------------$ 75,000 - $ 100,000------------------$ 100,000 - $ 335,000-----------------$ 335,000 - $ 10 million---------------$ 10 million - $ 15 million---------------$ 15 million - $ 18.3 million-------------$ 18.3 million and up ---------------------
15%
25%
34%
39%
34%
35%
38%
35%
Taxes & Government Spending
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Social Security, Medicare, and
Unemployment Taxes
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Employers withhold money for another category of taxes
authorized under the Federal Insurance
Contributions Act (FICA).
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FICA taxes fund two large government programs, Social
Security, and Medicare.
Employees and employers share FICA payments.
Taxes & Government Spending
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What two government programs does the
FICA tax fund?
Taxes & Government Spending
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Social Security and Medicare
Taxes & Government Spending
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Social Security Taxes
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Most of the FICA taxes go to the Social Security
Administration.
This funds programs like…
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Old-age
Survivors
Disability Insurance (OASDI)
Social Security started out as a retirement fund
In 2000, the most you could pay into Social Security as
a tax was $ 76,200
Taxes & Government Spending
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What federal agency administers the FICA
tax money?
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Social Security
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Medicare Taxes
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FICA Taxes also fund Medicare.
Medicare program is a national health insurance program
that helps pay for health insurance for people over the
age of 65.
It also covers people with certain disabilities.
There is no ceiling on this tax.
Unemployment Taxes
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This tax is paid by the employer
It pays for an insurance policy for workers that are laid off
from work.
Taxes & Government Spending
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What is Medicare?
Taxes & Government Spending
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It is a national health insurance program that
helps pay for health insurance for people
over the age of 65.
Taxes & Government Spending
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Other Taxes
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Excise Taxes – a general revenue tax sale or
manufacture of a good.
Federal excise taxes apply to gasoline, cigarettes,
alcoholic beverages, telephone services, cable
services, and others.
Taxes & Government Spending
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What is an excise tax?
Taxes & Government Spending
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It is a general revenue tax sale or
manufacture of a good.
Taxes & Government Spending
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Estate Taxes – a tax on the estate, or total value
of the money and property, of a person who has
died. {As of 2007}
$
0 - $ 2,200
15%
$ 2,200 - $ 5,150
25%
$ 5,150 - $ 7,850
28%
$ 7,850 - $ 10,700
33%
$ 10,700 and above
35%
Taxes & Government Spending
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Gift Taxes – a tax on money or property that one
living person gives to another.
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Not over $ 2,150
$ 2,150 - $ 5,000
$ 5,000 - $ 7,650
$ 7,650 - $10,450
$10,450 and over
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15%
25%
28%
33%
35%
Taxes & Government Spending
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Import Taxes – Also called tariffs.
Taxes on imported goods into our country.
May have special arrangements with another
country.
This causes the price of foreign goods to rise.
Taxes & Government Spending
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What is another name for an Import Tax?
Taxes & Government Spending
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Tariff
Taxes & Government Spending
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Taxes that affect behavior
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The use of taxation to encourage or discourage behavior
is called Tax Incentive.
Taxes on products like alcohol and tobacco are
designed to reduce consumption by the American
people.
Most of the time it does not work.
Gasoline Tax (Federal only) is 38.4% in Texas – you
have to add the other state and highway taxes to
that figure to get the true tax on a gallon of
gasoline.
Taxes & Government Spending
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What term describes the use of taxation to
encourage or discourage behavior?
Taxes & Government Spending
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Tax Incentive