Economics 1/24/11
http://mrmilewski.com
• OBJECTIVE: Demonstration of Chapter#6 and begin
examination of taxes.
• I. Administrative Stuff
-attendance & distribution of test
• II. Chapter#6 Test
• III. Journal #20 pt.A
-Examine “Economics at a Glance” p.225
-Answer question #1 p.225
• IV. Journal #20 pt.B
-notes on taxes
• V. Journals 11-20 Due
• NOTICE: Parent Teacher Conference Thursday
Chapter#9
• We will cover sections (1-3)
• Section#4 can take a long walk off a short
pier.
• Parent Teacher Conference Thursday 5-8PM
Why taxes?
• An enormous amount of money is required to run
the federal, state, and local governments of the
United States.
• Total revenue collections by all levels of
government have grown dramatically over the
years.
• Even when adjusted for inflation and population
growth, these revenues increased by nearly 800%
since 1940.
Figure 9.1
Growth of Taxes
Economic Impact of Taxes
• Taxes and other gov’t revenues influence the
economy.
• It affects resource allocation, consumer behavior,
and the nation’s productivity and growth.
• The burden of a tax does not always fall on the
party being taxed, because some of the tax can be
transferred to others.
Figure 9.3
Types of Taxes
Taxing Suppliers
http://www.heritage.org/Research/Taxes/images/11632469.gif
• A tax placed on a good or
service at the factory
raises the cost of
production, which shifts
the supply curve to the
left.
• If demand remains
unchanged, the
equilibrium price of the
product goes up.
• People react to the higher
price in a predictable
manner–they buy less.
Corporate Tax Rates
Criteria for Effective Taxes
• Some taxes will
always be needed, so
we want to make
them as effective as
possible.
• To do so, taxes must
meet criteria: they
must be equitable,
simple, and efficient.
http://www.businessweek.com/the_thread/economicsunbound/archives/texttaxprogressive_4142_image001.gif
Quintiles
Minimum household income
Lowest Quintile $0
Second Quintile $17,900
Middle Quintile $30,500
Fourth Quintile $45,200
Highest Quintile $67,400
Top 1% $307,500
Simple v. Complex Taxes
• Individual income
tax–the tax on
people’s earnings–is a
prime example of a
complex tax.
• Sales tax–a general
tax levied on most
consumer purchases–
is much simpler.
Sin Tax
• Often taxes are used
to encourage or
discourage certain
types of activities.
• Sin taxes are designed
to raise revenue and
reduce consumption
of a socially
undesirable product.
http://msnbcmedia4.msn.com/i/msnbc/Components/Art/BUSINESS/070215/CigaretteTax.gif
Economics 1/25/11
http://mrmilewski.com
• OBJECTIVE: Examine various topics in taxation,
government control, & markets.
• I. Administrative Stuff
-attendance & administrative stuff
• II. Econ U.S.A. episode#6
-questions on Fiscal Policy
• III. Commanding Heights
-questions on markets
• NOTICE: Conference Thursday 5-7:30PM
Economics 1/26/11
http://mrmilewski.com
• OBJECTIVE: Examine the main sources of
Federal Governmental Revenue.
• I. Journal #21 pt.A
-Read “Profiles in Economics” p.237
-Answer questions (1-2) p.237
• II. Quiz#13
• III. Return of Chapter#6 Test
• IV. Journal #21 pt.B
-notes on federal taxes
• NOTICE: Conference Tomorrow 57:30PM
Sin Tax
• Often taxes are used
to encourage or
discourage certain
types of activities.
• Sin taxes are designed
to raise revenue and
reduce consumption
of a socially
undesirable product.
http://msnbcmedia4.msn.com/i/msnbc/Components/Art/BUSINESS/070215/CigaretteTax.gif
Federal Taxes
• The federal government
collects taxes from a
number of sources.
• Individual Income Taxes
• Social Security Taxes
• Corporate Income Taxes
• Misc. Other Revenues
http://www.cartoonstock.com/newscartoons/cartoonists/ato/lowres/aton1952l.jpg
Individual Income Taxes
• In 1913 the 16th Amendment to the U.S.
Constitution was ratified, allowing Congress to
levy an income tax
• Since then, the federal gov’t has relied heavily on
the individual income tax–the tax on people’s
earnings–to finance its operations
• The federal government collected about 48% of
its total revenue from taxes on people’s earnings
Federal Government Revenue by Source
Figure 9.4
Payroll & the IRS
• In most cases, the individual income tax is paid
over time through a payroll withholding system
• This is a system that requires an employer to
automatically deduct income taxes from an
employee’s paycheck and send it directly to the
government
• The agency that receives the tax payment is the
Internal Revenue Service (IRS), the branch of
the U.S. Treasury Department in charge of
collecting taxes
April
th
15
• After the close of the tax year on December 31,
and before April 15 of the following year, the
employee files a tax return.
• This annual report to the IRS summarizes total
income, deductions, and the taxes withheld by
employers.
• FYI-People who are self-employed are required
to send quarterly estimates of their taxes to the
Internal Revenue Service.
Income Tax is Progressive
Figure 9.5
Single Individual Taxes
Figure 9.6
Economics 1/27/11
http://mrmilewski.com
• OBJECTIVE: Examine the main sources of Federal
Governmental Revenue.
• I. Journal #22 pt.A
-Read “Business Week Newsclip” p.243
-Answer questions (1-2) p.243
• II. Journal #22 pt.B
-notes on federal taxes
• III. Math Practice
• NOTICE: Parent Teacher Conference Tonight
5-7:30PM
FICA
• FICA - Federal Insurance Contributions Act tax levied on
both employers and employees to pay for Social Security
and Medicare.
• Medicare - federal health-care program available to all
senior citizens, regardless of income
• Employees and employers share equally in paying the tax
for Social Security and Medicare
• Social Security tax is 13%. You pay 6.5% and your
employer pays 6.5%
• payroll taxes - taxes that are deducted from your
paycheck
Social Security & Medicare
• Since the Social Security tax is capped, it is
proportional up to $76,200 and regressive
thereafter
• More than 30 million senior citizens participate
in Medicare.
• The Medicare component of FICA is taxed at a
flat rate of 1.45 percent with no income cap.
Excise Taxes
• excise tax – a tax on the
manufacture or sale of selected
items, such as gasoline and
liquor–is the fourth largest
source of federal government
revenue
• In 1991 Congress expanded the
excise tax to include certain
luxury goods
• An economic product is called
a luxury good (or service) if
the demand for the good rises
faster than income when
income grows
http://www.thepriceoffuel.com/images/Tax_Chart.gif
Luxury Tax
• At first, the 19% luxury
tax was indexed to keep
up with inflation and was
applied to many goods
• The tax was unpopular,
however, so boats,
aircraft, jewelry, and furs
were dropped in 1993
• Later, Congress decided
to phase out the luxury
tax by the year 2002
http://www.80stees.com/images/products/Monopoly_Luxury_Tax-T-link.jpg
Estate taxes
• Estate tax - the tax the
government levies on the
transfer of property when a
person dies
• Estate taxes can range from 18
to 55 percent of the value of
the estate
• The estate tax and the gift tax
are progressive taxes–the
larger the estate or gift, the
higher the tax rate
http://www.taxpolicycenter.org/taxtopics/images/Estate-Tax_8.gif
Economics 1/28/11
http://mrmilewski.com
• OBJECTIVE: Examine the main sources of State and
Local Governmental Revenue.
• I. Journal #23 pt.A
-Examine “Figure 9.8” p.240
-Answer the caption question p.240
-Examine “Figure 9.9” p.241
-Answer the caption question on p.241
• II. Quiz #14
• III. Journal #23 pt.B
-notes on state & local taxes
• IV. Mindjogger
-video quiz on Chapter#9
Figure 9.9
Paycheck
Sources of State & Local Revenue
Figure 9.7
Intergovernmental Revenue
• The largest source of state revenue is the category
called intergovernmental revenue
• These are funds collected by one level of
government that are distributed to another level
of government for expenditures
• They represent nearly one-quarter of all state
revenues
Michigan Budget 2007
http://www.michigan.gov/budget/0,1607,7-157-40794-139068--F,00.html
Michigan Budget 2009
Crestwood School District Budget
Crestwood School District - General Fund Revenue
2010-11
91.7% From State of Michigan
Federal
7.0%
Transfers In
0.3%
WRESA
0.1%
State
80.7%
Local
0.9%
Local property
taxes - "State"
11.0%
Sales Tax
http://www.thestc.com/map-usa.gif
• The sales tax is a general tax
levied on consumer
purchases of nearly all
products
• The sales tax is the second
largest source of revenue for
states, accounting for 21.7
percent of total revenues
collected
• Many states levy taxes, fees,
or other assessments on their
employees to cover the cost
of state retirement funds and
pension plans
Remaining Revenues
• The remaining revenues that state governments
collect are interest earnings on surplus funds,
tuition collected from state-owned schools,
corporate income taxes, and hospital fees
• For years, New Hampshire took pride in the fact
that it had neither a sales tax nor an income tax
• The same is true for Alaska, Delaware, Montana,
and Oregon–the other four states without a
general sales tax
Public Lotteries
http://images.wikio.com/images/p/2ce32/mega-millions-.gif
• The choice of tax is
something that most states
feel strongly about
• In the end, the choices that
states face are like the
choices individuals face–
and we already know that
there is no such thing as a
free lunch
• Nearly three-fourths of the
states run public lotteries
to raise revenue
States with Lotteries
http://economix.blogs.nytimes.com/2009/09/21/smaller-jackpots-for-states/
Property tax
• The second largest source of revenue for local
governments is the property tax
• Property tax is a tax on tangible and intangible
possessions such as real
estate, buildings, furniture, automobiles, farm
animals, stocks, bonds, and bank accounts
• The property tax that raises the most revenue is
the tax on real estate
Personal Property
• Taxes on other personal property are seldom
collected because of the problem of valuation
• Instead, most communities find it more efficient
to hire one or more tax assessors–the people who
assign value to property for tax purposes–to
assess the value of a few big-ticket items like
buildings
Public Utilities & Liquor
• The third largest
source of local
revenue is derived
from the earnings
of public utilities
and state-owned
liquor stores
http://www.howderfamily.com/graphics/blog/dry_counties_partial-1.jpg