Economics CP

Depending on the elasticity of an item, different groups pay the tax

Taxes cause the cost of supplying a good to increase, therefore supply decreases

The supply/ demand graph tells us:

Inelastic supply: consumer pays most of the tax

Elastic supply: business pays most of the tax

Tax = payment to gov’t

Personal Income Tax◦ “pay as you earn” –

gov’t constantly has bills to pay & lump sum difficult to pay

◦ Therefore, tax money “withheld” – takenbefore you can spend it

Tax Return determines income tax◦ Taxable income =

income – (exemptions (b/c of dependents) + deductions (amts. you can subtract)

◦ Deductions used as incentive (ex. Purchasing a house; purchasing an energy efficient car)

◦ Due to IRS April 15!

Corporate Income Tax◦ Complicated although progressive!

Social Insurance Tax◦ FICA (Federal Income

Contribution s Act) funds Social Security, Medicare, & unemployment

Excise Tax◦ Tax on certain goods

◦ Sometimes used as “sin tax” to discourage behavior or gain revenue from nonessentials

Estate & Gift Tax◦ Estate – what deceased left behind; progressive; for

the wealthy

◦ Gift – created so estate tax could not be avoided; tax on items given

Import Taxes/ tariff

Gov’t has taxes and revenue ($ from non-tax sources) to spend

Gov’t Spending Divided Among 2 Categories

Mandatory (has to) Entitlement programs

– benefits people receive b/c they qualify

(Don’t write) Entitlements are like MC Hammer’s song … you can’t touch this!

Discretionary (optional)

½ available does to defense

Examples: education, research, student loans, national parks/ monuments, law enforcement, disaster aid, foreign aid, farm subsidies, civilian workers

Operating: day to day expenses (MUST BE BALANCED)

Capital: major investments & spending (FINANCED BY MUNICIPAL BONDS)

Education! Biggest expense b/c federal gov’t doesn’t

Public safety

Highways & transportation

Public Welfare

Arts & Recreations

Administrator’s salaries

Has to be creative◦ Can’t tax imports/ exports

◦ Federal Gov’t has a large income tax

◦ Solution = sales tax!

Sales tax

Income tax – varied in handling by state; less than Fed. Tax

Corporate income tax – low to entice corp.

Other – licenses, fines

towns, cities, townships, school districts, counties