El Dorado High SchoolEl Dorado High School

Spring 2015Spring 2015

Taxe$ and Government

$pending

Objectives Understand how government uses

taxes to fund programs

Identify the roots of the concept of taxation in the United States Constitution

Describe types of tax bases and tax structures

List the characteristics of a good tax

Identify who bears the burden of a tax

Questions to considerQuestions to consider

Why do we have taxation?

Is taxation done fairly?

How much of our pay should go to taxes?

Do we benefit from taxes?

Funding Government ProgramsFunding Government Programs

Tax: A required payment to a local, state, or national government.

Taxation is the primary way governments collect monies they need to operate

Without this revenue( income from taxes and non-tax sources), governments could not provide the goods and services that its people expect like:

1. Defense- Armed forces2. Education- Schools, buildings, and libraries3. Law enforcement- Federal, state, and local 4. Highways- Roads and connecting infrastructure

Taxes and the ConstitutionTaxes and the Constitution

The framers of the Constitution gave careful consideration when granting the new government the power to tax.

The Constitution outlines the taxation powers that are given to Congress in: Article 1, Section 8, Clause1:

To lay and collect taxes, duties, imposts and excises, to pay the debt, and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniforms throughout the United States.

Limits on the Power to TaxLimits on the Power to Tax The Constitution specifically places

provisions and limits certain kinds of taxes:

The purpose of the tax must be for the,” common defense and general welfare.” (i.e. Taxes cannot be used for individual interests)

Federal taxes must be the same in every state

Cannot tax church services because it would violate the 1st Amendments stand on freedom of religion.

Government cannot tax exports

Tax BasesTax Bases

Tax Base: A tax base is the :

1. Income

2. Property

3. Good

4. Service(That is subject to a tax)

Example: A person can be taxed from their earnings (individual income tax)

Example: Property taxes are accessed according to the value of one’s home and/or belongings.

Example: The dollar value of any good or service you purchase is subject to SALES TAX( From buying a car to getting a car wash))

Tax StructuresTax Structures Once tax bases are set,

economists consider three(3) different tax structures:

1. Proportional Taxes (Flat tax)

2. Progressive Taxes

3. Regressive Taxes

A tax in which the percentage of income paid remains the same for all income levels,( 6% tax on $250,000 and $50,000; whether income goes up/down the tax % stays the same)

A tax in which the tax percentage increases as income increases.( 10% at $20,000 and 30% at $55,000)

A tax for which the percentage of income paid decreases as income increases( Households with higher incomes pay proportionally less than lower-income households)

Characteristics of a Good TaxFour (4) characteristics are considered

Simplicity: They should be simple and

easy to understand( people/ businesses should be able to fill-out their own forms and and pay on predictable schedules

Efficiency: Taxpayers and government

administrators should not have to spend to much time or money to get their taxes paid and collect.

Certainty: The taxpayer should have

clarity on when the tax is due, how much is due, and how it should be paid

Equity: Finally, the tax system

should be fair.

Who Bears the Burden of a Tax?Who Bears the Burden of a Tax?

Chapter 14Section Two

Federal Taxes

ObjectivesObjectives Describe the process of

paying individual income taxes

Explain basic characteristics

Understand purpose of Social Security, Medicare, and Unemployment taxes

Identify other types of taxes

How does the federal government How does the federal government affect our bottom line?affect our bottom line?

Individual Income TaxesIndividual Income Taxes Individual income taxes make

up the federal government’s main source of revenue (About 49%).

The amount of income tax a person owes is determined annually.

Pay –as-you-earn system- People usually pay most of their income tax throughout the year as they earn it to: Alleviate the burden of large

sum payments Assure that the government

can cover its periodic payments during the year

Individual Income Taxes (cont.)Individual Income Taxes (cont.)

Tax Withholdings: Taking tax payment s out of an

employee’s pay before he or she receives it.

Employers carry a primary responsibility in federal income tax withholdings of their employees.

The amount withheld depends on how much an individual is estimated to own for the whole year.

Tax Brackets: As a progressive tax, the federal

income tax rises with the amount of taxable income.

Filing a Tax Return: At years end employees receive a report (W-2)

indicating how much income tax has already been withheld.

The employee then files a tax return This return is used to assess your taxable

income ( a persons total or gross income minus exemptions and deductions)

Exemptions: yourself, spouse, dependents Deductions: interest on mortgage, medical

expenses, and donations

KEY: If you have paid more than you owe the govt. you get a return

On the other hand, if you paid less then you owe , you must pay the balance to the govt.

Corporate Income Tax Like people, corporations must pay taxes; however, corp.

can take numerous deductions like their employees’ health care and numerous other costs of doing business.

Corporate income tax is also progressive

Social security , Medicare, and unemployment taxes

Other taxes authorized by the Federal Insurance Contributions Act (FICA) include:

Social Security: Old age, survivors, and disability insurance

Medicare: National health insurance program that helps pay for healthcare for people over 65 or w/ certain disabilities

Unemployment Taxes: Paid for by employers, this tax pays for an insurance policy for workers (unemployment compensation)

Other Types of TaxesOther Types of Taxes Excise Taxes:

A general revenue tax on the sale or manufacture of a good Ex.: Gasoline, alcohol, cigarettes, telephone, and cable

Estate Taxes: A tax on the estate , or total value of the money and property of a person who has died Ex.: Money, real estate, cars, jewelry, investments, and furniture

Gift Taxes: A tax on money or property that one living person gives to another.

Import Taxes: Taxes on imported goods. Also called tariffs, these are intended to protect farmers and industry from foreign

competitors rather than raise revenue.

Chapter 14Chapter 14Section Three: Federal SpendingFederal Spending

Mandatory and Discretionary SpendingMandatory and Discretionary Spending

Mandatory spending: Spending on certain programs that is

mandated or required by existing law. Social Security, medicare

Discretionary Spending: Spending category about which

government planners can make choices. Defense, Education

Entitlement ProgramsEntitlement Programs Entitlement programs are social welfare programs

that people are entitled to if they meet certain eligibility requirements ( income, age)

Programs: Social Security Medicare Medicaid Food Stamps Supplemental Security Income Veteran’s pensions Unemployment insurance (Worker’s Comp.)

Discretionary SpendingDiscretionary Spending One primary example of discretionary

spending is defense spending

Other Discretionary Spending:

Education Training Student Loans Technology Law enforcement Scientific research Housing Environment Parks Foreign aid Disaster aid

CHAPTER 14SECTION FOUR:STATE AND LOCAL TAXES AND SPENDING

State BudgetsState Budgets Like the federal, State and local governments use the

revenues from taxes to pay for a variety of programs and services.

States make use of the following two(2) budgets: Operating budgets

These types of budgets pay for day-to-day expenses. ( including: salaries of state employees, facility maintenance, and supplies)

Capital budgets These types of budgets pay for major capital/ or investment

spending. ( include: building new state bridges and/or buildings; usually satisfied with long term borrowing or the sale of bonds)

Where are States Taxes Spent?Where are States Taxes Spent? Spending policies are different among the states;

however, spending normally encompasses the following areas:

1. Education2. Public Safety3. Highways and Transportations 4. Public Welfare5. Arts and Recreation6. Administration

State Tax RevenueState Tax Revenue For every dollar a state spends, it must take in a dollar in

revenue. The bulk of this revenue comes from sales taxes and

individual income taxes.

Limits on State Taxation: States cannot import or exports (this is a federal concern) States cannot tax goods sent between states. States cannot tax federal property (military bases)

Tax Exemptions are also offered to nonprofit organizations, religious groups, and charities.

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