Sources of Government Revenue

1. Sources of Government Revenue

2. Payroll Deductions • Taxes – government fees on business and individual income, activities, products or property. • Medical Insurance • Savings in Retirement accounts

3. 4 Common Tax Deductions • Federal Income Tax – tax on the amount of income people earn • State Income Tax - TN does not have • Social Security Tax – Provides a small income and other services to the elderly, disabled Americans, and orphaned minors. • Medicare Tax – provides medical insurance to the elderly and some disabled Americans

4. Let’s Review… • What’s role does the government play in the economy? • Acts as a protector, provider, regulator and consumer • The government has direct and indirect roles. What are some examples of each? • USPS, TVA, FDIC, Public Colleges and Universities, Police and Fire Protection, Public roads, libraries, parks • Monitoring and regulating public utilities, Social Security, Medicare, WIC, Financial aid to college students, Unemployment compensation`

5. For taxes to be fair and as effectiveas possible, they must meet 3 criteria • Equity– fair, impartial and just • Simplicity – Everyone can understand it • Efficiency – Easy to administer and successful at generating revenue

6. Two Principles of Taxation • Benefit Principle – belief that taxes should be paid according to benefits received regardless of income • Ability-to-Pay Principle – belief that taxes should be paid according to level of income, regardless of benefits received

7. How is Tax Revenue Obtained? • Taxes on Income • Earnings of Individuals and Corporations • Federal Income Tax, State Income Tax • Taxes on Consumption • Sales tax: general state or city tax levied on a product at the time of sale • Excise/Luxury tax: tax on products not considered essential (concert tickets, gasoline, entertainment) • Sin tax: relatively high tax designed to raise revenue and discourage consumption of a product (alcohol, cigarettes) • Taxes on Property and Wealth

8. 3 Types of Taxes • Proportional – Percentage of income paid in taxes stays the same regardless of income • Example: Medicare • Progressive – Percentage of income paid taxes goes up as income goes up • Higher income = higher taxes • Examples: Individual Income Tax • Regressive – Percentage of income paid in taxes goes down as income goes up • Example: Sales Tax

9. Federal, state, and local revenue systems

10. Federal GovernmentSources of Revenue • Individual Income Taxes • Employer automatically deducts income tax and sends directly to IRS (W-4) collected with a payroll withholding system • FICA – Federal Insurance Contribution Act • Social Security and Medicare deductions • Borrowing • If it does not collect enough money in taxes, it borrows the rest by selling bonds to investors • Corporate Income Tax • Tax on corporate profits • Excise/Luxury Tax • Estate Tax • Tax on the transfer of property when a person dies • Gift Tax • Tax on the transfer of money or wealth and is paid by the person who makes the gift

11. State GovernmentSources of Revenue • Intergovernmental Revenue – funds collected by one level of government that are distributed to another level of government for expenditures • Sales tax • State Income Tax • Other Revenue – tuition and fees from state owned colleges, hospitals, etc

12. Local GovernmentSources of Revenue • Intergovernmental Revenue • Property Taxes • tax on tangible and intangible possessions such as real estate, buildings, furniture, stocks, etc. • Utility Revenues • Income from public utilities that supply water, electricity, sewage, telecommunications • Sales Tax • Many cities can have their own sales tax, an additional sales tax • Other Revenues