Taxes & Government Spending

Taxes & Government Spending Chapter 14 Section 2 Federal Taxes

Taxes & Government Spending • Objectives: • 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 • 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: • 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 • What percentage of money comes from Individual Income Taxes?

Taxes & Government Spending • 43%

Taxes & Government Spending • 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 • What is meant by tax withholding?

Taxes & Government Spending • Taking payments out of your check before you receive it.

Taxes & Government Spending • The amount withheld is an estimate of your annual income. • Filing a Tax Return • 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 • What is the date that you have to have paid your taxes from the previous year?

Taxes & Government Spending • April 15th

Taxes & Government Spending • What is a person’s gross (total income) minus exemptions and deductions?

Taxes & Government Spending • Taxable Income

Taxes & Government Spending • What is the set amounts that you subtract from your gross income for yourself, your spouse, and any dependents?

Taxes & Government Spending • Personal Exemptions

Taxes & Government Spending • What are variable amounts that you can subtract, or deduct, from your gross income?

Taxes & Government Spending • Deductions

Taxes & Government Spending • Tax Brackets • 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 • If you make $ 35,600.00 per year, how much tax will you pay? (percentage)

Taxes & Government Spending • Corporate Income Taxes • 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 • How much of the total revenue that the Federal Government collects comes from Corporate Taxes?

Taxes & Government Spending • The companies can deduct the cost of their employee health insurance. 2007 Corporate Federal Income Tax Rates $ 0 - $ 50,000------------------- 15% $ 50,000 - $ 75,000------------------- 25% $ 75,000 - $ 100,000------------------- 34% $ 100,000 - $ 335,000------------------ 39% $ 335,000 - $ 10 million---------------- 34% $ 10 million - $ 15 million---------------- 35% $ 15 million - $ 18.3 million-------------- 38% $ 18.3 million and up --------------------- 35%

Taxes & Government Spending • Social Security, Medicare, and Unemployment Taxes • Employers withhold money for another category of taxes authorized under the Federal Insurance Contributions Act (FICA). • FICA taxes fund two large government programs, Social Security, and Medicare. • Employees and employers share FICA payments.

Taxes & Government Spending • What two government programs does the FICA tax fund?

Taxes & Government Spending • Social Security and Medicare

Taxes & Government Spending • Social Security Taxes • Most of the FICA taxes go to the Social Security Administration. • This funds programs like… • 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 • What federal agency administers the FICA tax money?

Taxes & Government Spending • Social Security

Taxes & Government Spending • Medicare Taxes • 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 • This tax is paid by the employer • It pays for an insurance policy for workers that are laid off from work.

Taxes & Government Spending • What is Medicare?

Taxes & Government Spending • It is a national health insurance program that helps pay for health insurance for people over the age of 65.

Taxes & Government Spending • Other Taxes • 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 • What is an excise tax?

Taxes & Government Spending • It is a general revenue tax sale or manufacture of a good.

Taxes & Government Spending • 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 • Gift Taxes – a tax on money or property that one living person gives to another. • Not over $ 2,150 ------ 15% • $ 2,150 - $ 5,000 ------ 25% • $ 5,000 - $ 7,650 ------ 28% • $ 7,650 - $10,450 ------ 33% • $10,450 and over ------ 35%

Taxes & Government Spending • 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 • What is another name for an Import Tax?

Taxes & Government Spending • Tariff

Taxes & Government Spending • Taxes that affect behavior • 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 • What term describes the use of taxation to encourage or discourage behavior?

Taxes & Government Spending • Tax Incentive

Taxes & Government Spending