Economics 5/2/11 mrmilewski

1. Economics 5/2/11 http://mrmilewski.com • OBJECTIVE: Demonstration of Chapter#6 & begin examination of taxes. • I. Administrative Stuff -attendance & distribution of test • II. Chapter#6 Test • III. Journal #21 pt.A -Examine “Economics at a Glance” p.225 -Answer question #1 p.225 • IV. Journal #21 pt.B -notes on taxes • V. Tax Film

2. Chapter#9 • We will cover sections (1-3) • Section#4 can take a long walk off a short pier.

3. 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.

4. Figure 9.1 Growth of Taxes

5. 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.

6. Figure 9.3 Types of Taxes

7. Taxing Suppliers • 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. http://www.heritage.org/Research/Taxes/images/11632469.gif

8. Corporate Tax Rates

9. Criteria for Effective Taxes • Some taxes will always be needed, so we want to make them as effective as possible. • Taxes must meet three criteria: • 1.) equitable • 2.) simple • 3.) efficient http://www.businessweek.com/the_thread/economicsunbound/archives/texttaxprogressive_4142_image001.gif

10. Quintiles Minimum household incomeLowest Quintile $0Second Quintile $17,900Middle Quintile $30,500Fourth Quintile $45,200Highest Quintile $67,400Top 1% $307,500

11. 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.

12. 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

13. Economics 5/3/11 http://mrmilewski.com • OBJECTIVE: Examine the main sources of Federal Governmental Revenue. • I. Journal #22 pt.A -Read “Profiles in Economics” p.237 -Answer questions (1-2) p.237 • II. Return of Chapter#6 Test • III. Quiz#13 • IV. Journal #22 pt.B -notes on federal taxes • V. Tax Film

14. 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

15. 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

16. Figure 9.4 Federal Government Revenue by Source

17. 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

18. April 15th • After the close of the tax year on December 31, and before April 15 of the following year, the employee files a taxreturn. • 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.

19. Figure 9.5 Income Tax is Progressive

20. Figure 9.6 Single Individual Taxes

21. Economics 5/4/11 http://mrmilewski.com • OBJECTIVE: Examine the main sources of Federal Governmental Revenue. • I. Journal #23 pt.A -Read “Business Week Newsclip” p.243 -Answer questions (1-2) p.243 • II. Journal #23 pt.B -notes on federal taxes • III. Math Practice

22. 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

23. 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.

24. 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

25. 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

26. 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

27. Figure 9.7 Sources of State & Local Revenue

28. Economics 5/5/11 http://mrmilewski.com • OBJECTIVE: Examine the concepts related to taxes. • I. Chapter#9 Guided Readings Complete the following activities due today! -Chapter#9 section#1 Guided Reading -Chapter#9 section#2 Guided Reading -Chapter#9 section#3 Guided Reading -Chapter#9 Enrichment • II. Chapter#9 Review -Review for Chapter#9 Test

29. Economics 5/6/11 http://mrmilewski.com • OBJECTIVE: Examine the main sources of State and Local Governmental Revenue. • I. Journal #24 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 #24 pt.B -notes on state & local taxes • IV. Mindjogger -video quiz on Chapter#9

30. Figure 9.7 Sources of State & Local Revenue

31. 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

32. Michigan Budget 2007 http://www.michigan.gov/budget/0,1607,7-157-40794-139068--F,00.html

33. Michigan Budget 2009

34. Crestwood School District Budget

35. Sales Tax • 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 http://www.thestc.com/map-usa.gif

36. 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

37. Public Lotteries • 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 http://images.wikio.com/images/p/2ce32/mega-millions-.gif

38. States with Lotteries http://economix.blogs.nytimes.com/2009/09/21/smaller-jackpots-for-states/

39. 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

40. 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

41. 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