Taxes & Government Spending

1. Taxes & Government Spending Chapter 14

2. What are Taxes? http://www.youtube.com/watch?v=POjRqJDvAjk&feature=related Taxes are required payments to local, state or national governments Revenue – income received by the gov’t from taxes Article I, Section 8 grants the government the right to tax

3. Limits on the Power to Tax Taxes cannot be for individual interests. Taxes must be the same in all states. Exports cannot be taxed. 16th amendment legalized income taxes.

4. Tax Base & Tax Structure Tax base – income, property, good, or that is subject to a tax Individual income tax – earnings Sales tax – dollar value of a good or service being sold Property Tax – value of property Corporate Income Tax – value of a company’s profits

6. Types of Taxes Proportional tax- percentage of income paid in taxes remains the same for all income levels. Progressive tax – taxes increase as income increases Regressive tax – taxes decrease as income increases

7. Characteristics http://www.youtube.com/user/mjmfoodie#p/u/17/lafDykKJ_9I Simplicity– simple and easily understood Efficiency – able to collect without spending too much time or money Certainty – tax is due, no matter what Equity – tax system should be fair

8. Federal Taxes • During 2011, the federal gov’t took in about $2.16 trillion in taxes. • http://www.pagetutor.com/trillion/index.html • Yet it spends nearly $3.45 trillion • Tax withholding – taking payments out of your check before you receive it. • Tax return – form used to file income taxes. • Taxable income – person’s gross income minus exemptions (salaries, wages, tips)

9. Are Write Offs Right On? • Personal exemptions – set amounts that are insulated from taxation • Spouses & dependants lower one’s income • Deductions – items you can subtract from taxable income • interest on a mortgage, charitable donations, business expenses

10. Where do Taxes Go? http://www.wheredidmytaxdollarsgo.com/ • FICA – Federal Insurance Contributions Act • funds Social Security and Medicare • Brought in $806 billion, federally, last year in revenue • Social Security – retirement, surviving family members, disabled • Medicare – health care for people over 65 • Unemployment taxes – insurance policies for workers • laid off can file, must be actively seeking work

11. Other Taxes Excise taxes – alcohol, gasoline, cable tv, phone etc. Estate taxes – tax on the property of someone who has died (no tax for less than 1.5 million) Gift taxes – tax on a gift given- only over $10,000 per year Import taxes – imported goods Tax incentive – used to encourage or discourage behavior.

12. Debt vs. Deficit http://www.youtube.com/watch?v=lcb0hMPG5S0 A surplus occurs when the government takes in money more than it spends A deficit occurs when the government spends more money than it raises in revenue All the money the government has borrowed over the years is referred to as the national debt

13. Federal Spending • Mandatory spending – money that is required to be spent by law • Entitlements: Medicare, Medicaid • Discretionary spending – optional spending which can be altered through appropriations acts • bills must pass each year to continue spending in these categories: agriculture, commerce, defense, energy, homeland security, interior, financial services, labor health and education, transportation…

14. Entitlement Programs • Entitlements are social welfare programs that people are entitled to if they meet certain requirements. • Entitlements account for nearly 50% of the budget • Social Security – OASD • Medicare – health care for elderly • Medicaid – health care for low-income families

15. State and Local Taxes http://www.pbs.org/wgbh/pages/frontline/tentrillion/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid • Most taxes go to funding an Operating budget – which pays for day to day expenses: • salaries, supplies, keeping the lights on, etc. • Balanced budget – revenues must equal spending • Only VT doesn’t require a balanced budget

16. Where is the Money Going? Education – public schools and colleges Public Safety – police, fire, prisons, etc Highways/Transportation – roads, bridges, facilities, airports, etc. Public Welfare – health departments, etc. Recreations – parks, nature reserves Administration – courts, legislature

17. State Revenue • Other monies go to capital budgets, or large investments or building projects • For the most part states receive revenue from sales taxes • Although property, income, transfer, corporate and inheritance taxes are also included