Taxes and the Economy

1. Taxes and the Economy

2. Two Basic Principles of Taxation • Benefits received principle – people benefit from the taxes they pay

3. Two Basic Principles of Taxation • Benefits received principle – people benefit from the taxes they pay • Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on

4. Two Basic Principles of Taxation • Benefits received principle – people benefit from the taxes they pay • Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on • Ability to pay principle – those who have the greatest income should pay the highest tax rates

5. Two Basic Principles of Taxation • Benefits received principle – people benefit from the taxes they pay • Ex. We pay a large tax on gas, and that tax foes to maintain the roads which we use to drive on • Ability to pay principle – those who have the greatest income should pay the highest tax rates • Ex. Our income tax system

6. Two Other Characteristics • Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle

7. Two Other Characteristics • Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle • Ex. Gov’t will cut 10% of taxes if business upgrades equipment

8. Two Other Characteristics • Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle • Ex. Gov’t will cut 10% of taxes if business upgrades equipment • Because the gov’t creates the taxes, they try to be hush-hush

9. Two Other Characteristics • Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle • Ex. Gov’t will cut 10% of taxes if business upgrades equipment • Because the gov’t creates the taxes, they try to be hush-hush • They will pass taxes upon those who are least likely to be offended

10. Two Other Characteristics • Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle • Ex. Gov’t will cut 10% of taxes if business upgrades equipment • Because the gov’t creates the taxes, they try to be hush-hush • They will pass taxes upon those who are least likely to be offended • Ex. Taxes on sale of alcohol and liquor “sin taxes”

11. The Burden of Taxes • Three ways to classify taxes

12. The Burden of Taxes • Three ways to classify taxes • Progressive – more you make, the more they take

13. The Burden of Taxes • Three ways to classify taxes • Progressive – more you make, the more they take • Regressive – less you make the more they take

14. The Burden of Taxes • Three ways to classify taxes • Progressive – more you make, the more they take • Regressive – less you make the more they take • Proportional – all pay the same percentage of their income

15. Types of Taxes • Personal income tax, there are 3 brackets in this progressive system

16. Types of Taxes • Personal income tax, there are 3 brackets in this progressive system • 15%, 28%, and 31%

17. Types of Taxes • Personal income tax, there are 3 brackets in this progressive system • 15%, 28%, and 31% • Greatest source of income

18. Types of Taxes • Personal income tax, there are 3 brackets in this progressive system • 15%, 28%, and 31% • Greatest source of income • Social Insurance Taxes, proportional tax is the 2nd greatest source of income

19. Types of Taxes • Personal income tax, there are 3 brackets in this progressive system • 15%, 28%, and 31% • Greatest source of income • Social Insurance Taxes, proportional tax is the 2nd greatest source of income • Corporate income tax, 3rd greatest, range up to 36% of profits

20. State and Local Taxes • Sales tax is most important for the state

21. State and Local Taxes • Sales tax is most important for the state • Property tax for the local

22. Where does the money go?

23. Where does the money go? • Remember, the gov’t is not out to turn a profit

24. Where does the money go? • Remember, the gov’t is not out to turn a profit • Also, elected officials are try to please voters (what is good politically is not always good economically)

25. Where does the money go? • Remember, the gov’t is not out to turn a profit • Also, elected officials are try to please voters (what is good politically is not always good economically) • About $1 out of $5 of the GDP is spent by the gov’t

26. Where does the money go? • Remember, the gov’t is not out to turn a profit • Also, elected officials are try to please voters (what is good politically is not always good economically) • About $1 out of $5 of the GDP is spent by the gov’t • Graphs pg. 251

27. President and the Budget • President prepares and delivers the budget to Congress

28. President and the Budget • President prepares and delivers the budget to Congress • By October 1st , that must be passed

29. President and the Budget • President prepares and delivers the budget to Congress • By October 1st , that must be passed • Problem: In the 20th century, the gov’t generally spent more money that it took in (deficit)

30. President and the Budget • President prepares and delivers the budget to Congress • By October 1st , that must be passed • Problem: In the 20th century, the gov’t generally spent more money that it took in (deficit) • Now they must collect more in taxes to begin to pay off debts

31. President and the Budget • President prepares and delivers the budget to Congress • By October 1st , that must be passed • Problem: In the 20th century, the gov’t generally spent more money that it took in (deficit) • Now they must collect more in taxes to begin to pay off debts • However, we have problems meeting the budget each year (war on terror)