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Chapter 14

Chapter 14. Government Revenue and Spending. The Principles of Taxes. Mandatory payments known as taxes make up the vast majority of government revenue. Principles of Taxes: - Benefits Received: The idea that people benefitting from a public good should pay into that benefit

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Chapter 14

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  1. Chapter 14 Government Revenue and Spending

  2. The Principles of Taxes • Mandatory payments known as taxes make up the vast majority of government revenue. • Principles of Taxes: • - Benefits Received: The idea that people benefitting from a public good should pay into that benefit • - Ability-to-Pay Principle: The idea that people should be taxed on their ability to pay. • Requirements of Taxes: • - Equity (Fairness) • - Simplicity (Low Difficulty) • - Efficiency (Effectiveness)

  3. Tax Bases and Structures • Tax Bases: • - Individual Income Tax, Corporate Income Tax, Sales Tax, and Property Tax • Tax Structures (Types) • - Proportional Tax (flat tax): The tax is the same across the board. • - Progressive Tax: Higher percentage taxes are placed on higher income earners. • - Regressive Tax: Higher percentage taxes from low-income earners.

  4. The Progressive Tax If an individual had an income of $40,000, the second table shows how much of that income would fit in each bracket. To add up the total tax, you must multiply the income in each bracket by the tax rate for that bracket, and then finally take a total.

  5. Impact of Taxes on the Economy • #1 Resource Allocation: Taxes impact supply because producers who are seeking efficiency are looking at how to maximize profits. • #2: Productivity and Growth: Too high can slow growth, too low can decrease the ability of the government. • #3 Economic Behavior: Used to encourage or discourage certain economic behavior.

  6. Federal Taxes

  7. Federal Tax Terms • Withholding is money taken from pay before the worker receives it. • Taxable Income is the portion of income subject to taxation. • A Tax Return is a form used to report income and taxes owed to government.

  8. FICA: Taxes That Help • FICA is the Federal Insurance Contributions Act. • Social Security is a federal program to aid older citizens, children who have lost a parent, and the disabled. • Medicare is a national health insurance program mainly for citizens over 65.

  9. Corporate Taxes • Corporate Income Tax • The estate tax is a tax on property transferred to others on the death of the owner. • The gift tax is a tax on assets given by one living person to another. • The excise tax is a tax on the production or sale of a specific good or service. • Customs duty is a tax on goods imported to the U.S. • A user fee is money charged for the use of a good or service.

  10. Federal Government Spending

  11. 2 Types of Federal Spending • #1 Mandatory Spending (Required by Law): The majority of this is done through entitlements (welfare programs). • #2 Discretionary Spending (Authorized by Government): Areas include infrastructure, education, the environment, technology, and the justice system.

  12. The Federal Budget • The federal budget is the government’s plan for spending government income over a year. • The year long budget period is known as the fiscal yearand runs from October 1st to September 30th • Appropriations are specific amounts of money set aside for specific purposes (this is done by congress and sent to the President for approval).

  13. How is money paid out? • #1 Directly • #2 Transfer Payments (nothing received in return) • #3 Grant-In-Aid (transfer payment to a state from the federal government) • Impacts of Federal Spending • #1 Resource Allocation • #2 Income Redistribution • #3 Competition in Private Sector

  14. State and Local Taxes

  15. 2 Types of State Taxes • #1 Sales and Excise Taxes: Taxes on items sold within the state (5 states do not). Excise taxes are on specific items such as cigarettes, alcohol, gasoline, etc.. • #2 Income Taxes: All but 5 sates levy a state income tax (Texas is one that does not). Most states also have a state corporation tax on businesses operating there.

  16. State Budget • All states except Vermont are required to have balanced budgets where revenue equals spending. • An operating budget is a plan for day to day expenses. • A capital budget is a plan for major expenses and investments.

  17. Local Taxes • The majority of local revenue comes from property taxes that are assessed on a yearly basis. • Local money goes to public education, public safety, and local health.

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